Commercial Real Estate Glossary
Plain-language definitions of the terms that come up in commercial sales, leases, financing, and underwriting.
- 1031 exchange
- A tax-deferred exchange of investment or business real property for other like-kind real property under Section 1031 of the Internal Revenue Code. Read more
- Absorption
- The amount of space leased or occupied in a market over a period, net of space vacated. Positive absorption means demand is outpacing new vacancy.
- ALTA/NSPS survey
- A boundary survey prepared to standards set by the American Land Title Association and the National Society of Professional Surveyors, commonly required for commercial loans.
- Base year
- In a gross or modified gross lease, the year whose operating expenses set the baseline. The tenant pays its share of increases above that year. Read more
- Basis
- What an owner has invested in a property, including purchase price and capital improvements. In underwriting, a low basis gives more room for error.
- Broker Opinion of Value (BOV)
- A broker's estimate of a property's likely sale price or value range based on comparable sales, income, and market conditions. Not an appraisal.
- Build-to-suit
- A building constructed for a specific tenant or owner-user, often under a long-term lease signed before construction.
- CAM (common area maintenance)
- Costs to operate and maintain shared areas of a property, typically passed through to tenants in net leases. Read more
- Cap rate
- Net operating income divided by value or price. A one-year, unlevered measure of yield. Read more
- Cash-on-cash return
- Annual cash flow after debt service divided by the equity invested. Read more
- CCIM
- Certified Commercial Investment Member, a designation awarded by the CCIM Institute for commercial real estate financial and investment analysis.
- CDC (Certified Development Company)
- A nonprofit lender that provides the SBA-backed portion of a 504 loan. Read more
- Debt service coverage ratio (DSCR)
- Net operating income divided by annual debt service. Lenders set minimums to size loans. Read more
- Debt yield
- Net operating income divided by the loan amount. Read more
- Effective gross income (EGI)
- Gross potential rent minus vacancy and credit loss, plus reimbursements and other income. Read more
- Entitlement
- Government approvals that allow a specific use or development on a property, such as zoning, site plan, and permits.
- Equity multiple
- Total cash returned to investors divided by the equity invested. Read more
- Estoppel certificate
- A tenant's signed statement confirming lease facts such as rent, term, and defaults, relied on by buyers and lenders. Read more
- Exclusive use clause
- A lease provision preventing a landlord from leasing other space in the property to a competing use.
- Expense stop
- A fixed dollar amount of operating expenses the landlord covers; the tenant pays costs above it.
- Gross lease
- A lease where the landlord pays most property operating expenses from the rent. Read more
- Highest and best use
- The reasonably probable and legal use of a property that is physically possible, financially feasible, and produces the highest value.
- Holdover
- A tenant remaining in possession after the lease expires, usually at a premium rent set by the lease. Read more
- IRR (internal rate of return)
- The discount rate that sets the net present value of an investment's cash flows to zero. Read more
- Letter of intent (LOI)
- A usually non-binding summary of the main deal terms, signed before a lease or purchase contract is drafted. Read more
- Loan-to-value (LTV)
- The loan amount divided by the property's appraised value. Read more
- Modified gross lease
- A lease where landlord and tenant split operating expenses, often with the tenant paying utilities and increases over a base year. Read more
- Net operating income (NOI)
- Effective gross income minus operating expenses, before debt service and income taxes. Read more
- Owner-user
- A buyer who will occupy the property for its own business.
- Personal guaranty
- A personal promise by a business owner to cover the tenant's lease obligations if the business doesn't. Read more
- Phase I Environmental Site Assessment
- A records review and site inspection for recognized environmental conditions, commonly performed to ASTM E1527-21. Read more
- Pro forma
- Projected income and expenses. Useful for spotting upside. A weak basis for price.
- Qualified intermediary
- An independent party that holds sale proceeds during a 1031 exchange so the taxpayer never receives them. Read more
- Rent roll
- A schedule of a property's tenants, spaces, rents, lease dates, and deposits.
- Replacement cost
- What it would cost today to build a property with the same utility.
- Sale-leaseback
- A transaction in which an owner sells a property and leases it back from the buyer. Read more
- SNDA
- Subordination, non-disturbance, and attornment agreement between a tenant, landlord, and lender. Read more
- T-12
- The trailing twelve months of a property's actual income and expenses. Read more
- Tenant improvement (TI) allowance
- Money a landlord contributes toward building out a tenant's space. Read more
- Triple net (NNN) lease
- A lease where the tenant pays rent plus a share of property taxes, insurance, and common area maintenance. Read more
- Yield on cost
- Stabilized NOI divided by the total project cost, including land at market value.
- Zoning verification letter
- A letter from the local government confirming a property's zoning and, often, the legal status of its current use. Read more