ACI Commercial Real Estate Financing / Business Financing
Commercial Real Estate Investment & Business Merchant Banking
Advanced Commercial Credit International (ACI) Limited
Real Value For Commercial Real Estate and Business Owners
– S&P Long-Term Issuer Credit Rating – An obligor rated 'AAA' has
EXTREMELY STRONG capacity to meet its financial commitments. 'AAA'
is the highest Issuer Credit Rating assigned by Standard & Poor's.
The ratings from 'AA' to 'CCC' may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
AA – S&P Long-Term Issuer Credit Rating – An obligor rated
'AA' has VERY STRONG capacity to meet its financial commitments. It
differs from the highest rated obligors only in small degree.
A – S&P Long-Term Issuer Credit
Rating – An obligor rated 'A' has STRONG capacity to meet its
financial commitments but is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligors in higher-rated categories
ACREAGE – a 2–dimensional measure
of land equaling 160 square rods, 10 square chains, 4,840 square
yards, or 43,560 square feet.
ADJUSTABLE RATE MORTGAGE – a
mortgage with an
that changes periodically according to an
index that is
selected when the mortgage is issued. The initial
is lower than that of
fixed–rate mortgages, but monthly payments can go up or down as
the rate is adjusted.
.APPLICATION FEE – fee charged by
a lender at the time of loan application. This fee may include the
cost of third party reports,
fees, credit reports, or other processing costs which are incurred
during the initial
APPRAISAL – an estimate of the
value of a property, made by a qualified professional called an
ASSIGN/ASSIGNING/ASSIGNED LEASE – a common funding technique
in which a leasing company exchanges or assigns its rights to future
lease payments in a lease to a funding source in return for upfront
cash. This cash represents the amount of the loan and is equal to
the present value of the future lease payments. Also called a
ASSISTED LIVING – a type of
housing that is typified by independent living and limited
assistance to its renters.
ASSUMABILITY – a mortgage loan
which can be transferred to another person without a change in the
terms of the loan.
AVAILABLE SF – the square feet
available for lease.
AVERAGE ANNUAL OCCUPANCY –
percentage of currently rented units in a building, city,
neighborhood or complex.
AVERAGE DAILY RATE – a hotel rate
used to evaluate the average daily rate of a hotel inclusive of
BBB – S&P Long-Term Issuer Credit
Rating – An obligor rated 'BBB' has ADEQUATE capacity to meet its
financial commitments. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitments
Obligors rated 'BB', 'B', 'CCC', and 'CC' are regarded as having
significant speculative characteristics. 'BB' indicates the least
degree of speculation and 'CC' the highest. While such obligors will
likely have some quality and protective characteristics, these may
be outweighed by large uncertainties or major exposures to adverse
BB – S&P Long-Term Issuer Credit Rating – An obligor rated
'BB' is LESS VULNERABLE in the near term than other lower-rated
obligors. However, it faces major ongoing uncertainties and exposure
to adverse business, financial, or economic conditions, which could
lead to the obligor's inadequate capacity to meet its financial
commitments. B An obligor rated 'B' is MORE VULNERABLE than the
obligors rated 'BB', but the obligor currently has the capacity to
meet its financial commitments. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitments.
B – S&P Long-Term Issuer Credit Rating – An obligation rated
'B' is more vulnerable to nonpayment than obligations rated 'BB',
but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
BALLOON PAYMENT – one large
payment for the remaining
balance of a mortgage due at a time specified in the contract.
BARGAIN PURCHASE OPTION – a lease
provision allowing the
purchase the leased property at the end of the lease term for a
price that is sufficiently lower than the expected
value of the property. At the inception of the lease, it is
reasonable to assume that the leasee will purchase the property on
the option date.
BASIS POINT (BP) – 1/100th of 1% expressed as a
margin over an index
BORROWING ENTITY TYPE – the legal
form under which property is owned.
BRIDGE/SHORT TERM LOAN – a
short–term or interim loan for borrowers who need more time to find
permanent financing or are repositioning a commercial property.
BUILDING PERMIT – a document
issued by government regulatory authority that allows a builder to
construct or modify a structure.
BUILDING SF – the usable square
of the building.
BUNDLED LEASE – a lease that
includes additional services such as maintenance, insurance, and
property taxes, that are paid for by the lessor, and the cost of
which is built into the lease payments. Synonymous with Full Service
CCC – S&P Long-Term Issuer Credit
Rating – An obligor rated 'CCC' is CURRENTLY VULNERABLE, and is
dependent upon favorable business, financial, and economic
conditions to meet its financial commitments.
CC – S&P Long-Term Issuer Credit Rating – An obligor rated
'CC' is CURRENTLY HIGHLY-VULNERABLE.
C – S&P Long-Term Issuer Credit Rating – A subordinated debt
or preferred stock obligation rated 'C' is CURRENTLY HIGHLY
VULNERABLE to nonpayment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar
action taken, but payments on this obligation are being continued. A
'C' also will be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
CAPITAL EXPENDITURES – line items
on a profit and loss statement that would not be expensed on an
annual basis. This category would include replacement of major
building systems such as roofs, etc.
CAPITALIZATION RATE – the ratio of the first year
NOI to the asking
price (NOI/Asking price). Not the rate of return.
CAPITAL LEASE – a
FASB 13 accounting
classification to be accounted for by a lessee as a purchase, and by
the lessor as a sales or financing agreement, if it meets any one of
the following criteria: The lessor automatically transfers ownership
to the lessee at the end of the lease term; the lease contains an
option to purchase the asset at a bargain price; the lease term is
equal to 75 percent or more of the estimated economic life of the
property (exceptions apply for used property leased toward the end
of its useful life); or the present value of minimum lease rental
payments is equal to 90 percent or more of the fair market value of
the leased asset, less related investment tax credits retained by
the lessor. Also see
CAPITAL RESERVES – reserves
established by the lender that are collected on a monthly basis for
the capital repair of a property.
CAPPED FAIR MARKET VALUE – a
provision in the lease allowing the
purchase the leased property for its
value, but not exceeding a certain amount. The advantage of the
cap is that the
lessee will know the maximum payment required to purchase the leased
CARVE OUT – the definition used
for the inclusion of
loan documents for fraud and misrepresentation.
CASH FLOW GUARANTEES – a guarantee established by the
borrower to achieve a certain operating cash flow for the property
to satisfy certain specific loan covenants within the loan
CASH OUT REFINANCING – when the
amount of a new mortgage involved in
is greater than the
amount outstanding of the existing mortgage being refinanced, and
all or a portion of the
converted to cash
CENTRAL BUSINESS DISTRICT (CBD) –
the downtown section of a city, generally consisting of retail,
office, hotel, entertainment, and government land uses with some
CLEARANCE – the distance between the building’s floor and
effective storage ceiling.
COMMERCIAL LAND – development and
transitional land acquired for investment use: land for lots, site
selection, and assemblage of parcels.
COMMERCIAL REAL ESTATE LISTING
SERVICE – a service provided by LoopNet, Inc. which renders
access to real estate listings of properties for sale or lease.
COMMUNITY CENTER – 100,000 to
350,000 SF; convenience/general merchandise shopping; 2 or more
supermarkets, drug stores, home improvement centers, discount
department stores or large specialty/discount apparel stores as
COMPARATIVE MARKET ANALYSIS – an
estimate of the value of a property based on an analysis of sales of
properties with similar characteristics
CONDUIT – the financial
intermediary that sponsors the conduit between the lender(s)
originating loans and the ultimate investor. The conduit makes or
purchases loans from third party correspondents under standardized
underwriting and documents and then, when sufficient volume has
been obtained, pools the loans for sale to investors in the
CONGREGATE CARE – a type of
housing that typified by a central eating facility, smaller
rooms, and a higher level of care for its
CONSTANT MATURITY TREASURE (CMT)
– an index based
on the U.S.
Treasury that is used in the pricing of debt for banks.
CONSTRUCTION LOAN – a short term
loan to pay for the construction of commercial buildings. These
loans typically provide periodic disbursements to the builder as
each stage of the building is completed. When construction is
completed a take–out or permanent loan is used to pay off the
CONSTRUCTION TYPE – the type of
construction used for a commercial building, (i.e. concrete tilt–up,
CONTINGENCY – an element of an
agreement that must be satisfied before the total agreement can be
COUPON – the coupon on U.S.
Government securities, expressed as an annual percentage of face
value is the
interest rate the U.S. Government promises to pay to the holder
on an ongoing basis until
CREDIT TENANT – a
tenant, who has
obtained a debt rating by S&P or Moody’s of "BBB–" or better.
CREDIT TENANT NET LEASE – a lease with a
tenant that has
a credit rating of BBB– or better.
DEBT SERVICE COVERAGE RATIO (or DEBT
COVERAGE RATIO) – measures a mortgaged property’s ability to
cover monthly payments defined as the ratio of
net operating income
over the periodic payments (principal
made on a loan. A DSCR of less than 1.0 means that there is
insufficient cash flow generated by the property to cover required
DEFEASANCE – a clause in a mortgage that gives the borrower
the right to prepay a commercial mortgage by purchasing US
Treasuries in an
escrow account to pay off ongoing
DENSITY – the number of buildings
or persons occupying a certain area of land, generally an acre.
DEPRECIATION (ACCOUNTING) – allocating the cost of an asset
over its estimated useful life.
DEPRECIATION (APPRAISAL) – a charge against the reproduction
cost (new) of an asset for the estimated wear and obsolescence.
Depreciation may be physical, functional or environmental.
DIRECT–FINANCE LEASE – Same as a
except this accounting classification only applies to the
DISCOUNT RATE – the rate of interest that the Federal Reserve
charges member banks for loans.
DISTRIBUTION WAREHOUSE – generally the least intense
use. Office use is limited to management tasks for the distribution
or warehouse facility, or about 15 percent of total space. Also
called Light Industrial.
DOCK HIGH – existence and/or
number of dock level doors.
DOUBLE–WIDE – a mobile home
consisting of two units which have been fastened together along
DUE DILIGENCE – the legal
definition: A measure of prudence, activity or assiduity, as is
properly to be expected from, and ordinarily exercised by, a
reasonable and prudent person under the particular circumstances. In
CMBS due diligence
is the foundation of the process because of the reliance securities
investors must place on the specific expertise of the professionals
involved in the transaction.
EFFECTIVE GROSS INCOME – gross
income of a building if fully rented, less an allowance for
EFFECTIVE LEASE RATE – the effective lease rate (for the
lessee) of the
cash flow resulting from a lease transaction. To compare this rate
with a loan
interest rate, a company must include in the cash flows any
affect the transactions have on federal tax liabilities.
ENGINEERING REPORT – report
generated by an architect or engineer describing the current
physical condition of the property and its major building systems,
i.e., HVAC, parking lot, roof, etc. The report also determines an
amount for calculating
replacement reserves, if needed.
ENTITLEMENTS – a right to
benefits specified especially by law or contract.
ENVIRONMENTAL REPORT – report generated by qualified
environmental firms to determine potential environmental hazards in
a building’s region or within the building itself.
ENVIRONMENTAL RISK – risk of loss of collateral value and of
lender liability due to the presence of hazardous materials such as
asbestos, PCB’s, radon or leaking underground storage tanks (LUSTS)
on a property
EQUITY – the difference between
market value and current indebtedness. Also referred to as
EQUITY LOAN – a loan for an
which represents an ownership position in a property or a loan for
the participation in the profits of the commercial property
ESCROW – 1. A special account set
up by the lender in which money is held to pay for taxes and
insurance. 2. A third party who carries out the instructions of both
the buyer and seller to handle the paperwork at the settlement.
EURODOLLAR – U.S. dollar denominated deposits at commercial
banks outside of the United States
EXIT FEES – fees charged to the
borrower on the expiration of a loan term.
EXTENDED STAY – a hotel that caters to a business traveler on
an extended lodging period.
FAIR MARKET VALUE – an appraisal
term for the price which a property would bring in a competitive
market, given a willing seller and willing buyer, each having a
reasonable knowledge of all pertinent facts with neither being under
any compulsion to buy or sell.
FARM – land used for agricultural
purposes for crop and livestock farming.
FASHION/SPECIALTY CENTER – 80,000 to 250,000 SF; high-end
fashion shopping; fashion-based
FEDERAL FUNDS (FED FUNDS) – Fed Funds is the
charged by those banks with excess reserves on hand (reserves over
and above the minimum required by the Federal Reserve) to those
banks in need of overnight loans to meet reserve requirements. Since
it is set daily, the Federal Funds rate is the most sensitive
indicator of the direction of
FINANCE LEASE – an expression
often used in the industry to refer to a
or a nontax lease.
FINANCIAL ACCOUNTING STANDARDS BOARD
13 (FASB 13) – this statement establishes standards for lessees’
and lessors’ accounting and reporting for leases. This includes the
characterization of a lease as an operating or capital lease for the
lessee's purposes. A company's assets, liabilities and net income
will differ, depending on how it chooses to structure the leases.
The provisions of FASB 13 derive from the view that a lease that
transfers substantially all of the benefits and risks of ownership
should be accounted for as the acquisition of an asset and the
incurrence of an obligation by the
and as a sale or financing by the
leases should be accounted for as rental or property (operating
improvements within a commercial property.
FIXED–RATE MORTGAGE – a mortgage with an
that remains constant for the life of the loan.
FIXTURES – personal property
which for some reason, such as the manner of attachment, has become
realty. Such property is also referred to as chattel real.
FLOATING RENTAL RATE – rent that is subject to upward or
downward adjustments during the lease term. If the prime
changes during the term of the lease, the rental rate may change to
FLOOR–TO–AREA RATIO (FAR) – the
relationship between the total amount of floor space in a
multi–story building and the base of that building. FAR’s are
dictated by zoning laws, in effect, stipulate the maximum number of
stories a building may have.
FORECLOSURE – the process by which a lender takes back a
property on which the mortgagee has defaulted. A servicer may take
over a property from a borrower on behalf of a lender. A property
usually goes into the process of foreclosure if payments are more
than 90 days past due.
FOUNDATION – the concrete slab
beneath the property which holds the property in place
FRANCHISE – a business
arrangement undertaken for the purpose of marketing a product or
service. One party (the franchiser) provides marketing and selling
expertise for a fee to another party (the franchisee) who in turn
sells the product or service in the marketplace.
FRANCHISE FEES – the fee is
usually an initial purchase requirement plus an ongoing percentage
of gross sales of the business.
FREESTANDING RETAIL – a building
which contains only one retail business. Fast–food franchises and
retail stores are often freestanding buildings.
FREESTANDING – one commercial
building meant to be occupied by a single user.
FULL-PAYOUT LEASE – A lease in which the
through the lease payments, all costs incurred in the lease plus an
acceptable rate of return without any reliance upon a future
FULL SERVICE – a hotel definition that represents services
provided to its guests outside of lodging (i.e. room service,
concierge services, and restaurant).
GENERAL BUSINESS – includes all
of business assets and equipment, may include property or land.
GENERAL PARTNERSHIP – in a
partnership, a partner whose liability is not limited. All partners
in an ordinary partnership are general partners. A limited
partnership must have at least one general partner.
GOOD FAITH DEPOSIT – a deposit made by a purchaser of real
estate to evidence an honesty.
GOVERNMENT SUBSIDIZED – rents
that are partly paid by the government (e.g. Section 8 residential
GRADE LEVEL DOOR – a door at the ground level at the
GROUND LEVEL – existence and/or
number of ground level doors.
GUARANTOR – One who guarantees an obligation and has a legal
duty to fulfill it and is liable for the obligation of the loan is
HIGH RISE OFFICE – a commonly
used expression referring to an office building, that is high enough
to require an elevator.
INCREMENTAL BORROWING RATE – the
rate that, at the inception of the lease, the
have incurred to borrow over a similar term the funds necessary to
purchase the leased asset.
INDEX – an economic indicator,
usually a published
INDUSTRIAL – property used for industrial purposes such as
INDUSTRIAL FOR LEASE –
space available for lease.
INTEREST – the sum paid for borrowing money, which pays the
lender’s costs of doing business.
INTEREST ACCRUAL –
earned for the period of time elapsed since interest was last paid.
INTEREST RATE – the sum charged
for borrowing money, expressed as a percentage.
INTEREST RATE CAP – limits the
or the interest rate adjustment to a specified maximum. This
protects the borrower from increasing
INTEREST RATE LOCK & FEE – the
fee charged to a borrower to lock into a particular interest rate.
This typically occurs at application, commitment, or 3 - 5 days
prior to the funding of the loan. The fee is expressed in a
percentage of the final loan amount
JOINT VENTURE – an agreement by
two or more individuals or entities to engage in a single project or
undertaking. Joint ventures are used in real estate development as a
means of raising capital and spreading risk. For all practical
purposes a joint venture is similar to a general partnership.
However, once the purpose of the joint venture has been
accomplished, the entity ceases to exist.
LEASE ASSIGNMENT – an agreement
between the commercial property owner and the lender that assigns
lease payments directly to the lender.
LESSOR – the owner of a building
that leases space to a tenant or lessee.
LEVERAGED LEASE – a specific form
of lease involving at least three parties: a
lessee, and a
funding source. The lessor borrows a significant portion of the
asset cost, typically on a
basis, by assigning the future lease payment stream to the lender in
return for upfront funds (the borrowing). The lessor puts up a
minimal amount of its own equity funds (the difference between the
asset cost and the present value of the assigned lease payments),
and is generally entitled to the full tax benefits of asset
LIBOR (London Interbank Offered
Rate) – the rate that the most creditworthy international banks
Eurodollars charge each other for large loans. Rates are quoted
in monthly increments out to 1 year.
LIMITED LIABILITY (COMPANY) – the
restriction of one’s potential losses to the amount invested. The
absence of personal liability provided to stockholders in a
corporation and limited partners of a
LIMITED PARTNERSHIP – a
partnership in which there is at least one partner who is passive
and limits liability to the amount invested, and at least one
partner whose liability extends beyond monetary investment.
LIMITED SERVICE – a hotel that
offers lodging services only.
LOAN PROCESSING FEE – the fee
charged by a lender to prepare all the documents associated with a
LOAN REQUEST FORM – the form
generated by FedFirst for its customers which outlines
borrower/contact and property specific information.
LOAN-TO-COST RATIO – the amount
borrowed divided by the actual cost of the collateral plus any
additional capital added to the property, expressed as a percentage.
LOAN–TO–VALUE RATIO (LTV) – the
ratio between the
principal amount of the mortgage balance, at
or thereafter, to the current value of the underlying real estate
collateral. The ratio is commonly expressed to a potential borrower
as the percentage of value a lending institution is willing to
finance. The ratio is dynamic and varies by lending institution,
property type, geographic location, property size, etc.
LOCK BOX – a postal address
maintained by the lender that is used solely for the purpose of
collecting checks. A major goal of a lock box is to reduce default
risk since the receipts are immediately credited to the borrower's
monthly loan payment.
LOCK–OUT PERIOD – a period of
time after loan origination during which a borrower cannot prepay
the mortgage loan.
LOT SIZE – total square footage
LOW RISE OFFICE – a commonly used
expression referring to an office building that is too low to
require an elevator.
MALL – an enclosed shopping
center with three or more major department stores which draws from a
large trade area of 12 or more miles. Also called
MANAGEMENT FEE – the agreed–upon
compensation paid to a property management company for managing a
real estate project. The fee is usually based on a percentage of
effective gross income.
MANUFACTURING – auto making,
textiles, steel, chemicals, and food processing are typical uses of
such properties. Typically zero to five percent office space. Also
called Heavy Industrial.
MARGIN – the amount that is added
to an index rate to determine the total
MARKETING EXPENSES – expenses
accrued to market commercial properties.
MASTER LEASE – a contract where
leases currently needed assets, and is able to acquire other assets
under the same basic terms and conditions without negotiating a new
MAT – Monthly Average Treasury
MATURITY – 1. The termination
period of a note (e.g., a 25–year mortgage has maturity of 25
years.) 2. In sales law, the date a note becomes due.
MAX CONTIGUOUS SF – the amount of
available connected square feet.
MAX LEASE RATE – the highest
asking lease rate.
MEDICAL OFFICE – an office space
which offers medical services.
MEZZANINE/SECOND LOAN – a loan
secured by a mortgage or trust deed in which the lien is junior, or
secondary, to another mortgage or trust deed.
MID–RISE – a commonly used
expression referring to an office building that is high enough to
require stairs, but too low to require an elevator.
MILITARY CLAUSE – a clause
included in a lease of residential property which allows the tenant
to terminate the lease without penalty if and when the tenant is
transferred to another location.
MIN LEASE RATE – the lowest lease
MIN. DIVISIBLE SF – the smallest
amount of available square feet.
MINIMUM OCCUPANCY – the minimum
percentage of space or units that must be leased or occupied.
MIXED USE – a real estate
development that contains two or more different uses, all intended
to be harmonious and complementary. An example would include a
high–rise building with retail shops on the first two floors, office
space on floors three through ten, apartments on the next ten
floors, and a restaurant on the top floor.
MOBILE HOME PARK – a parcel of
land zoned and developed for use by occupants of mobile homes.
MONEY MARKET – the market for
short–term debt instruments.
MULTI–FAMILY PROPERTY CLASS A –
properties that are above average in terms of design, construction
and finish, command the highest rental rates, and have a superior
location in terms of desirability and/or accessibility. Generally
they are professionally managed by national or large regional
MULTI–FAMILY PROPERTY CLASS B –
properties that frequently do not possess design and finish
reflective of current standards and preferences. The construction is
adequate, command average rental rates, and generally is well
maintained by national or regional management companies. Unit sizes
are usually larger than current standards.
MULTI–FAMILY PROPERTY CLASS C –
properties provide functional housing, exhibit some level of
deferred maintenance, command below average rental rates, usually
located in less desirable areas, and generally managed by smaller,
local property management companies.
a less stable income stream to property owners than Class A and B
N.R. – S&P Long-Term Issuer
Credit Rating – An issuer designated N.R. is not rated.
NEIGHBORHOOD CENTER – 30,000 to
150,000 SF; convenience shopping; 1 or more supermarkets as
NET EFFECTIVE RENT – rental rate
adjusted for lease concessions.
NET LEASE – a lease where
payments paid to the
lessor do not include insurance, taxes and maintenance, which
are paid separately by the
NET OPERATING INCOME (NOI) –
total income less
expenses, adjustments, etc., but before mortgage payments,
tenant improvements and leasing commissions.
NET–NET LEASE (NN) – usually
requires the tenant
to pay for property taxes and insurance in addition to the rent.
NET WORTH – total assets minus
total liabilities of an individual or company. For a company, also
equity or shareholders' equity or net assets.
NON–RECOURSE – a type of
borrowing in which the
lessor is not at
risk for the borrowed funds. The lender is expecting repayment from
and/or the salvage value of the leased asset, so, the lender's
credit decision will be based on the creditworthiness of the lessee
as well as the expected salvage value of the leased asset.
OFF-BALANCE-SHEET FINANCING –
qualifies as an
lease for the lessee’s financial accounting purpose. Referred to
as off–balance–sheet financing due to its exclusion for the balance
sheet asset and debt presentation, except for that portion of the
payments that is due in the current fiscal period. Full disclosure
of such transactions is typically made in the auditor's notes to the
financial statements. Periodic payments are recorded as expense
items on the lessee's income statement.
OFFICE – a structure used
primarily for the carrying–on of business.
100% PRIVATE PAY – assisted
living designation where senior housing residents pay 100% of the
rent versus by welfare or government subsidies.
OPERATING EXPENSE – periodic
expenses necessary to the operation and maintenance of an enterprise
(e.g., taxes, salaries, insurance, maintenance). Often used as a
basis for rent increases.
OPERATING LEASE – from a
financial reporting perspective, a lease that has the
characteristics of a usage agreement and also meets certain criteria
established by the Financial Accounting Standards Board. It is not
required to be shown on the balance sheet of the lessee. The term
also may refer to certain leases in which the
lessor has taken
a significant residual position in the lease pricing and must
salvage the asset for a certain value at the end of the lease term
to earn its rate of return.
ORIGINATION – securing a
completed mortgage application from a commercial or residential
OUTLET CENTER – 50,000 to 400,000
SF; manufacturers' outlet shopping; manufacturers' outlet stores as
PARTICIPATION – an ownership
interest in a mortgage or other loan.
PERCENTAGE LEASE – commonly used
for large retail stores. Rent payments include a minimum or "base
rent" plus a percentage of the gross sales "overage." Percentages
generally vary from 1% to 6% of the gross sales depending on the
type of store and sales volume.
PERMANENT TAKE-OUT LOAN –
long-term financing that typically replaces short-term construction
financing upon the completion of the project.
PHASE I – an assessment and
report prepared by a professional environmental consultant who
reviews the property – both land and improvements – to ascertain the
presence or potential presence of environmental hazards at the
property, such as underground water contamination, PCB’s, abandoned
disposal of paints and other chemicals, asbestos and a wide range of
other potentially damaging materials. This Environmental Site
Assessment (ESA) provides a review and makes a recommendation as to
whether further investigation is warranted (a Phase II Environmental
Site Assessment). This latter report would confirm or disavow the
presence of an environmental hazard and, should one be found, will
recommend additional review and/or mitigation efforts that should be
POINTS (LOAN DISCOUNT POINTS) –
each point is equal to 1% of the total amount of a mortgage.
POOLED FUNDS – a funding
technique used by lessors in which several forms of borrowing are
pooled or grouped for use in funding leases and are not specifically
tied to the purchase of one specific leased asset.
POTENTIAL GROSS RENT – gross
income of a building if fully rented.
POWER CENTER – 250,000 to 600,000
SF; general merchandise shopping; 3 or more category-killer home
improvement centers, discount department stores, warehouse clubs or
off-price stores as
PRE–LEASED % – to obtain lease
commitments in a building or complex prior to its being available
PREPAYMENT PENALTY – fees paid by
borrowers for the privilege of retiring a loan early.
PRIME RATE – the rate at which
banks lend to their most creditworthy customers.
PRINCIPAL – 1. The amount of
debt, not including
on a loan. 2. The face amount of the mortgage.
PRO FORMA – (from Latin pro
forma, "according to form") financial statements showing what is
expected to occur.
PROPERTY ADMINISTRATOR – person
in broker's employ who is responsible for updating and renewing a
property listing, if it is different from the contact name.
PROPERTY GRADE – a stratification
of property type that is indicative of the property’s ability to
command rental rates.
PROPERTY SUBTYPE – a property
description that provides additional information to the lender.
PROPERTY TAX – taxes based on the
market value of a property. Property taxes vary from state to state.
R – S&P Long-Term Issuer Credit
Rating – An obligor rated 'R' is under regulatory supervision owing
to its financial condition. During the pendency of the regulatory
supervision the regulators may have the power to favor one class of
obligations over others or pay some obligations and not others.
Please see Standard & Poor's issue credit ratings for a more
detailed description of the effects of regulatory supervision on
specific issues or classes of obligations.
R & D – these facilities are
generally used in high technology markets and are broadly defined to
include wide variations in markets across the country. R & D
properties could have lab facilities, offices, warehouse facilities,
or services such as carpentry or machine repair. Typically, each
property allows a variable combination of office and other uses. The
percentage of office space ranges from 20 to 100 percent, depending
on the market and individual needs of the user.
RAIL SERVED – indicates whether
the building is served by railroad.
RANCH – land devoted to raising
livestock under range conditions with forage grass as main source of
RATE INDEX – an
index used to
interest rate of an adjustable mortgage loan (e.g., the change
in U.S. Treasury securities (T–Bills) with 1–year maturity. The
weekly average yield on said securities, adjusted to a constant
maturity of 1 year, which is the result of weekly sales, may be
obtained weekly from the Federal Reserve Statistical Release H.15
(519). This change in
rates is the "index" for the change in a specific Adjustable
RECOURSE – a type of borrowing in
which the borrower or
lessor is fully
at risk to the lender for repayment of the obligation. The recourse
borrower or lessor is required to make payments to the lender,
whether or not the
lessee is fulfilling its lease obligation.
RECREATIONAL LAND – land devoted
to commercial outdoor sporting activity and relaxation.
REFINANCE – to replace an old
loan(s) with a new loan(s).
CENTER – 400,000 to 800,000 SF; general merchandise/fashion
shopping; 2 or more full-line department stores, junior department
stores, mass merchant stores, discount department stores or fashion
apparel stores as
REGIONAL CENTER – a shopping
center with one or two department stores and a variety of smaller
stores. It is larger than 300,000 square feet and draws from an
eight mile radius or more.
RENOVATION – reconstruction of an
existing building. Can include updating of structure, style or
RENT ROLL – a list of
a property, which details terms of lease, area leased, and the
amount of rent being paid.
RENT STEP–UP – a lease agreement
in which the rent increases every period for a fixed amount of time
or for the life of the lease.
RENTABLE SQUARE FEET (same as Net
Leasable Area) – in a building or project, floor space that may
be rented to tenants.
The area upon which rental payments are based. Generally excludes
common areas and space devoted to the heating, cooling, and other
equipment of a building.
REPLACEMENT RESERVES – an amount
set aside from net
operating income to pay for the eventual wearing out of
short–lived assets. Monthly deposits that a lender may require a
borrower to a reserve in an account, along with
payments for future capital improvements of major building systems;
i.e., HVAC, parking lot, carpets, roof, etc.
REQUIRED COMPLETION – items that
are necessary to complete prior to receiving additional funding on a
RESERVE FUNDS – in
CMBS, portion of
the bond proceeds that are retained to cover losses on the mortgage
pool. A form of credit enhancement. Also referred to as "reserve
RETAIL – a
property type which sells goods to consumers.
RETAINED EARNINGS – earnings not
paid out as dividends or distributions but instead reinvested in the
core business. Also called earned surplus or accumulated earnings or
RETENANTING RESERVES – an
used to cover the costs involved in re-leasing rental property that
typically includes tenant improvement allowance and leasing
RV (REVERSIONARY VALUE) – the
value of property at the expiration of a certain time period. In
reference to transportation, a recreational vehicle.
SD and D – S&P Long-Term Issuer
Credit Rating – An obligor rated 'SD' (Selective Default) or 'D' has
failed to pay one or more of its financial obligations (rated or
unrated) when it came due. A 'D' rating is assigned when Standard &
Poor's believes that the default will be a general default and that
the obligor will fail to pay all or substantially all of its
obligations as they come due. An 'SD' rating is assigned when
Standard & Poor's believes that the obligor has selectively
defaulted on a specific issue or class of obligations but it will
continue to meet its payment obligations on other issues or classes
of obligations in a timely manner. Please see Standard & Poor's
issue credit ratings for a more detailed description of the effects
of a default on specific issues or classes of obligations.
SALE/LEASEBACK – a transaction
that involves the sale of an asset to a leasing company and a
subsequent lease of the same asset back to the original owner, who
continues to use the property.
SALES BROKER – commercial real
estate broker that represents client in the sale or purchase of
commercial real estate property.
SECOND MORTGAGE – a mortgage that
is second in priority because of the time of recording the mortgage
or of the subordination of the mortgage.
SECONDARY FINANCING – a funding
method using a loan secured by a
mortgage or second lien on a property.
SECONDARY MORTGAGE MARKET – the
buying and selling of first mortgages or trust deeds by banks,
insurance companies, government agencies, and other mortgagees. This
enables lenders to keep an adequate supply of money for new loans.
The mortgages may be sold at full value ("par") or above, but are
usually sold at a discount. Not to be confused with a "second
SECURITY – the property that will
be pledged as collateral for a loan.
SELF–STORAGE – a building that
provides personal storage for lease by consumers. Also called
SELF–AMORTIZING MORTGAGE – a
mortgage that will retire itself through regular
payments. Contrasts with balloon mortgage or interest–only loan.
SENIOR HOUSING –
multi–residential property specifically designed for care of senior
citizens and/or physically disabled persons. Includes Assisted
Listing, Congregate Care, Senior Apartments and Skilled Nursing
SINGLE WIDE – a mobile home
consisting of one unit.
SITE WORK – the location or place
of a plot of ground set aside for a particular type of land use.
SKILLED NURSING – a type of
senior housing which offers on–site medical care.
SOLE PROPRIETORSHIP – ownership
of a business with no formal entity as a vehicle or structure.
SPREAD – number of basis points
over a base rate
SPRINKLER – existence of fire
suppression systems in the building.
STABILIZED OPERATING PROPERTY –
the income generated on an annual basis from the commercial property
is stable, consistent and reliable.
STEP LEASE – a lease in which the
rent may change during the term of the lease. Often it allows the
lessee to pay
less initially and more later. With a Step–Down Lease, the
lessee pays more
initially and the payment amount decreases over the term of the
STRIP CENTER – an attached row of
stores or service outlets managed as a coherent retail entity.
Usually a string of stores in a commercial area totaling less than
30,000 square feet without central leasing, management, or theme.
STRUCTURAL/ENGINEERING REPORT – a
property Condition Report that outlines the current structural
stability or instability of a property. The report will outline
immediate costs needed to repair the property, as well as a
maintenance program to maintain the property at its current status.
SUBURBAN – describes a town or
unincorporated developed area in a close proximity to a city.
Suburbs, largely residential, are often dependent on the city for
employment and support services. They are generally characterized by
low–density development relative to the city.
SUPER–REGIONAL CENTER – 800,000+
SF; general merchandise/fashion shopping; 3 or more full-line
department stores, junior department stores, mass merchant stores,
discount department stores, or fashion apparel stores as anchors.
TAX & INSURANCE IMPOUND – monthly
deposits that a lender may require to be included with
payments for the payment of taxes and insurance.
TENANT – one who is given
possession of real estate for a fixed period or at will.
TENANT IMPROVEMENTS (TI) – the
expense to physically improve the property to attract new tenants to
new or vacated space which may include new improvements or
remodeling. May be paid by
landlord, or both. Typically, tenants are provided with a market
rate TI allowance ($/sq. ft.) that the owner will contribute towards
improvements. The tenant must pay for amounts above the TI allowance
desired by the tenant.
TERM – the length of a mortgage.
THEME/FESTIVAL CENTER – 80,000 to
250,000 SF; leisure/tourist shopping and service; restaurants and
entertainment centers as anchors.
TIMBERLAND – land used for
production of forest stands for commercial use.
TITLE – the actual legal document
conferring ownership of a piece of real estate.
TITLE INSURANCE – an insurance
policy that insures you against errors in the title search –
essentially guaranteeing your and your lender’s financial
TOTAL ANNUAL OPERATING INCOME –
total yearly income less operating expenses, adjustments, etc., but
before mortgage payments,
improvements and leasing commissions.
TOTAL ANNUAL ROOM INCOME – a
hotel definition that represent the gross annual receipts from room
TRAFFIC COUNT – the amount of
incoming and outgoing traffic a retailer or
building generates over a fixed period of time.
TRIPLE–NET LEASE (NNN) – a lease
that requires the
tenant to pay for property taxes, insurance and maintenance in
addition to the rent. Also referred to as "Net Net Net Lease".
TRIPLE–WIDE – a mobile home
consisting of three units which have been fastened together along
U.S. TREASURY BILL – Treasury
Bills, or T–Bills, are short term securities with maturities of up
to one year. They are issued by the U.S. Government at a discount
from face value. The price is quoted in yield, not dollars. At
maturity, T–Bills are redeemed for full face value. T–bills are
issued in three month, six month and 1 year maturities and are
backed by the full faith and credit of the U.S. Government.
U.S TREASURY BOND – Treasury
Bonds are long–term securities with maturities greater than 10
years. Treasury bonds are coupon bearing securities that pay
interest on a
semiannual basis. Treasury bonds are backed by the full faith and
credit of the U.S. Government.
U.S TREASURY NOTE – Treasury
Notes are intermediate term securities issued with 2, 3, 5, and 10
year maturities. Treasury notes are coupon bearing securities that
on a semiannual basis. Treasury notes are backed by the full faith
and credit of the U.S. Government.
UNANCHORED – a
tenant in a
shopping center which doesn’t have an
UNDERWRITING – the process of
deciding whether to make a loan based on property cash flow, credit,
and/or other factors.
VACANCY PERCENT – the percentage
of all units or space that is unoccupied or not rented. On a
income statement a projected
vacancy rate is
used to estimate the vacancy allowance, which is deducted from
potential gross income to derive
effective gross income.
VACANCY – unoccupied units as a
percentage of the total number.
YIELD – the rate of return on a
security, taking into consideration annual interest payments,
purchase price, redemption value, and the time remaining until
YIELD MAINTENANCE – a prepayment
premium that allows investors to attain the same yield as if the
borrower made all scheduled mortgage payments until maturity. Yield
maintenance premiums are designed to make investors indifferent to
prepayments and to make refinancing unattractive and uneconomical to
YIELD TO AVERAGE LIFE – yield
calculation used in lieu of "Yield to Maturity" or "Yield to Call,"
where books are retired systematically during the life of the issue,
as in the case of a "Sinking Fund," with contractual requirements.
Because the issuer will buy its own bonds on the open market to
satisfy its sinking fund requirements if the bonds are trading below
Par, there is, to that extent, automatic price support for such
bonds; they therefore tend to trade on a yield–to–average–life
YIELD TO MATURITY (YTM) –
concepts used to determine the rate of return an investor will
receive if a long–term, interest–bearing investment such as a bond,
is held to its maturity date. It takes into account purchase price,
redemption value, time to maturity, coupon yield and the time
payments. Recognizing time value of money, it is the discount rate
at which the present value of all future payments would equal the
present price of the bond (also referred to as "internal rate of
return"). It is implicitly assumed that coupons are reinvested at
the YTM rate. YTM can be approximated using a bond value table (also
referred to as a "bond yield table") or can be determined using a
programmable calculator equipped for bond mathematics calculations.