Getting to Know Commercial Real Estate Terms

C

CAM (Common Area Maintenance) - Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants, such as parking lot maintenance, snow removal, and utilities.

CAM cap - The maximum amount for which the tenant pays its share of common area maintenance costs. The owner covers expenses exceeding this amount.

Cap rate (Capitalization rate) - A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price.

Capital expenditures - Property improvements that cannot be expensed as a current operating expense for tax purposes, such as a new roof, tenant improvements, or parking lot repairs.

Capital gain - Taxable income derived from the sale of a capital asset. It equals the sales price minus the cost of sale, adjusted basis, suspended losses, and recaptured cost recovery.

Capital market - The supply and demand for resources to invest in real estate and other investments.

Capital tax - Any tax on a change in capital value, including capital gains tax, estate tax, or inheritance tax.

Cash flow - The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and other sources and uses of cash.

Cash flow after tax (CFAT) - Cash flow remaining after tax liability is deducted from cash flow before tax.

Cash flow before tax (CFBT) - The result of calculating effective rental income plus other income, minus operating expenses, debt service, reserves, leasing commissions, and capital additions.

Cash flow model - A framework used to determine the cash flow from operations and the cash proceeds from the sale.

Cash-on-cash rate - A return measure calculated as cash flow before taxes divided by the initial equity investment.

Cash proceeds from sale - The sales price minus sales costs, mortgage balance, and tax liability on sale.

Central place theory - A location theory that explains the distribution of settlements, places, market areas, and businesses to maximize market accessibility, sales, and profits.

CFAT - See **Cash flow after tax**.

CFBT - See **Cash flow before tax**.

City - An urban system containing various functions, institutions, and components that interact to satisfy the needs of its inhabitants.

Class life - The useful economic life of an asset set by the Internal Revenue Service.

Close - The third stage of a four-stage transaction management process that involves bringing parties together and finalizing an agreement.

Commercial real estate - Any multifamily residential, office, industrial, or retail property that can be bought or sold in a real estate market.

Common area - For lease purposes, the areas of a building available for the **nonexclusive** use of all tenants, such as lobbies, corridors, and parking lots.

Community center - A retail property type offering a broader range of soft goods than a neighborhood center. Anchors may include supermarkets, super drugstores, and discount department stores.

Comparative advantage - The principle that cities or regions tend to support activities for which they have the greatest advantage over other areas based on resources and opportunity costs.

Competition (retail) - A market condition where numerous firms compete for a share of the retail market in a given geographic area.

Compound interest - Interest computed on the original principal and accumulated interest.

Compounding - A calculation method where earned interest is reinvested and earns additional interest.

Confidence range method (95%) - A statistical method estimating a range of vacancy rates with 95% confidence.

Contract rent - The total rental obligation expressed in dollars, as specified in a lease.

Cost - The actual dollar amount paid for a property or the amount required to build or improve it.

Cost approach - A valuation method determining market value by evaluating the cost of creating a property exactly like the subject.

Cost of capital - See **Weighted average cost of capital**.

Cost of occupancy - Expenses required to maintain occupancy of a space, including rent, mortgage payments, taxes, repairs, and operating expenses.

Cost recovery - An annual deduction based on the class life of an asset.

Cost recovery recapture - A tax requirement for noncorporate taxpayers to pay taxes on any straight-line cost recovery taken during the holding period.

Cross-over chart - A visual representation of the relationship between leasing and owning costs at varying discount rates.

Cross-over (office use) demand - Industrial space used as office space to lower rental rates.

Customer-spotting approach - A method of estimating the retail trade area based on customer locations using point-of-sale data or customer surveys.

D

Data - Information collected and presented in a form that facilitates processing and analysis.

Data dispersion - The degree to which data points in a series are spread or dispersed about their mean (also referred to as variation about the mean).

Debt-coverage ratio (DCR) - Ratio of net operating income to annual debt service, expressed as net operating income divided by annual debt service.

Depreciation - The loss of utility and value of a property.

Demand - The volume or quantity of a product or service purchased, or willing to be purchased, in relation to price.

Demand factors - Elements or forces that influence the demand for goods and services in a given market area.

Demographics - Characteristics of human populations such as size, density, growth rates, and migration.

Desktop GIS - GIS software that supports mapping, queries, and analysis for personal computer-based applications.

Differential cash flow - The difference in cash flows when comparing two investment alternatives.

Direct survey method - A method using personal interviews with firms to estimate basic employment in a community.

Disaggregating demand - The process of identifying various factors affecting the demand for a property type.

Disaggregating supply - The process of identifying various factors affecting the supply of a property type.

Discount rate - The percentage rate at which money or cash flows are discounted, reflecting opportunity cost.

Discounted effective rent - The cash flows over the lease term, discounted to present value.

Discounting - The process of reducing the value of future money to reflect the opportunity cost of waiting.

Displaced sales - Sales resulting from purchases made by customers residing outside the trade area.

Diversification - A method of reducing risk by investing in unrelated (uncorrelated) assets.

Drain information - Data on inventory that is expected to be removed from the market.

Drive-time approach - A method for estimating trade area and sales potential based on how far people are willing to travel.

Due diligence - The process of reviewing property, documents, and related procedures to reduce risk before a transaction.

Dynamic system - A continuously evolving and interrelated set of entities serving multiple or common purposes.

E

Economic base - Economic activities or sectors in a local or regional economy that generate income from exports of goods and services.

Economic base analysis - Analysis focusing on how changes in basic employment affect the economic, employment, and population growth of a local economy.

Economic base multiplier - A measure estimating how changes in basic employment impact total employment in a region.

Economic characteristics - Attributes of the workforce, including production and employment activities.

Economic obsolescence - Reduction in a property’s value due to external factors like legislation or nearby property use changes.

Economic sectors - Divisions within a local or regional economy where specific activities occur.

Effective - An amount after a base figure has been adjusted for concessions, allowances, and costs.

Efficiency - The capacity of space to produce desired results with minimal expenditure of time, money, energy, and materials.

Efficiency percentage - The ratio of useable area to rentable area. Formula:
Efficiency % = Useable square feet / Rentable square feet

Employment ratios - The percentage of total employees at a firm or industry level who are office space users.

Environmental conditions - Features of the physical environment that influence or modify an area.

Environmental hazards - Physical or natural conditions or events posing risks to humans.

Environmental impacts - Consequences of activities or land use on the physical and social environment.

Equilibrium point - The price at which the quantity supplied equals the quantity demanded.

Equity lease - A joint venture where a user occupies a space as a tenant while sharing ownership benefits.

Equity yield rate - The return on the portion of an investment financed by equity capital.

Exchange - A tax-deferred exchange under Section 1031 of the Internal Revenue Code, allowing real estate to be traded for like-kind property without immediate taxation.

Expansion - A real estate cycle phase characterized by a short-term increase in available units due to economic growth and rising demand.

Expected value (EV) - The sum of the weighted averages of all possible outcomes in a probability distribution.

Expenditure patterns - The tendencies of individuals or households in spending disposable income on goods and services.

Expense stop - The maximum amount a landlord agrees to pay toward operating expenses, with the tenant responsible for anything above that limit.

External economies - Cost savings realized by firms due to advantages like shared production inputs or infrastructure.

External obsolescence - A form of depreciation due to external factors, such as a new mall causing congestion or highway rerouting making a location undesirable.

F

Factors of production - The essential components of any production process, including land, capital (machinery, facilities, infrastructure), labor (human input in terms of hours or productivity), and technology (know-how, methods, management, and operations skills).

Fair value of an asset (or liability) - The price at which an asset (or liability) could be bought or sold in a current transaction between willing parties, excluding forced or liquidation sales.

Fashion/specialty center - A retail center consisting mainly of upscale apparel shops, boutiques, and craft stores offering high-end, unique merchandise. These centers may include restaurants or entertainment venues and are commonly found in high-income trade areas.

Feasibility analysis - The process of evaluating a proposed project to determine if it will meet the objectives of owners, investors, developers, and lessees.

Financial leverage - The use of borrowed funds to acquire an investment.

Financial risk - The potential change in an investment’s ability to return principal and income.

Fixed expenses - Costs that remain unchanged regardless of building occupancy, such as property taxes, insurance, and certain maintenance costs.

Fixed lease - A lease in which the lessee pays a set rental amount for the entire lease term.

Flex space - A versatile space that can serve multiple purposes, such as both industrial and office use.

Forecast - An estimate or prediction of future market conditions.

Forecast period - The upcoming time frame for which a forecast is made.

Formal (or geographic) data - Information collected and presented by geographic region.

Formal region - A region defined by political jurisdiction or based on the presence or absence of specific characteristics.

Free rent - See rent concessions.

Fully amortized mortgage loan - A loan repayment method where equal periodic payments fully pay off the loan over its term.

Functional components - Factors determining how a location or site operates.

Functional data - Information collected and presented based on functional regions.

Functional feasibility - Factors considered in site selection to assess practicality, best use, and market conditions.

Functional obsolescence - A type of accrued depreciation caused by new technology, poor design, or outdated market standards.

Functional region - A region defined by economic or functional linkages, often organized around a central trade area.

Future value (FV) - The amount to which money will grow over a specified period at a given interest rate.

FV - See future value.

G

Gap analysis - An evaluation of the difference in the demand and supply of space (measured in square footage) for a particular type of commercial property in a given market area. A positive gap indicates potential opportunities for transactions, while a negative gap suggests an oversupply.

General market area gap analysis - A gap analysis conducted across multiple cities to identify areas where a positive gap exists for a specific type of commercial real estate.

General market factors - Influences on the market driven by demographics, economic conditions, location, and market organization.

Generic space - Commercial space that can be adapted for multiple uses, such as generic office or retail space.

Geographic Information System(s) (GIS) - Computer-based systems for capturing, handling, storing, retrieving, managing, manipulating, and displaying geographic data.

Geographic submarket - The total number of households or housing units within a given area, defined by tenure, income, and socio-economic attributes.

Globalization - The ongoing integration of local, regional, and national economies into a larger, worldwide economic and production system, which affects real estate values.

Government incentives - Concessions or measures taken by local or regional governments to attract businesses or investment for economic growth and development.

Gravity model - A model based on Newton’s gravity equation, used to estimate the flow of people, goods, or investments between two locations. It is calculated as (mass × mass) ÷ distance².

Gross area - The total floor area of a building, including all levels.

Gross leasable area (GLA) - The total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors. Measured from the center of shared partitions and outside wall faces.

Gross lease - A lease where the landlord covers all expenses associated with owning and operating the property. See also net lease.

Gross operating income - The total income generated by a property before deducting operating expenses. This is calculated from potential rental income plus other income sources, minus vacancy losses.

Gross rent multiplier (GRM) - A method used by investors to determine market value by multiplying expected annual gross rents by a market-based multiplier.

Ground lease - A long-term lease where only the land is leased to a tenant who constructs a building on it. The ownership of the land remains separate from the improvements built upon it.

Growth patterns - The trends in urban or population expansion that influence retail trade areas, as retail businesses tend to follow population growth and income distribution.

H

Heavy utility needs - A factor in location selection based on energy or power requirements to assess the feasibility of a site for a given activity.

Hedging - A financial strategy used to minimize or protect against investment risk.

High order good - A good or service requiring a high threshold population before being offered in a market. These goods need a large consumer base and a larger trade area compared to low order goods.

High-tech - Economic activities centered around the development and production of high-technology products, including electronics, semiconductors, aerospace, computers, and telecommunications.

Highest and best use - The most probable and legal use of a vacant land or improved property that is financially feasible and results in the highest property value.

Highest and best use (financial) analysis - An evaluation process that determines the most profitable use of a property by analyzing different use scenarios, including renovation, rehabilitation, demolition, or replacement.

Household - A housing unit occupied by one or more individuals living together.

Household population - The total number of households within a given geographic area, classified by demographic and socio-economic attributes.

Housing demand - The total number of housing units needed in a market, calculated as occupied household units divided by one minus the vacancy allowance. This demand is influenced by household formation rates and vacancy rates.

I

Imbalances - Unstable or unsustainable market conditions caused by disequilibrium between supply and demand in commercial real estate submarkets over a given period.

Imperfect market - A market in which product differentiation exists, complete information is lacking, and certain buyers or sellers may influence transactions. Commercial real estate operates in an imperfect market.

In-migration - The influx of new individuals or households moving into a geographic area from outside locations.

In-the-door approach - A method for estimating a retail establishment’s trade area and revenue potential based on observed traffic flow and conversion rates of visitors into customers.

Income capitalization approach - A valuation method for income-producing properties where net operating income is divided by a capitalization rate to determine value. Formula: Value = Net Operating Income ÷ Capitalization Rate.

Index lease - A lease where the rental amount adjusts based on changes in a price index, commonly the Consumer Price Index (CPI).

Industrial gap - The difference between the demand and supply of industrial properties in a market.

Industrial location decision-making - The process of evaluating and selecting industrial sites based on feasibility characteristics. National and regional decisions are prioritized over local site selection.

Industrial property - Commercial properties designated for production, manufacturing, or distribution.

Industrial service area - A geographic region containing an adequate workforce or necessary services/resources to support industrial activities.

Initial investment - The cash outlay required to acquire an investment.

Input-output modeling - A mathematical framework for analyzing economic sectors, their interdependencies, and the direct and indirect impacts of changes in a specific sector or region.

Insurable value - The value of the physically destructible portions of a property that can be insured.

Intangible characteristics - Attributes that cannot be measured quantitatively but must be expressed in abstract or qualitative terms.

Interest-only loan - A loan structure in which only interest payments are made periodically, with the principal due at maturity.

Internal growth - The rate of change in a base population due to natural increase (births minus deaths) and demographic aging.

Internal rate of return (IRR) - The percentage return earned on each dollar remaining in an investment each year. The IRR is the discount rate at which the sum of the present value of future cash flows equals the initial investment.

Internal rate of return method - A comparison technique that calculates the IRR of the differential cash flow between investment alternatives and compares it with the opportunity cost.

Inventory - The total stock or supply of a particular commodity or real estate asset.

Investing - The practice of limiting current consumption in favor of future financial returns.

Investment value - The value of an asset to a specific investor based on individual financial requirements, tax rates, and financing structures.

IRR - See Internal rate of return.

IRR of the differential - The internal rate of return on the cash flow differences between two investment alternatives.

J, K, L

J

No glossary terms are available.

K

Key federal laws - Important statutes enacted to regulate the handling of hazardous materials, ensuring the protection of human health and the environment.

L

Labor pool - A group of workers (both employed and employable) that constitute the local labor force.

Landlord - The owner or lessor of a leased property.

Landlord-paid tenant improvements (LPTI) - The total cost of tenant improvements covered by the landlord, net of any tenant contributions.

Land sale-leaseback - A leaseback arrangement where only the land is sold and leased back through a ground lease.

Leakage (retail) - The loss of local consumer spending to retailers outside the service area.

Lease - A contractual agreement granting a tenant the right to occupy and use a property in exchange for rent.

Lease buyout - The payment by a landlord, tenant, or third party to terminate an existing lease agreement.

Lease terminology - Common terms used in lease agreements.

Leased fee - The ownership interest retained by the landlord, including rental income rights and reversionary interest.

Leased fee interest - The landlord's financial interest in rental payments and the property's residual value at lease expiration.

Leasehold estate - The tenant's right to occupy and use a property for the duration of the lease in exchange for rent.

Leasehold interest - The tenant’s financial interest in the lease, calculated as the present value of the difference between market rent and contract rent.

Leasing - The practice of obtaining the economic use of a property for a set period without ownership.

Lessee - The tenant renting or leasing a property.

Lessor - The landlord or property owner renting out a property.

Leverage - The use of borrowed funds to finance a portion of an investment.

Lifestyle characteristics (psychographics) - The socio-cultural and quality-of-life attributes shaping a community’s identity.

Linkages - The costs associated with transporting goods, services, or people to and from a site, measured in time, distance, and inconvenience.

Liquidation value - The estimated price a property would fetch in a forced or rapid sale scenario.

Liquidity - The ease of converting an investment into cash without significant loss.

Load factor - The ratio of rentable area to useable area, helping tenants compare sites with different rental efficiencies.

Loan balance - The remaining principal amount owed on a mortgage or loan at a given point in time.

Loan or mortgage value - The portion of a property’s value recognized by a lender as security for a loan.

Loan point - A prepaid fee charged by a lender, with one point equaling one percent of the loan amount.

Loan-to-value ratio (L/V) - The ratio of a mortgage loan amount to the total market value of the property. Formula: L/V = Loan Amount ÷ Property Value.

Location analysis - The evaluation of whether a site meets technical and functional suitability for a given use.

Location quotient - A ratio comparing the concentration of an economic activity in a local area to its national or regional concentration.

Location quotient method - A method for estimating a community's economic base multiplier using employment data.

Lower order good - A good or service that requires a smaller population to sustain its business, serving a smaller trade area compared to high-order goods.

M

Macro-economy - Generally used to refer to economic factors and forces at a broad level, often synonymous with the national economy.

Management - The ability to monitor and adjust an investment to optimize performance.

Managing risk - The process of implementing strategies to control or minimize investment risk.

Mapping GIS software - Computer programs used to create maps and spatial analyses.

Marketability - The ability to sell or lease a property quickly due to its appeal and demand.

Market area - A geographic region where supply and demand influence economic activities, such as a Metropolitan Statistical Area (MSA).

Market adjustments - Changes in market conditions in response to shifts in supply and demand, often seen as cycles, trends, or fluctuations.

Market analysis - The study of supply, demand, demographics, and financial feasibility to assess the potential of a given location or property.

Market data - Information collected and presented for a particular market or market area.

Market data approach - A valuation method based on recent sales or rental prices of comparable properties.

Market dynamics - The forces that drive changes in a market, such as supply and demand relationships.

Market feasibility - The evaluation of a site's suitability for development or its highest and best use.

Market gap - The difference between the demand for and supply of space in a commercial real estate market.

Market opportunities - Favorable conditions that allow for profitable real estate transactions.

Market pricing - The pricing of goods, services, or rental rates based on market supply and demand.

Market risk - The possibility of an investment losing value due to declining market conditions.

Market share - The percentage of total sales in a category that a business or property captures.

Market strategy - A planned course of action based on market conditions, such as avoiding transactions during oversupply.

Market value - The most probable price a property would sell for under competitive, fair market conditions.

Match - The second stage of the four-stage transaction management process, aligning investors and users by marketing, analyzing, targeting, comparing, and highlighting properties.

Mean - A measure of central tendency, calculated as the average of all values in a dataset.

Median - The middle value of an ordered dataset, representing the central point in a distribution.

Metropolitan Statistical Area (MSA) - A region defined by the Office of Management and Budget (OMB) with an urbanized population of at least 50,000.

Mid-month convention - A tax rule requiring the use of the 15th of the month to calculate cost recovery deductions for real estate placed in service after June 22, 1984.

Minimum requirement - The lowest level of employment in an economic sector necessary to support a community's basic functions.

Minimum requirements method - A method for estimating a community’s economic base multiplier by comparing sector employment levels to minimum thresholds.

Moving allowance - A landlord-paid amount to assist tenants with relocation expenses.

Moving expenses - Costs incurred by a tenant to relocate, which may be covered by the landlord.

Multifamily housing - Residential properties designed to accommodate multiple families or households.

Multiple-use office space - Office space designed for flexible or diverse purposes, sometimes referred to as generic office space.

N

n - A component of the T-bar that represents the number of periods over which the investment is held.

Negative leverage - Borrowed funds are invested at a rate of return lower than the cost of funds to the borrower.

Neighborhood center - A retail center designed to provide convenience shopping for the daily needs of local consumers. According to ICSC’s SCORE publication, a supermarket anchors half of these centers, while about a third have a drugstore anchor. Supporting tenants typically include stores offering pharmaceuticals, health-related products, sundries, snacks, and personal services. These centers are usually configured as a straight-line strip with no enclosed walkway or mall area, though a canopy may connect storefronts.

Net lease - A lease in which the tenant pays, in addition to rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs. Also see gross lease.

Net operating income (NOI) - The potential rental income plus other income, less vacancy, credit losses, and operating expenses.

Net present value (NPV) - The sum of all future cash flows discounted to present value and netted against the initial investment.

Neutral leverage - An investment situation in which the cost of borrowed funds is exactly equal to the yield provided by the investment.

NOI - See net operating income.

Non-basic employment - Employment that is considered non-export-oriented, meaning it is not associated with producing goods or services for outside markets. Instead, non-basic employment supports local consumption, typically through industries like retail, healthcare, and local services.

Non-household population - The portion of the total population not considered part of the local residential housing market, including individuals living in dormitories, military bases, or institutional settings such as student residence halls.

NPV - See net present value.

O

Obsolescence - In reference to the inadequacy, disuse, outdated, or nonfunctionality of facilities, infrastructure, products, or production technologies due to effects of time, changing market conditions, or decay. This is a factor considered in depreciation to cover the decline in value of fixed assets due to the invention and adoption of new production technologies or changing consumer demand.

Occupancy cost - The actual dollars paid out by the tenant to occupy the space. It can be expressed in either pre-tax or after-tax dollars.

Office -

• Low-rise - Fewer than seven stories high above ground level.
• Mid-rise - Between seven and twenty-five stories above ground level.
• High-rise - Higher than twenty-five stories above ground level. [BOMA]

Office gap - The difference between the demand for office space and the supply of office space by property type, submarket, sector, or user classification in a given geographic market.

Office property - A commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term "office" can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Office properties may be classified as:

• Class A - The most functionally modern and desirable properties.
• Class B - Older properties that may need modernization.
• Class C - Generally the least desirable due to age, condition, or functionality.

Operating expense stop - A negotiable amount at which the owner’s contribution to operating expenses stops. It also can be stated as the amount above which the tenant is responsible for its pro-rata share of operating expenses.

Operating expenses - Cash outlays necessary to operate and maintain a property. Examples include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.

Opportunity cost - The cost of selecting one alternative is the benefit foregone from the next best alternative. Also see discount rate.

Original basis - The total amount paid for a property, including equity capital and the amount of debt incurred.

Out-migration - The process by which a given geographic area expels or loses individuals/households to locations outside that area (an outflux of individuals/households from a given area).

Outlet center - A retail property type usually located in rural or occasionally in tourist locations. Outlet centers consist mostly of manufacturers’ outlet stores selling their own brands at a discount. These centers are typically not anchored. A strip configuration is most common, although some are enclosed malls, and others can be arranged in a village cluster.

Overage rent - See percentage rent.

Oversupply - In reference to commercial real estate, oversupply refers to a stock or supply of a given commercial property type that is greater than what can be absorbed under prevailing price levels and market conditions (i.e., excess supply). This also refers to a phase of the real estate market cycle where markets become saturated with units due to overbuilding.

Owners moving expense - See moving allowance.

Owning - A means of obtaining the full economic use of a property for an unspecified period by obtaining an ownership interest.

P

Partially Amortized Mortgage Loan - A loan where the payments do not fully repay the loan over its term, requiring a lump sum (balloon) payment at the end to settle the remaining balance.

Participation Mortgage - A loan secured by real property with a stated interest rate, allowing the lender to receive a share of the annual net cash flow, gain on sale, or proceeds from refinancing the property.

Passive Income - Income derived from rental activity, limited business interests, or other activities in which the investor does not materially participate.

Passive Losses - Losses incurred from passive investments, which are typically only deductible against passive income.

Payment (PMT) - A periodic amount paid or received for two or more periods.

Percentage Lease - A lease agreement where the rent is based on a percentage of the tenant’s gross sales, typically with a base rent amount.

Percentage Rent - The additional rent paid by tenants to landlords based on sales exceeding a predetermined threshold. Also referred to as overage rent.

Perfect Market - A theoretical market in which products are homogeneous, complete information is available, and no single buyer or seller can influence prices.

Physical Depreciation or Deterioration - The loss of property value due to wear and tear, aging, or lack of maintenance.

Physical Limitations - Constraints imposed by a property’s physical characteristics, such as size, shape, or structural condition.

Pipeline Information - Information, whether substantiated or rumored, regarding new inventory expected to enter the market within a forecast period.

Planned Additional Inventory - The forecasted supply of a commercial property type expected to become available due to expansions, conversions, or new construction.

Planned Removed Inventory - The forecasted reduction in supply for a commercial property type due to demolitions, conversions, or reallocation of space.

Population/Expenditure Approach - A method for estimating trade area and sales potential based on the minimum population required to sustain a business.

Population Growth - The rate of increase or decrease in the number of people living in a geographic area, influenced by internal growth, in-migration, and out-migration.

Population Migration - The movement of people from one area to another in response to social and economic factors.

Portfolio Income - Income derived from interest, dividends, royalties, or investment property sales.

Positive Leverage - A financial situation where borrowed funds generate a return higher than the cost of borrowing.

Potential Rental Income - The total possible rental revenue a property could generate if fully occupied and rented at market rates.

Power Center - A retail property featuring large anchor stores such as discount department stores, warehouse clubs, or specialty retailers, often with minimal smaller tenants.

Present Value (PV) - The sum of all future cash flows or benefits discounted to the present, using an appropriate discount rate.

Present Value Method - A comparison technique that evaluates two real estate alternatives based on their present values.

Prestige and Property Classes - The classification of commercial properties based on quality, location, and amenities, often categorized into Class A, B, and C.

Price - The dollar amount at which a property is offered, asked, or sold.

Primary Source Data - Data obtained firsthand through field research, surveys, or direct observations.

Principal - The portion of a loan payment used to reduce the original loan balance.

Probabilities and Expected Value - A risk analysis method that assigns probabilities to investment outcomes to determine an expected return.

Production - Economic activities that enhance, alter, or transform products or materials to increase their value.

Property Data - Specific information regarding a property, collected from primary or secondary sources.

Property Market - The supply and demand conditions for ownership interests in real estate.

Property-Specific Factors - Site-specific characteristics that influence a property’s functionality and market value.

Property Type - The classification of commercial real estate based on its primary use, including retail, industrial, office, and multifamily residential properties.

Proprietary Data - Information available exclusively through private sources, often obtained at a cost.

Purchasing Power Risk - The risk that future income from an investment may lose value due to inflation or economic changes.

PV - See Present Value.

Q

Qualify - The first stage of the four-stage transaction management process, involving the gathering and evaluation of information to assess a client’s readiness, willingness, and ability to complete a transaction.

The acronym QUALIFY represents key considerations in this stage:

• Quantify – Assessing the scope and scale of the transaction.
• Usage – Determining how the property will be used.
• Authority – Identifying the decision-makers in the transaction.
• Latitude – Understanding the client’s flexibility and constraints.
• Intention – Evaluating the client’s purpose and commitment.
• Financial – Assessing the client’s financial capacity.
• Yield – Projecting the expected return or benefit of the transaction.

Quality of Life - A measure of psychological and individual aspects of social well-being as perceived by people in relation to a specific geographic area. It reflects a state of mind or position on the prevailing quality of existence, influenced by socio-economic conditions, environmental factors, and local amenities.

R

Range - The maximum distance consumers are willing to travel to purchase a good or service from a given establishment or location. This helps define the outer boundaries of a market area.

Rate of Return - The percentage return on each dollar invested, also known as yield.

Real Estate - See Commercial Real Estate.

Real Estate Cycles (Phases) - The recurring sequence of economic downturns and upturns in the real estate market, including the phases of recession, recovery, expansion, and oversupply.

Real Estate Fluctuations - Short-term changes in real estate prices or rents caused by external events such as natural disasters or economic shifts.

Real Estate Investment Trust (REIT) - An investment vehicle where investors purchase shares in a trust that owns and manages real estate. REITs are exempt from corporate income tax if they meet regulatory requirements, and investors report income from REITs on their personal tax returns.

Real Estate Trends - Long-term shifts in commercial real estate demand, often influenced by macroeconomic factors and business cycles.

Recession - A period of economic decline characterized by falling employment, reduced production, and weak real estate demand, often leading to stagnating or falling property values.

Recovery - The economic phase following a recession, marked by rising sales, improving prices, and gradual absorption of excess real estate inventory.

Regional Center - A retail property type providing a wide variety of general merchandise and services, typically anchored by department stores and enclosed within a common structure.

Regulatory Requirements - Restrictions and guidelines imposed on land use and development, including zoning laws, building codes, and occupancy regulations.

Rent Concession - A period of free or reduced rent offered by a landlord as an incentive to tenants.

Rentable Area - The total area of a building for which rent is charged, including common spaces such as lobbies and hallways, as defined by Building Owners and Managers Association (BOMA) standards.

Rentable-to-Useable Ratio - The ratio of rentable space to useable space within a building, also known as the add-on factor or load factor.

Rent Escalators - Lease provisions that allow for periodic increases in base rent, operating expenses, or taxes at predetermined intervals.

Replacement Cost - The estimated cost of constructing a new building with equivalent utility to an existing structure, using modern materials and current design standards.

Residential Property - Single-family or multifamily housing units designed for use as primary residences.

Retail - See related retail center types, including community centers, fashion/specialty centers, neighborhood centers, outlet centers, power centers, regional centers, superregional centers, and theme/festival centers.

Retail Gap Analysis - A specific type of gap analysis focused on retail space supply and demand in a given market.

Retail Gravity Model - A gravity model used to estimate sales or revenue potential for competing retail establishments based on geographic and consumer behavior patterns.

Retail Property - Commercial properties used for selling consumer goods and services.

Retail Trade Area - Also known as a service area, this is the geographic region from which a retail center or establishment attracts customers.

Reversion Value - A lump-sum cash benefit received or expected upon the sale of an investment property.

Risk - The probability that actual cash flows from an investment will differ from projected cash flows.

S

Sale-Leaseback - A transaction in which the owner of a property sells it to an investor and then leases it back, typically for long-term use.

Sales Comparison Approach - A real estate valuation method that estimates a property’s value by comparing it to similar properties that have recently sold in the same market.

Sales Per Square Foot - A retail performance metric measuring the total revenue generated by a store divided by its total square footage.

Satellite Store - A smaller retail store located near or around a major anchor tenant within a shopping center.

Scarcity - The economic principle that limited availability of a resource increases its value.

Seasonality - The variation in market activity or property demand due to seasonal factors, such as tourism or holiday shopping.

Secondary Data - Information collected from sources that were not originally intended for the current research, such as government reports or real estate listings.

Secondary Market - A geographic area with smaller population density and lower property transaction volume compared to primary markets.

Sector Analysis - A study of economic trends and conditions affecting a specific industry or property type within a given market.

Segmentation - The process of dividing a market into distinct groups based on characteristics such as demographics, income levels, or property use.

Sensitivity Analysis - A financial modeling technique that evaluates how changes in key assumptions (such as interest rates or rental rates) impact an investment’s performance.

Service Area - The geographic region from which a business or property draws its customers or tenants.

Shopping Center - A retail property type designed with multiple stores, often anchored by major retailers, and configured for customer convenience.

Site Analysis - The evaluation of a property’s physical, locational, and regulatory characteristics to determine its highest and best use.

Site Selection - The process of choosing a location for a business or development based on market demand, zoning regulations, and other key factors.

Space Absorption - The rate at which available space in a commercial property market is leased or sold over a given period.

Space Demand - The total amount of commercial real estate space required by tenants or buyers in a given market.

Special-Purpose Property - A property designed for a specific use that may not be easily adapted for other functions, such as a hospital or theater.

Speculative Development - Real estate development projects initiated without pre-leased tenants or buyers, built on the expectation of future demand.

Stabilized Occupancy - The level of occupancy at which a property is expected to consistently operate over time, typically after an initial lease-up period.

Sublease - An agreement in which a tenant rents out all or a portion of their leased space to another tenant, while still being responsible for the original lease.

Submarket - A distinct segment of a larger real estate market, defined by location, property type, or price range.

Supply and Demand - The fundamental economic principle that property values and rental rates are determined by the balance between available supply and market demand.

Syndication - A real estate investment structure in which multiple investors pool funds to acquire and manage a property.

T

T-bar - A chart used to summarize the timing of real estate cash flows.

Tangible Characteristics - Attributes that are quantifiable, measurable, factual, or expressed numerically as data or statistics.

Target Market - Likely users or investors whose needs match the property’s features. Alternatively, when representing users, the target market is the kind of property that matches the user-client’s needs.

Tax Impact - The impact of taxes on investment income and rate of return.

Tax Liability - Real estate taxable income multiplied by the tax rate.

Tax Savings (Annual Expense) - All annual expenses incurred by the tenant are tax-deductible. The tax savings are calculated by multiplying the annual deduction by the tenant’s tax rate.

Tax Savings (Capital Expenditure) - Tax savings associated with capital expenditures by the tenant, calculated by multiplying the annual deduction amount by the tenant’s tax rate.

Tax Shelter - The ability of real estate investments to reduce an investor’s tax liability through cost recovery.

Taxable Income - Adjusted gross income less personal deductions and exemptions.

Taxation - How an investment is affected by tax laws and codes.

Technical Components - Factors that determine whether a location or site is suitable or able to support a given use.

Technical Feasibility - Evaluation of multiple sites to determine their suitability based on physical limitations, regulatory requirements, and environmental/legal considerations.

Tenant - A person or entity who possesses property through a lease. Also referred to as a lessee.

Tenant Improvements - Preparations or modifications made to leased premises before or during a tenant’s occupancy, paid for by the landlord, tenant, or both.

Tenant-Paid Tenant Improvements (TPTI) - The total cost of tenant improvements paid by the tenant, netted against any allowance provided by the landlord.

Tenure - A designation distinguishing between renter-occupied and owner-occupied housing units.

Theme/Festival Center - A retail center featuring a unifying theme in its architectural design and merchandise, often located in urban areas and catering to tourists.

Threshold Population - The minimum number of people, market area, or sales volume necessary to sustain a business or make it economically viable.

TI - See Tenant Improvements.

TI Allowance from Owner - A specified amount of money the owner will pay for tenant improvements.

Time Value of Money (TVM) - An economic principle recognizing that a dollar today has greater value than a dollar in the future due to its earning potential.

Total Effective Rate - The rate per square foot paid by the tenant over the entire period analyzed.

Total Effective Rent - The total dollar amount the tenant will actually pay over the entire lease term.

Total Employment - The total number of actively employed people in the workforce within a given geographic area at a specific point in time.

Total Existing Inventory - The existing and currently available stock of a specific commercial property type in a given market at a particular time.

Total Forecast Supply - The sum of total existing inventory, forecast planned additional inventory, and forecast planned removed inventory for a specific commercial property type.

Total Supply of Commercial Real Estate - All existing space, whether vacant or occupied, built, forecasted, or demolished, in a particular market area.

TPTI - See Tenant-Paid Tenant Improvements.

Trade Area - A geographic area dependent on a central location for goods, services, or production output.

Trade Area Gap Analysis - A gap analysis performed within a specific trade area to assess supply and demand imbalances.

Traffic Generators - Businesses or sites that attract customer traffic to a location, such as anchor stores in shopping malls.

Transaction Management Process - A continuous four-stage process of qualifying, matching, closing, and adding value for clients.

Transfer Income - Money transferred into a local economy from external sources without exchanging goods or services, such as social security or investment dividends.

TVM - See Time Value of Money.

U - Z

U

Urban System (City as a System) - A complex and structured urban environment composed of diverse, interacting, and interdependent parts and activities, organized to serve a common purpose and satisfy the needs of its residents.

Useable Area - Rentable area minus certain common areas shared by all tenants in an office building, such as corridors, storage facilities, and bathrooms. It is the area available for exclusive use by the tenant. Formula: Useable area = Rentable area × Building efficiency percentage.

User Criteria - Factors used to identify and classify properties based on feasibility and suitability for a user's specific business requirements, including zoning and land-use restrictions.

V

Vacancy - The number of vacant and available commercial units or spaces at a given time in a specific market, often expressed as a vacancy rate.

Vacancy Allowance - A level of vacancy that facilitates transactions and market turnover, allowing the market to function efficiently and support household mobility.

Vacancy Rate - The percentage of total supply of units or commercial space that is vacant and available for occupancy at a specific time in a given market.

Variable - A measurable attribute of a person, place, property, or location that can change from observation to observation.

Variable Expenses - Costs, such as utilities, that fluctuate based on a building’s occupancy rate.

W

Weighted Average Cost of Capital (WACC) - The average cost of capital, including both equity and debt, weighted according to their relative proportions.

Workstation GIS - Mainframe-oriented or UNIX-based GIS software and systems designed for large-scale applications, requiring advanced platforms and programming expertise.

X

No glossary terms available.

Y

Yield - A measure of investment performance that indicates the percentage return on each dollar invested. Also known as rate of return.

Z

Zoning - The legal designation of specific land-use categories by local planning authorities to regulate property development and usage within a jurisdiction.