– A –

AMORTIZATION PERIOD – the period or length of time over which the principal portion of

a mortgage loan is scheduled to be paid down through periodic payments.

APPRAISAL– an estimate of the value of a property, made by a qualified professional called

an appraiser.

ASSISTED LIVING – type of senior housing that is typified by independent living and

limited assistance to its renters.

AVERAGE DAILY RATE – a hotel rate used to evaluate the average daily rate of a hotel

inclusive of vacancy and seasonality.

– B –

BASIS POINT (BP) – 1/100th of 1% expressed as a margin over an index rate.

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.

– C –

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.

CMBS (Commercial Mortgage Backed Security) – a bond or other financial obligation

secured by a pool of mortgage loans.

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 terms, underwriting and documents and then,

when sufficient volume has been obtained, pools the loans for sale to investors in the CMBS


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 loan.

CONTINGENCY – an element of an agreement that must be satisfied before the total

agreement can be consummated.

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 maturity.

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.

– D –

DEBT SERVICE – the periodic payments (principal and interest) made on a loan.


mortgaged property’s ability to cover monthly payments defined as the ratio of net operating

income over the periodic payments (principal and interest) 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 debt payments.

DEFEASANCE – a clause in a mortgage that gives the borrower the right to prepay a

commercial mortgage by purchasing Canadian Treasuries in an escrow account to pay off

ongoing debt service.

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.

– E –

EASEMENT – A right granted to another person to use your land for a specific purpose. Most

commonly, easements are granted to public utility and telephone companies for the purpose

of running lines on or under the property or to neighbors for the purpose of using a common


EFFECTIVE GROSS INCOME – gross income of a building if fully rented, less an

allowance for estimated vacancies.

ENCUMBRANCE – Anything that affects or limits the fee simple title to property, such as

mortgages, leases, easements, or restrictions.

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


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 on a property.

EQUITY – the difference between the fair market value and current indebtedness, also referred to as

“owner’s interest.”

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.

ESTOPPEL CERTIFICATE – A written statement setting forth certain facts about a piece of

real estate, such as the precise amount of indebtedness remaining.

– F –

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.

FORBEARANCE – The act of refraining from taking legal action despite the fact the mortgage

is in arrears. It is usually granted only when a mortgagor makes a satisfactory arrangement by

which the arrears will be paid at a future date.

FORECLOSURE – the process by which a lender takes back a property on which the

mortgage has defaulted. A service 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.

FREESTANDING – one commercial building meant to be occupied by a single user.

FULL SERVICE – a hotel definition that represents services provided to its guests outside of lodging

(i.e. room service, concierge services, and restaurant).

– G –

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.

GROSS INCOME MULTIPLIER – A tool used to assess the approximate value of a rental

property by comparing its rental income with other like properties. It gives the relationship

between the gross rental income and sales price.

GROSS RENT MULTIPLIER – Multiplier: A tool used to assess the approximate value of

a rental property by comparing its rental income with other like properties. It gives the

relationship between the gross rental income and sales price. Also referred to as gross

income multiplier.

– H –

– I –

INTERNAL RATE OF RETURN (IRR) – A method of determining the annualized effective

compounded return rate on an investment over time assuming a set of income, expense, and

property value conditions as well as risk. It combines the present worth of the right to receive

future income streams with the present worth of the right to receive a particular profit when

the property is sold.

– J –

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.

– K –

– L –

LEASE ASSIGNMENT – an agreement between the commercial property owner and the

lender that assigns lease payments directly to the lender.

LEASE TYPE – Gross, Triple Net (NNN), Net Net (NN), Hybrid, etc.

LEASEHOLD IMPROVEMENTS – the cost of improvements for a leased property, often paid by the


LESSEE – tenant in a building.

LIBOR (London Interbank Offered Rate) – the rate that the most creditworthy

international banks dealing in Eurodollars charge each other for large loans. Rates are quoted

in monthly increments out to 1 year.

LIMITED PARTNERSHIP – one 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–TO–VALUE RATIO (LTV) – the ratio between the principal amount of the mortgage

balance, at origination 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.

LOT SIZE – total square footage of the land.

LOW–RISE OFFICE – a commonly used expression referring to an office building that is

too low to require elevator.

– M –

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.

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.

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.

– N –

NET OPERATING INCOME (NOI) – total income less operating 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 PRESENT VALUE – The method of applying an appropriate discount to cash to be

received in the future to arrive at the present value of those future earnings.

NON-DISTURBANCE AGREEMENT–An agreement that permits a tenant under a lease to

remain in possession of the property for the term of the lease despite any foreclosure


NON–RECOURSE – a mortgage or deed of trust securing a note without recourse allows the

lender to look only to the security (property) for repayment in the event of default, and not

personally to the borrower. A loan not allowing for a deficiency judgment. The lender’s only

recourse in the event of default is the security (property) and the borrower is not personally


– O –

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.

ORIGINATION – securing a completed mortgage application from a commercial or residential borrower.

– P –

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


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 undertaken.

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 interest, left on a loan. 2. The face amount of the


PRO FORMA – (from Latin pro forma, “according to form”). financial statements showing

what is expected to occur.

– Q –

– R –

RECOURSE – personal liability.

RENT ROLL – a list of tenants leasing 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.

– S –

SENIOR HOUSING – (includes Assisted Listing, Congregate Care, Senior Apartments and

Skilled Nursing Centers) multi-residential property specifically designed for care of senior

citizens and/or physically disabled persons.

SHADOW ANCHORED – a unanchored shopping center located near an anchored shopping center.

SOLE PROPRIETORSHIP – ownership of a business, with no formal entity as a vehicle or structure.

SPREAD – number of basis points over a base rate index.

STABILIZED OPERATING PROPERTY – the income generated on an annual basis from the

commercial property is stable, consistent and reliable.

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.

– T –

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 tenant, 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.

THIRD PARTY COSTS – costs resulting from third party reports, whether it be

appraisal reports, environmental reports or structural engineering reports.

TITLE INSURANCE – an insurance policy that insures you against errors in the title search – essentially

guaranteeing your, and your lender’s, financial interest in the property.

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”).

– U –

UNANCHORED – a tenant in a shopping center, which doesn’t have an anchored tenant.

UNDERWRITING – the process of deciding whether to make a loan based on property

cash flow, credit, and/or other factors.

– V –

VACANCY PERCENT – the percentage of all units or space that is unoccupied or not rented. On a

pro–forma 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.

– W –

– X –

– Y –

YIELD – the rate of return on a security, taking into consideration annual interest payments,

purchase price, redemption value, and the time remaining until maturity.

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 borrowers.

– Z –