Real Estate Glossary

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  • a

    an individual with income exceeding $200,000 annually (or $300,000 together with a spouse) in each of the prior two years, and who reasonably expects the same for the current year OR an individual with a net worth of over $1 million (either alone or together with a spouse), excluding the value of the individual’s primary residence. (Source: U.S. Securities and Exchange Commission)
    the right to use, control, or occupy the space above a designated property. Air rights can be leased, sold or donated to another party.
    an increase in the value of property. Causes of appreciation for real estate may include inflation, demand pressures for land and buildings, a physical addition, modernization, removal of a negative factor from within or outside the property, and sweat equity.
    an estimate or opinion of property value in its current state, which may be in disrepair or scheduled for improvement.
  • b

    events or actions which are exceptions to the non-recourse status of a loan, and which typically include filing for bankruptcy, fraud and transfers in violation of loan documents. (Source: ArborCrowd)
  • c

  • CAP RATE (Capitalization Rate)
    a rate of return used to derive the capital value of an income stream. The formula is: Value = annual income / capitalization rate Example: the estimated net operating income of an office building is $12,000 per year. An appraiser decides the appropriate capitalization rate is 12%, comprised of a return of a 10% return on investment and a 2% depreciation. The estimated value of the building is $100,000.
  • CAPEX (Capital Expenditure)
    an improvement (as distinguished from a repair) that will have a life of more than one year. Capital expenditures are generally depreciated over their useful life, as distinguished from repairs, which are subtracted from income of the current year.
  • CAPITAL STACK (Capitalization Structure)
    the composition of capital invested in a property, reflecting the interests of those who contributed both debt and equity capital. A small building was bought for $1 million, with the following amounts paid for its capital stack/structure: $600,000 first mortgage $100,000 second mortgage $300,000 equity
    periodic amounts available to an equity investor after deducting all periodic cash payments from rental income.
  • CLASS (Of Property)
    a subjective division of buildings by desirability among tenants and investors. Criteria include age, location, construction quality, attractiveness of style, level of maintenance, and so on. The class may be based on standards for market acceptance or the type of construction materials used. Class A: High quality, well designed, using above-average materials, workmanship, and finish. Sought by investors and prestigious tenants. Excellently maintained and very well managed, especially if the building is more than 10 years old. Attractive and efficient, these buildings are often the most desirable in their markets. Class B: Offers useful space without special attractions. Has functional layout and design, though not unique. Average to good maintenance and management. Typically 10 to 50 years old. Class C: Typically an older building that offers space without amenities. Average to below-average maintenance and management, average to poor mechanical, electrical, ventilation systems. Attracts moderate- to low-income tenants who need affordable space.
    areas of a property that are used by all owners or tenants. The following are examples of common areas: the clubhouse and pool of a condominium development the hallways and stairs of an apartment building the elevators of an office building the mall area of a shopping center
  • COMPS (Comparables)
    properties that are similar to the one being sold or appraised.
    reductions in price, rent or other benefit provided to a tenant or buyer as an inducement to buy or lease.
  • d

    money loaned on a long-term basis and used to buy an investment such as real estate.
    making a reasonable effort to provide accurate, complete information. A study that often precedes the purchase of a property, which considers the physical, financial, legal, and social characteristics of the property and expected investment performance; the underwriting of a loan or investment.
  • e

    for income producing property, potential gross income, less a vacancy and collection allowance, plus miscellaneous income.
    the interest or value that the owner has in real estate over and above the liens against it. Example: A property has a market value of $1,000,000. The owner currently owes $600,000 in mortgage loans that are against the property. The owner’s equity is $400,000.
  • EQUITY MULTIPLE (Realization Multiple)
    a measurement that values the return paid to an investor. The multiple is named after the amount of equity that is realized, and is found by dividing the cumulative distributions from a project by the paid-0in capital. (Source: Investopedia) Equity Multiple = Cumulative Distributed Returns / Paid-In Capital
  • f

  • FREE-MARKET (Market-Rate)
    an apartment unit that is not rent-stabilized or rent-controlled. A free-market or market-rate apartment is a unit where the rental rate and lease terms are negotiated between the owner and tenant. (Source:
  • g

    total income from property before any expenses are deducted.
  • h

    the time span of ownership, often for investment real estate. Example: Some real estate investors prefer short holding periods (under 5 years) in an attempt to retain high levels of financial leverage. Others prefer longer to reduce frequent transaction costs and avoid depreciation recapture.
  • i

  • IRR (Internal Rate of Return)
    the true annual rate of earnings on an investment. Equates the value of cash returns with cash invested. Considers the application of compound interest factors. Requires a trial-and-error method for solution. Example: Abel sells for $200,000 land that he bought 4 years earlier for $100,000. There were no carrying charges or transaction costs. The internal rate of return was about 19%. That is the annual rate at which compound interest must be paid for $100,000 to become $200,000 in 4 years.
  • j

    an agreement between two or more parties who invest in a single business or property.
  • k

  • K-1
    tax form used to report to each partner or beneficiary his or her share of income, losses, capital gains, and other tax information passed through from a partnership or trust.
  • l

    the time period in which a newly built, redeveloped or renovated property attracts tenants in order to reach stabilized occupancy. (Source: ArborCrowd)
    using borrowed funds to increase purchasing power and, ideally, to increase the profitability of an investment. Example: Collins wishes to invest in real estate. The property costs $100,000 and produces net operating income of $10,000 per year. If purchased with all cash, Collin’s annual rate of return is 10% ($10,000 ÷ $100,000). If she leverages the investment by borrowing $75,000, her return on equity may be higher. If the debt cost is 8% ($6,000) annually, the leverage results in a return of 16% ($4,000 ÷ $25,000). However if the debt cost is 12% ($9,000), the leverage is negative because it reduces the return on equity to 4% ($1,000 ÷ $25,000).
  • LIBOR (London InterBank Offered Rate)
    the rate that international banks dealing in Eurodollars charge each other for large loans. Some domestic banks use this rate as an index for adjustable rate mortgages. Example: European lenders offered to finance a hotel in California at the LIBOR rate plus three percentage points, adjusted monthly.
  • Loan-to-Value (LTV) Ratio
    the portion of the amount borrowed compared to the cost or value of the property purchased — that is, mortgage debt divided by the value of the property. Lenders are often constrained as to the maximum loan-to-value ratio on loans they can originate.
  • m

    a loan that is below the first mortgage in priority and has other liens subordinate to it. Has the same priority as if it were called a ‘second mortgage’. Example: Michael Development Company planned to build an office tower for $12 million. They arranged an $8 million first mortgage and $1.5 million of mezzanine financing. A subordinated loan of $0.5 million and $2 million of equity completed the capital structure.  
    any property that combines more than one use of leased space, e.g. residential and retail. An apartment building with retail on the ground floor is considered mixed-use. An office tower with a hotel on the upper floors is also considered mixed-use. (Source: ArborCrowd)
  • n

    income from property or business after operating expenses have been deducted, but before deducting income taxes and financing expenses. The formula is: NOI = gross income – operating expenses
  • NET RENTABLE AREA (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. Example: A building with 10 floors, each containing 3,000 square feet of space, may have net leasable area of 25,00 square feet. Elevators, hallways, etc., absorb the remaining 5,000 square feet
  • o

    percentage of currently rented units in a building, city, neighborhood, or complex. Contrast with vacancy rate.
    An off-market sale is a term used to define a property that is selling, or has already been sold, without any public advertising. Often times a deal that is “off-market” indicates that the owner/seller wants to sell quickly and does not want to open up the process to a public bidding or auction. The benefit for the buyer is that there will be a quicker sale, less competition and a better deal overall.  
  • p

    major metro areas, including Boston, Chicago, Los Angeles, New York, San Francisco and Washington D.C. (Source: Real Capital Analytics)
    what is expected to occur, as opposed to actual results.
  • q

    A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a qualified intermediary withholding agreement with the IRS.Foreign financial institutions and foreign branches of U.S. financial institutions can enter into an agreement with the IRS to be a qualified intermediary. A QI is entitled to certain simplified withholding and reporting rules. (Source:
  • r

    the percentage relationship between the earnings and cost of an investment. Example: Nickson deposits $100 in a savings account. At the end of the year Nickson receives a payment of $5. Nickson’s rate of return is 5%.
    to restore a structure to a condition of good repair. Example: An old building has deteriorated to the point of prohibiting profitable operation. The owner faces the choice of demolition of the structure and rebuilding or rehabilitation to restore the building to a competitive position.
    the cost of erecting a building to replace or serve the functions of a previous structure.
  • s

    large metropolitan areas that are slightly smaller than the primary markets. Atlanta, Austin, Baltimore, Charlotte, Cincinnati, Cleveland, Columbus, Dallas, Denver, Detroit, Houston, Indianapolis, Jacksonville, Kansas City, Las Vegas, Memphis, Milwaukee, Minneapolis, Nashville, Norfolk, Orlando, Philly Metro, Phoenix, Pittsburg, Portland, Raleigh/Durham, Sacramento, Salt Lake City, San Antonio, San Diego, Seattle, South Florida, St Louis and Tampa. (Source: Real Capital Analytics)
    an individual or company those sources, underwrites, and executes real estate investment opportunities. Real estate crowdfunding investors typically invest into a deal alongside the sponsor, making the two parties equity co-investors. (Source: ArborCrowd)
    the value of a property after it reaches a normal occupancy rate and occupancy expenses. Example: A recently built, 1,000-unit apartment complex is expected to take 2 years to lease up at market rents. At that time, extra advertising will no longer be needed to attract tenants, so expenses will become stable. The appraiser provided a report offering a stabilized value of $100 million for the building. In order to derive its as is value, the appraiser then subtracted from that value for the reduced occupancy and higher expenses expected for the first two years.
  • t

    all other US markets not included in primary and secondary markets. (Source: Real Capital Analytics)
  • u

  • UNIT
    in multifamily residential property, a suite of rooms making up a residence for one tenant. It is generally characterized by a private entrance and some method of individuality from other units in the building or complex.
    1. in appraisal, the economic period during which a positive cash flow is expected for the improvements. 2 in accounting and taxation, the period to depreciate the building.
  • v

    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.
    an investment strategy that targets underperforming properties with upside potential. Physical value-add strategies aim to improve the property itself by completing deferred maintenance, renovating unit interiors or adding new amenities. Operational value-add strategies aim to improve property fundamentals by addressing managerial issues. The most successful value-add strategies often involve aspects of physical and operational value-add strategies. (Source: ArborCrowd)
  • w

    dwelling unit in a building of more than one story with no elevator.
  • WATERFALL (Distribution Waterfall)
    the order in which a private investment makes distributions. A distribution waterfall is a hierarchy delineating the order in which funds will be distributed, and may ensure that different types of investors have priority of payment compared to others within the same property. (Source: Investopedia)
  • y

    a measurement of the rate of earnings from an investment.
    a prepayment premium that allows investor/lender to attain the same yield as if the borrower made all scheduled mortgage payments until maturity.
  • z

    a legal mechanism for local governments to regulate the use of private owned real property by specific application of police power to prevent conflicting land uses and promote orderly development. All privately owned land within the jurisdiction is placed within designated zones that limit the type and intensity of development permitted