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Glossary of Real Estate Terms
CMBS (commercial mortgage-backed securities)
Securities backed by loans on commercial real estate
CMO (collateralized mortgage obligation)
Debt obligations that are collateralized by and have payments linked to a pool of mortgages
Call date
Periodic or continuous rights given to the lender to cause payment of the total principal balance prior to the maturity date
Capital appreciation
The change in market value of a property or portfolio adjusted for capital improvements and partial sales
Capital expenditures
Investment of cash or the creation of a liability to acquire or improve an asset, as distinguished from cash outflows for expense items that are considered part of normal operations
Capital gain
The amount by which the net proceeds from the sale of a capital item exceeds the book value of the asset
Capital improvements
Expenditures that arrest deterioration of property or add new improvements and appreciably prolong its life
Capital markets
Public and private markets where businesses or individuals can raise or borrow capital
Capitalization
The total dollar value of various securities issued by a company
Capitalization rate
The rate at which net operating income is discounted to determine the value of a property. It is the net operating income divided by the sales price or value of a property expressed as a percentage.
Carrying charges
Costs incidental to property ownership that must be absorbed by the landlord during the initial lease-up of a building and thereafter during periods of vacancy
Cash flow
The revenue remaining after all cash expenses are paid
Cash-on-cash yield
The relationship, expressed as a percentage, between the net cash flow of a property and the average amount of invested capital during an operating year
Certificate of occupancy
A document presented by a local government agency or building department certifying that a building and/or the leased area has been satisfactorily inspected and is in a condition suitable for occupancy
Chapter 11
That portion of the federal bankruptcy code that deals with business reorganizations
Chapter 7
That portion of the federal bankruptcy code that deals with business liquidations
Circulation factor
Interior space required for internal office circulation not accounted for in the net square footage
Class "A"
A real estate rating generally assigned to properties that will generate the highest rents per square foot due to their high quality and/or superior location
Class "B"
Good assets that most tenants would find desirable but lack attributes that would permit owners to charge top dollar
Class "C"
Buildings that offer few amenities but are otherwise in physically acceptable condition and provide cost-effective space to tenants who are not particularly image-conscious
Clear-span facility
A building, most often a warehouse or parking garage, with vertical columns on the outside edges of the structure and a clear span between columns
Closed-end fund
A commingled fund that has a targeted range of investor capital and a finite life
Closing
A period of time, usually less than seven days, after a registration statement is effective and the offering commences, giving the underwriters time to receive payment for the securities
Co-investment
Co-investment occurs when two or more pension funds or groups of funds share ownership of a real estate investment. In co-investment vehicles, relative ownership is always based on the amount of capital contributed. It also refers to an arrangement in which an investment manager or adviser co-invests its own capital alongside the investor.
Co-investment program
An investment partnership or insurance company separate account that enables two or more pension funds to co-invest their capital in a single property or portfolio of properties. The primary appeal for investors is to achieve greater diversification or invest in larger properties typically outside the reach of small- to mid-sized tax-exempt funds, with a greater measure of control than is afforded in typical commingled fund offerings.
Collateral
Asset(s) pledged to a lender to secure repayment of a loan in case of default
Commingled fund
A pooled fund vehicle that enables qualified employee benefit plans to commingle their capital for the purpose of achieving professional management, greater diversification or investment positions in larger properties
Common area
For lease purposes, the areas of a building and its site that are available for the non-exclusive use of all its tenants, e.g., lobbies, corridors, etc.
Common area maintenance
Rent charged to the tenant in addition to the base rent to maintain the common areas. Examples include snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc.
Comparables
Used to determine the fair market lease rate or asking price, based on other properties with similar characteristics
Concessions
Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses or other monies expended to influence or persuade a tenant to sign a lease
Condemnation
The process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain
Conduit
An alliance between mortgage originators and an unaffiliated organization that acts as a funding source by regularly purchasing loans, usually with a goal of pooling and securitizing them
Construction loan
Interim financing during the developmental phase of a property
Construction management
The act of ensuring the various stages of the construction process are completed in a timely and seamless fashion
Consultant
Any company or individual that provides the following services to institutional investors
Consumer price index (CPI)
Measures inflation in relation to the change in the price of goods and services purchased by a specified population during a base period of time. The CPI is commonly used to increase the base rent periodically as a means of protecting the landlord's rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record-keeping necessary for operating expense escalations.
Contiguous space
Multiple suites/spaces within the same building and on the same floor that can be combined and rented to a single tenant, or a block of space located on multiple adjoining floors in a building
Contract documents
The complete set of design plans and specifications for the construction of a building
Contract rent
The rental obligation, expressed in dollars, as specified in a lease. Also known as face rent.
Convertible debt
A mortgage position that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period
Convertible preferred stock
Preferred stock that is convertible to common stock under certain formulas and conditions specified by the issuer of the stock
Conveyance
Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments with which an interest in real estate is created, mortgaged or assigned.
Core properties
The major property types - specifically office, retail, industrial and multifamily. Core assets tend to be built within the past five years or recently renovated. They are substantially leased (90 percent or better) with higher-credit tenants and well-structured long-term leases with the majority fairly early in the term of the lease. Core assets generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 10 percent to 12 percent range.
Cost-approach improvement value
The current cost to construct a reproduction of, or replacement for, the existing structure less an estimate for accrued depreciation
Cost-approach land value
The estimated value of the fee simple interest in the land as if vacant and available for development to its highest and best use
Cost-of-sale percentage
An estimate of the costs to sell an investment representing brokerage commissions, closing costs, fees and other necessary disposition expenses
Coupon
The nominal interest rate charged to the borrower on a promissory note or mortgage
Covenant
A written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts, or use or non-use of a property and/or land
Credit enhancement
The credit support needed in addition to the mortgage collateral to achieve a desired credit rating on mortgage-backed securities. The forms of credit enhancement most often employed are subordination, over-collateralization, reserve funds, corporate guarantees and letters of credit.
Cross-collateralization
A grouping of mortgages or properties that serves to jointly secure one debt obligation
Cross-defaulting
Allows the trustee to call all loans in a group into default when any single loan is in default
Cumulative discount rate
Expressed as a percentage of base rent, it is the interest rate used in finding present values that takes into account all landlord lease concessions.
Current occupancy
The current leased portion of a building or property expressed as a percentage of its total area or units
Current yield
For CMBS, the coupon divided by the price
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