Here are the top 50 commercial real estate terms and their definitions:
Absorption: The rate at which available commercial space is leased or sold within a specific market during a given time period.
Amortization: The process of paying off a debt, such as a mortgage, through regular installment payments over a specified period of time.
Anchor Tenant: A major tenant in a shopping center, often a well-known retail chain, that serves as a primary draw for attracting other tenants and customers.
Appreciation: An increase in the value of a property over time due to market conditions, improvements, or other factors.
Build-to-Suit: A lease arrangement in which a landlord constructs a building to meet the specific requirements of a tenant.
Building Classifications: Classifications (Class A, B, or C) used to categorize commercial properties based on factors such as location, age, and amenities.
Capitalization Rate (Cap Rate): A rate of return on a real estate investment, calculated by dividing the property's net operating income by its purchase price.
Common Area Maintenance (CAM): The fees tenants pay for the upkeep of shared spaces in a commercial property, such as lobbies, restrooms, and parking lots.
Concessions: Incentives offered by landlords to attract tenants, such as free rent, reduced rent, or tenant improvement allowances.
Contract Rent: The rent agreed upon in a lease contract between a landlord and a tenant.
Covenant: A legally binding promise or agreement between parties in a real estate contract.
Debt Service Coverage Ratio (DSCR): A measure of a property's ability to generate enough income to cover its debt payments, calculated by dividing the net operating income by the annual debt service.
Depreciation: A decrease in the value of a property over time, often due to wear and tear or obsolescence.
Due Diligence: The process of thoroughly investigating a property before purchasing, including examining the physical condition, financial performance, and legal status.
Escalation Clause: A provision in a lease that allows for periodic rent increases based on predetermined factors, such as inflation or increased operating expenses.
Equity: The difference between the market value of a property and the outstanding debt or mortgage owed on it.
Fair Market Value: The estimated value of a property based on what a buyer would reasonably be expected to pay and a seller would accept in an open market.
Gross Lease: A lease in which the landlord pays all property expenses, including taxes, insurance, and maintenance, and the tenant pays only the rent.
Gross Rent Multiplier (GRM): A method of estimating the value of a property by multiplying its gross annual rental income by a specified factor.
Ground Lease: A lease of land only, typically for a long term, where the tenant constructs improvements and pays rent for the land.
Highest and Best Use: The most profitable, legally permissible, and physically possible use of a property.
Leasehold Improvements: Alterations or additions made to a leased space by a tenant to meet their specific needs.
Loan-to-Value Ratio (LTV): The percentage of a property's value that is financed through a loan, calculated by dividing the loan amount by the property's appraised value.
Market Rent: The prevailing rent for comparable properties in a specific market or area.
Net Lease: A lease in which the tenant pays some or all of the property expenses, such as taxes, insurance, and maintenance, in addition to the rent.
Net Operating Income (NOI): The income generated by a property after deducting operating expenses but before accounting for debt
Operating Expenses: The costs associated with owning and managing a property, such as taxes, insurance, utilities, and maintenance.
Percentage Lease: A lease in which a tenant pays a base rent plus a percentage of their gross sales or revenue.
Pro Forma: A financial projection or estimate of a property's future performance, often used to evaluate potential investments.
Rentable Square Feet (RSF): The total square footage of a building that can be rented to tenants, including shared spaces and common areas.
Rent Roll: A document that lists all the tenants in a property, their lease terms, and the rent they pay.
Return on Investment (ROI): A measure of the profitability of a real estate investment, calculated by dividing the net income by the total investment.
Reversion: The transfer of a property back to the original owner or lessor after the expiration of a lease or other agreement.
Right of First Refusal: A clause in a lease or sales agreement that gives a tenant or buyer the first opportunity to purchase or lease a property if it becomes available.
Sale-Leaseback: A transaction in which a property owner sells the property and then leases it back from the buyer, often as a means to free up capital.
Sublease: A lease agreement in which a tenant leases all or part of their leased space to a third party, with the original lease remaining in effect.
Tenant Improvement (TI) Allowance: Funds provided by a landlord to a tenant to cover the costs of leasehold improvements or customizations to a rented space.
Triple Net Lease (NNN): A lease in which the tenant pays all property expenses, including taxes, insurance, and maintenance, in addition to the rent.
Usable Square Feet (USF): The square footage of a rented space that is exclusively occupied by a tenant, not including shared spaces or common areas.
Vacancy Rate: The percentage of unoccupied rental space in a building or market, often used as an indicator of the health of the commercial real estate market.
Zoning: The classification and regulation of land use by local governments, dictating the types of activities and developments that are allowed on a property.
1031 Exchange: A tax-deferred exchange of like-kind investment properties, allowing investors to defer capital gains taxes by reinvesting the proceeds of a sale into a new property.
Capital Expenditures (CapEx): The costs associated with acquiring, upgrading, or maintaining a property's physical assets, such as buildings or equipment.
Capital Improvement: A significant improvement or upgrade to a property that extends its useful life or increases its value.
Cash Flow: The net income generated by a property after accounting for all expenses and debt service.
Debt Service: The total amount of principal and interest payments required to repay a loan or mortgage.
Lease Commencement Date: The date on which a lease becomes effective and the tenant's rights and obligations begin.
Lease Expiration Date: The date on which a lease ends and the tenant's rights and obligations cease, unless the lease is renewed or extended.
Loan Commitment: A formal agreement by a lender to provide a specified amount of financing to a borrower under specific terms and conditions.
Turnkey Property: A fully equipped, move-in ready commercial property that requires minimal improvements or customization by the tenant.