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Glossary of Real Estate Terms
This Glossary has
been provided as a courtesy to assist you in
gathering information relative to real estate.
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Capital
Expenses:
This type of expense is most often defined by
reference to generally accepted accounting
principles (GAAP), but GAAP does not provide
definitive guidance on all possible
expenditures. Accountants will often disagree on
whether or not to include certain items. |
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Capital (Reserves)
Expenditure (CAP-X):
A major improvement that will have a life of
more than one year. Capital expenditures are
generally depreciated over their useful life, as
distinguished from operational repairs, which
are subtracted from income during the year in
which they were expended. |
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Capitalization:
A method of determining value of real property
by considering net operating income divided by a
predetermined annual rate of return. |
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Capitalization Rate:
The rate that is considered a reasonable return
on investment (on the basis of both the
investor's alternative investment possibilities
and the risk of the investment). Used to
determine and value real property through the
capitalization process. Also called "free and
clear return". |
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Carrying Charges:
Costs incidental to property ownership, other
than interest (i.e. taxes, insurance costs and
maintenance expenses), that must be absorbed by
the landlord during the initial lease-up of a
building and thereafter during periods of
vacancy. |
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Carve-outs:
Specific items that a Lender will require the
Borrower to personally guarantee for the life of
the loan. Typically include (but are not limited
to) environmental, fraud, misappropriation of
funds, and theft. |
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Certificate of Occupancy:
A document presented by a local government
agency or building department certifying that a
building and/or the leased premises (tenant's
space), has been satisfactorily inspected and
is/are in a condition suitable for occupancy. |
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Chapter 7:
That portion of the Federal Bankruptcy code that
deals with business liquidations. Chapter 11 is
that part of the Federal Bankruptcy code that
deals with business reorganizations. |
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Chapter 11:
That portion of the Federal Bankruptcy code that
deals with business reorganizations. Chapter 7
is that part of the Federal Bankruptcy code that
deals with business liquidations. |
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Circulation Factor:
Interior space required for internal office
circulation not accounted for in the Net Square
Footage. Based upon our experience, we use a
Circulation Factor of 1.35 x the Net Square
Footage for office and fixed drywall areas and a
Circulation Factor of 1.45 x the Net Square
Footage for open area workstations. |
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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. |
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Closing Costs:
Various fees and expenses payable by the seller
and buyer at the time of a real estate closing,
(also termed transaction costs). These costs
include brokerage commissions, lender fees,
title insurance, recording fees, prepayment
penalty, inspection and appraisal fees, and
attorney’s fees. |
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Commercial Bank:
A financial institution authorized to provide a
variety of financial services, including
consumer and business loans (generally
short-term with full recourse to the Borrower).
Commercial banks may be members of the Federal
Reserve System. |
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Commitment Fee:
A charge required by a lender to lock in
specific terms on a loan at the time of
Commitment. |
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Commitment Letter:
An official notification from a Lender to a
Borrower indicating that the Borrower's loan
application has been approved. It will state in
detail the terms and conditions of the
prospective loan. |
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Common Area:
There are two components of the term "common
area". If referred to in association with the
Rentable/Usable or Load Factor
calculation, the common areas are those areas
within a building that are available for common
use by all tenants or groups of tenants and
their invitees (i.e. lobbies, corridors,
restrooms, etc.). On the other hand, the cost of
maintaining parking facilities, malls,
sidewalks, landscaped areas, public toilets,
truck and service facilities, and the like are
included in the term "common area" when
calculating the tenant's
pro-rata share of building operating
expenses. |
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Common Area Maintenance (CAM):
This is the amount of Additional Rent charged to
the tenant, in addition to the
Base Rent, to maintain the common areas
of the property shared by the tenants and from
which all tenants benefit. Examples include:
snow removal, outdoor lighting, parking lot
sweeping, insurance, property taxes, etc. Most
often, this does not include any capital
improvements that are made to the property. |
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Comparables:
Lease rates and terms of properties similar in
size, construction quality, age, use, and
typically located within the same sub-market and
used as comparison properties to determine the
fair market lease rate for another property with
similar characteristics. |
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Concessions:
Cash or cash equivalents expended by the
landlord in the form of rental abatement,
additional tenant finish allowance, moving
expenses, cabling expenses or other monies
expended to influence or persuade the tenant to
sign a lease. |
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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.
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Conduit:
An entity which issues mortgage- backed
securities backed by mortgages which were
originated by other lenders. |
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Constant:
Percentage of the original loan paid in equal
annual payments that provides principal
reduction and interest payments over the life of
the loan. |
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Construction Loan:
A short-term, interim loan for financing the
cost of construction. The lender advances funds
to the builder at periodic intervals as work
progresses. Typically a recourse loan to the
borrower. |
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Construction Management:
The actual construction process is overseen by a
qualified construction manager who ensures that
the various stages of the construction process
are completed in a timely and seamless fashion,
from getting the construction permit to
completion of the construction to the final
walk-through of the completed leased premises
with the tenant. |
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Consumer Price Index ("CPI"):
Measures inflation in relation to the change in
the price of a fixed market basket of goods and
services purchased by a specified population
during a "base" period of time. It is not a true
"cost of living" factor and bears little direct
relation to actual costs of building operation
or the value of real estate. The CPI is commonly
used to increase the base rental 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. |
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Contiguous Space:
(1) Multiple suites/spaces within the same
building and on the same floor which can be
combined and rented to a single tenant. (2) A
block of space located on multiple adjoining
floors in a building (i.e., a tenant leases
floors 6 through 12 in a building). |
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Contract Documents:
The complete set of design plans and
specifications for the construction of a
building or of a building’s interior
improvements. Working Drawings specify for the
contractor the precise manner in which a project
is to be constructed. |
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Conveyance:
Most commonly refers to the transfer of title to
property between parties by deed. The term may
also include most of the instruments by which an
interest in real estate is created, mortgaged or
assigned. |
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Core Factor:
Represents the percentage of Net Rentable Square
Feet devoted to the building’s common areas
(lobbies, rest rooms, corridors, etc.). This
factor can be computed for an entire building or
a single floor of a building. Also known as a
Loss Factor or Rentable/Usable (R/U) Factor, it
is calculated by dividing the rentable square
footage by the usable square footage." |
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Correspondent:
A specialized type of mortgage banker whose
function is limited to the origination of
mortgage loans which are sold to other mortgage
bankers or investment bankers under a specific
commitment. |
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Cost Approach:
A method of appraising real property whereby the
replacement cost of a structure is calculated
using current costs of construction. |
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Covenant:
A written agreement inserted into deeds or other
legal instruments stipulating performance or
non-performance of certain acts or, uses or
non-use of a property and/or land. |
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Covenant of Quiet Enjoyment:
The old "quiet enjoyment" paragraph, now more
commonly referred to as "Warranty of
Possession", had nothing to do with noise in and
around the leased premises. It provides a
warranty by Landlord that it has the legal
ability to convey the possession of the premises
to Tenant; the Landlord does not warrant that he
owns the land. This is the essence of the
landlord's agreement and the tenant's obligation
to pay rent. This means that if the landlord
breaches this warranty, it constitutes an actual
or constructive eviction. |
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Cross-Collateralization:
Net income shortfalls on one property are offset
by excess cash flow from other properties in a
pool of “crossed” loans. Significantly enhances
a transaction from the viewpoint of investors
and rating agencies. |
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Cumulative Discount Rate:
The interest rate used in finding present values
that when applied to the rental rate takes into
account all landlord lease concessions and then
expressed as a percentage of base rent. |
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