| Realm Business
Solutions Glossary |
v.1.0 9/16/2003 |
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| Running into legal and technical terminology?
Realm has assembled this glossary of key definitions to help professionals
and students get to the bottom of all the language used in today’s
complex real estate transactions and IT strategies. Of course, we
can’t predict every word you might find useful, so send any
comments or suggested additions to this list to info@realm.com. |
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| ABANDONMENT |
The voluntary release of a claim or right one has in a piece of property
with the clear intention of terminating possession or interest and
without giving this interest to anyone else. Abandonment includes both
the intention to release any claim one has against the property as
well as the actual act of "abandoning" the property.
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| ABATEMENT |
A decrease or reduction in the amount of a charge such as rent. For
example, a tenant receives an abatement of rent during the time the
leased space cannot be inhabited due to fire or flood damage.
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| ABSORPTION RATE |
The percentage of a particular type of real estate that can be sold
or leased in a particular location during a certain period of time.
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| ACCELERATED DEPRECIATION |
The method(s) of depreciation for income tax purposes which increases
the write-off at a rate higher than under the straight-line method
of depreciation.
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| ACCELERATION CLAUSE |
A clause in a promissory note, mortgage or deed of trust giving the
creditor (mortgagee) the legal right to demand immediate payment of
all future payments due to the occurrence of some event such as the
default on an installment payment or the failure to keep the property
adequately insured.
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| ACCEPTANCE |
A voluntary expression by the person receiving the offer (the offeree,
and quite often the seller of the property) to be bound by the exact
terms of the offer in the manner requested or authorized by the person
making the offer (the offeror, and quite often the potential buyer
of the property). An acceptance must be unequivocal and unconditional.
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| ACCESS |
The right to enter upon and leave property. The owner of land which
abuts or adjoins a road or highway normally has a vested right to come
and go from his or her land to the highway without obstruction, subject
to limitations imposed by the governing body.
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| ACCESSIBILITY |
The ease with which a person can either enter or exit a particular
parcel of land. The accessibility of a particular parcel is a function
of many things such as frontage to a road, traffic flow, and topography.
Good accessibility will usually result in higher value; likewise, a
parcel of land with poor accessibility will normally sell for less
in the marketplace.
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| ACCESSION |
The legal right that entitles the owner of land to all that the soil
produces or all that is added to the land either intentionally or by
mistake.
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| ACCREDITED MANAGEMENT ORGANIZATION
(AMO) |
A professional designation awarded by the Institute of Real Estate
Management to companies involved in the management of property.
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| ACCREDITED RESIDENTIAL MANAGER (ARM) |
A professional designation awarded by the Institute of Real Estate
Management (IREM), an affiliate of the National Association of Realtors.
The designation is intended for those persons specializing in the management
of residential property.
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| ACCRUAL METHOD |
A method of accounting based on estimating and accruing expenses
each period. Contrast with cash method.
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| ACCRUED |
An accumulation over a certain period of time, such as accrued depreciation
or accrued interest.
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| ACCRUED DEPRECIATION |
Any diminishment or loss of utility or value of a building from the
time of initial construction to the present. Accrued depreciation is
calculated as the difference between what it would cost to replace
the building new and the current appraised value of the building.
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| ACCRUED INTEREST |
Unpaid interest that has already been earned.
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| ACH or Automated Cash Handling |
Automated receipt and deposit of electronic funds directly into the
landlord’s bank account. The draft of these funds can be conducted
on a recurring or scheduled basis, or truncated from the data represented
on a check.
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| ACKNOWLEDGMENT |
A formal declaration to a public official by a person who has signed
(executed) an instrument which states that the signing was voluntary.
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| ACQUISITION |
The act or process by which property ownership is achieved. The ways
in which title to real property is transferred may be classified as
(1) voluntary conveyance (deed), (2) transfer by devise (dying with
a will) or descent (dying without a will), (3) transfer by adverse
possession, (4) transfer by accession and (5) transfer by public action
or by operation of law.
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| ACQUISITION COST |
The total cost of purchasing or acquiring title to real property.
In addition to the sales price, additional costs could also include
loan origination fees, appraisal fee, credit report fee, title charges,
attorney fees and other normal closing costs.
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| ACTUAL CASH VALUE |
The monetary worth of a structure for insurance purposes. Actual
cash value is calculated by taking the replacement cost of the property
and then subtracting the value of the physical wear and tear of the
property.
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| AD VALOREM TAX |
A tax levied according to value. Also referred to as real estate
tax.
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| ADC LOAN |
A type of loan intended to cover the three phases of a project: (1)
acquisition, (2) development, and (3) construction. Such loans, while
considered more risky than some other types of real estate loans, are
normally made with a variable interest rate and are expected to be
repaid over a reasonably short period of time.
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| ADDENDUM |
Something that is added and thus made part of a document. Quite often
a real estate listing agreement or sales contract is a pre-printed
form and thus may not have the space within the document to include
specific and detailed information that the parties to the contract
wish to include.
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| ADJOINING |
In lease terms, property in actual contact with another object (i.e.,
attached). Same as "Contiguous".
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| ADJUNCTION |
The process of adding or annexing a parcel of land to a larger parcel.
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| ADJUSTABLE RATE MORTGAGE (ARM) |
A type of real estate loan in which either the interest rate charged
or the length of the loan, or both, can change. Adjustable rate mortgages
became very popular during the 1980s due primarily to the reluctance
of lenders to quote a fixed interest rate loan to potential borrowers.
By using an ARM, a lender is able to pass on the uncertainty of changes
in interest rates to the borrower if rates change during the life of
the loan. ARMs are normally tied to some index such as government securities.
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| ADJUSTED COST BASIS |
The value of property for accounting purposes used to determine the
amount of gain or loss realized by the owner upon the sale of the property.
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| ADJUSTED SALES PRICE |
The estimated sales price of a comparable property after additions
and/or subtractions have been made to the actual sales price for improvements
and deficiencies when compared to the subject property being appraised.
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| AFFIDAVIT OF TITLE |
A sworn statement by the seller of real estate that no defects of
title other than those stated in the sales contract or deed exist in
the title being conveyed.
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| AFTER-TAX CASH FLOW |
The spendable cash from an income- producing asset, such as an office
building or apartment complex, calculated by taking gross income and
subtracting fixed and variable costs, replacement for reserves, debt
service plus tax savings or minus tax liability.
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| AFTER-TAX EQUITY YIELD RATE |
The internal rate of return on the equity investment after considering
federal income taxes.
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| AGENT |
An individual/entity who transacts, represents, or manages business
for another individual/entity. Permission is provided by the individual/entity
being represented. In real estate this is usually the Leasing Agent
who finds customers (tenants) for the space.
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| ALIENATION CLAUSE |
A provision often included in a mortgage or deed of trust that legally
permits the lender (mortgagee) to demand payment of all the outstanding
principal if the property is sold or transferred by the borrower (mortgagor).
Such a provision is also commonly known as a due-on-sale clause.
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| ALLOWANCE OVER BUILDING SHELL |
Tenant build-out specifications, usually for a new property. This
arrangement caps the landlord’s expenditure at a fixed dollar
amount over the negotiated price of the base building shell. This arrangement
is most successful when both parties agree on a detailed definition
of what construction is included and at what price.
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| AMENITY |
A feature or benefit received from a particular parcel of property
which increases the satisfaction received by the owner or user of that
property. Amenities may be both natural, for example, location or scenic
view, and manmade, such as a swimming pool or tennis courts. Both material
and manmade amenities increase the desirability of a certain location
or parcel of land and thus that particular land will normally have
a higher value than a parcel of land without the amenities.
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| AMERICAN INSTITUTE OF ARCHITECTS (AIA) |
A professional association of registered architects. The construction
contract forms they publish are an industry standard in real estate.
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| AMORTIZATION |
The repayment of a financial obligation over a period of time in
a series of periodic installments. Specifically, this is the payback
of the principal owed to the lender. The effect of amortization is
to build up the paper value of the investor's (owner's) equity and
to reduce the debt obligation. It should be noted that a portion of
each payment consists of a blend of interest and amortization of principal.
The interest portion is tax deductible, whereas the amortization is
not.
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| AMORTIZATION RATE |
The percentage of a periodic payment that is applied to the reduction
of the principal; in a level- payment mortgage this corresponds to
the sinking fund factor.
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| AMORTIZATION TERM |
The time period over which the principal amount would
be retired on the basis of the periodic installments paid.
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| AMORTIZED LOAN |
A financial obligation that is repaid over a period of time by a
series of periodic payments.
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| ANCHOR, or Anchor Tenant |
A well-known commercial retail business such as a national chain
store or regional department store strategically placed in a shopping
center so as to generate the most amount of customers for all of the
stores located in the shopping center. The anchor tenant often receives
favorable leasing terms in exchange for the business it brings to the
retail center.
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| ANNEXATION |
The act of adding, joining and attaching one thing to another. With
respect to the annexing of land, from time to time municipalities legally
incorporate into the existing town or city limits a certain amount
of land or territory outside their legal boundary. This may be done
to consolidate two governments into one or perhaps to increase property
tax revenue for the municipality.
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| ANNUAL PERCENTAGE RATE
(APR) |
The actual cost of borrowing money, expressed in the form of an annual
interest rate. It may be higher than the note rate because it represents
full disclosure of the interest rate, loan origination fees, loan discount
points, and other credit costs paid to the lender.
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| APPRECIATION |
An increase in an asset's market value over its value at some previous
point in time. The increase can be a result of inflation, increased
demand or some other related cause. The term denotes the opposite of
depreciation.
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| APPURTENANCE |
That which belongs to something else and thus passes with the property.
Examples would include riparian rights, easements, barns and other
outbuildings, gardens and orchards.
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| ARGUS |
Software from Realm that models all aspects of the real estate life
cycle - from initial acquisition or development, to lease up and disposition.
ARGUS can also be used to analyze partnership structures and debt financing.
ARGUS is the commercial real estate industry's most popular valuation
tool with more than 15,000 users in 39 countries.
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| ARREARS |
Money which is not paid on time, as for example, if a tenant has
not paid the rental payments, he or she is said to be in arrears.
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| ASP, or Application Service Provider |
Deployment option where the customer basically rents a hosted instance
of software from the solution provider. They do not have to install
the software locally or purchase their own hardware to do this. The
solution provider or vendor runs, maintains and updates the installed
software, and the customer simply logs in over the Internet to their
own instance of the software.
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| ASSESSED VALUE |
The worth or value of a piece of property as determined by the taxing
authority for the purpose of levying an ad valorem (property) tax.
The assessed value of property is normally based on some percentage
of market value. Property may be assessed at full market value or,
as is more commonly the case, assessed at something less.
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| ASSESSMENT |
(1) A determination of the value of a parcel for the purpose of levying
a property tax on that parcel. (2) The term also is used to denote
the means by which local governments raise the money to pay for certain
improvements which directly benefit property owners adjoining or adjacent
to the improvements. For example, the cost of paving a previously unpaved
road could be assessed to the land on each side of the road. The actual
cost to a particular landowner would be based on his or her front footage
as a percentage of the total footage being improved. (3) Joint forms
of ownership such as condominiums and cooperatives allocate the expenses
incurred for the maintenance and upkeep of the common areas and limited
common areas and assess each unit owner for his or her proportionate
share.
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| ASSESSMENT RATIO |
The ratio of assessed value to full market value as set
by a taxing authority.
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| ASSET |
An accounting term used to denote the real and personal property
one possesses, as distinguished from debts and obligations which are
known as liabilities. Assets minus liabilities equals net worth.
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| ASSET MANAGER |
Analyzes the real estate market, recognizes and anticipates trends
and anticipates their effect on the property, verifies the that decisions
regarding financial details such as the budget, capital improvements,
rental rates and other lease considerations make sense from a long
term perspective.
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| ASSIGN |
To transfer to another.
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| ASSIGNEE |
The person to whom a claim, benefit, or right in property is made.
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| ASSIGNMENT |
The transfer of a claim, benefit or right in property belonging to
one person (the assignor) to another person (the assignee). Real estate
instruments in which assignments occur include sales contracts, mortgages,
options, and leases. Rights under contracts are valuable property rights
which can ordinarily be assigned to third persons. The legal effect
of an assignment is to substitute the assignee for the assignor in
the contractual relationship with the other original contracting party.
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| BALANCE SHEET |
A financial statement in table form showing assets, liabilities,
and equity, in which assets equal the sum of liabilities plus equity.
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| BALLOON MORTGAGE |
A mortgage with a balloon payment.
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| BALLOON PAYMENT |
The final payment on a loan, when that payment is greater than the
preceding installment payments and pays the loan in full.
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| BASE RENT |
The minimum rent due under a lease that has a percentage or participation
requirement.
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| BASE YEAR |
A point of time that serves as a benchmark for reflecting the change
in an index.
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| BASE YEAR RECOVERIES, or Base Year
Scenario: |
In this scenario, recoveries in the first year are added to the lump
sum of the rent. In year two, the tenant pays the increase over the
base year. This method is favored by commercial landlords, as they
do not repay if a tenant’s costs go down during the fiscal year
(though costs seldom go down anyway).
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| BONA FIDE |
In good faith, without fraud.
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| BOND |
A certificate that serves as evidence of a debt and of the terms
under which it is undertaken.
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| BOOK VALUE |
The carrying amount of an asset, as shown on the books of a company.
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| BREAK-EVEN POINT |
The amount of rent or the occupancy level needed to pay operating
expenses and debt service. Also called default point.
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| BREAKPOINT |
A pre-established base amount of the dollar sales volume for a tenant
on which percentage rent is based.
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| BROKER |
A state-licensed agent who, for a fee, acts for property owners in
real estate transactions, within the scope of state law. Also referred
to as a Leasing Agent.
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| BUDGET™ |
Software from Realm Business Solutions, streamlines and simplifies
the budgeting process at every level. It eliminates spreadsheet errors,
consolidation pains, data synchronization errors, and provides consistency
throughout the budgeting cycle. No longer must real estate companies
approach budgeting as a yearly chore – managers are using BUDGET
to conduct this key process on a continuous basis to help make better
decisions across their entire portfolio.
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| BUILD OUT |
The construction or improvements of the interior of a space, including
flooring, walls, finished plumbing, electrical work, etc.
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| BUILD TO SUIT |
An arrangement whereby a landowner offers to pay to construct on
his or her land a building specified by a potential tenant, and then
to lease land and building to the tenant.
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| BUILDING CLASSIFICATION |
Set of ratings for the subjective quality and condition of a property
for its location, ranked from “Class A” for prime properties
that command higher rents, to “Class D” for properties
that have deteriorated or become less desirable to tenants.
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| BUILDING CODE |
An ordinance that specifies minimum standards of construction for
buildings to protect public safety and health.
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| BUILDING LINE |
A line fixed at a certain distance from the front and/or sides of
a lot beyond which no structure can project.
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| BUILDING OWNERS AND MANAGERS ASSOCIATION
(BOMA) |
An organization of practitioners who own and manage buildings, notably
office space. Address: Building Owners and Managers Association, 1221
Massachusetts Avenue NW, Washington, DC 20005.
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| BUILDING PERMIT |
A permission issued by a city for the construction of a building
to ensure compliance with building codes. A building permit must be
displayed in plain site during the entire construction process.
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| BUSINESS CYCLE |
A wavelike movement of increasing and decreasing economic prosperity
consisting of four phases: expansion, recession, contraction, and revival.
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| BUSINESS INTERRUPTION INSURANCE |
A form of insurance coverage that provides income to a business in
the event the premises become untenable.
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| BUSINESS PARK |
A development allocated to office/warehouse or similar use.
Also known as an office park or a industrial park.
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| CALENDAR YEAR |
A calendar year used for sales reporting purposes.
Contract with Fiscal Year.
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| CAM, or Common Area Maintenance |
The process of maintaining the common areas of the building or retail
space such as walkways, parking, courtyards, food courts, entries,
elevators, etc. In commercial real estate, CAM expenses are usually
recovered through estimated monthly payments from tenants in addition
to their base rent through terms in the lease.
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| CANCELLATION CLAUSE |
A contract provision that gives the right to terminate obligations
upon the occurrence of specified conditions or events.
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| CAP |
A limit placed on adjustments to recoverable expenses.
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| 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. Examples include upgrading the elevators,
replacement of the roof, and renovations of the lobby.
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| CAPITAL GAIN |
Gain on the sale of a capital asset In 1991 and thereafter, the maximum
individual tax rate on capital gains is 28%. There are limits on the
deduction of capital losses against ordinary income.
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| CAPITAL IMPROVEMENT |
Same as capital expenditure.
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| CAPITAL INVESTMENT |
The initial capital and the long-term expenditures made to establish
and maintain a business or investment property.
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| CAPITAL LOSS |
Loss from the sale of a capital asset.
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| CAPITALIZE |
1) to estimate the present lump sum value of an income stream
2)
to set up the cost of an asset on financial records.
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| CAPTURE RATE |
The sales or leasing rate of a real estate development compared to
the sales or leasing rate of all developments in the market area.
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| CASH EQUIVALENT |
The conversion of the price of property that sold with
either favorable or unfavorable financing into the price the property
would have sold for had the seller accepted all cash in the transaction.
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| CASH FLOW |
Periodic amounts available to an equity investor after deducting
all periodic cash payments from rental income.
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| CASH METHOD |
A method of accounting based on cash receipts and disbursements.
Contrast with accrual method.
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| CENTRAL BUSINESS DISTRICT (CBD) |
The downtown section of a city, generally consisting of retail, office,
hotel, entertainment, and governmental land uses with some high density
housing.
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| CERTIFICATE OF INSURANCE |
A document issued by an insurance company to verify the coverage.
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| CERTIFICATE OF OCCUPANCY |
A document issued by a local government to a developer permitting
the structure to be occupied by members of the public. Issuance of
the certificate generally indicates that the building is in compliance
with public health and building codes. Also referred to as an Occupancy
Permit.
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| CERTIFIED COMMERCIAL INVESTMENT MEMBER
(CCIM) |
A designation awarded by the Realtors National Marketing Institute,
which is affiliated with the National Association of Realtors.
Address: Realtors National Marketing institute 430 North Michigan Avenue
Chicago, IL 60611.
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| CERTIFIED PROPERTY MANAGER (CPM) |
A professional awarded to real estate managers by the Institute of
designation Real- Estate Management, an affiliate of the National Association
of Realtors.
Address: Institute of Real Estate Management 430 North Michigan Avenue,
Chicago, IL 60611.
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| CHECK AND LIST |
The process of applying or allocating incoming tenant payments to
recoverable expenses in addition to base rents owed. This is a new
feature of Realm COLLECT. Since many corporate clients pay all real
estate expenses in one lump sum, this ability is huge for industrial/office
real estate companies that must quickly pay invoices.
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| COLLECT™ |
World’s first fully automated rent collection and cash flow
management solution for property owners and managers. It enhances the
speed and accuracy of collections, by eliminating the manual processes
of receiving, entering, and depositing rent payments. COLLECT’s
technologies and value-added services completely integrate with existing
property management systems. COLLECT works with all types of payment
methods, including checks, credit cards, money orders and electronic
(ACH) payments, providing the flexibility and service that today’s
tenants are demanding. Innovative technologies automatically convert
paper transactions into elccctronic transactions, eliminating excess
data entry and overhead. The result: a substantial savings in monthly
operating costs, and a streamlined, consistent process for managing
receivables across your entire portfolio.
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| COMMERCIAL PROPERTY |
Property designed for use by retail, wholesale, office, hotel, or
service users.
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| COMMISSION |
Payment to a broker for services rendered such as in the sale, purchase,
or lease of real estate.
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| COMMON AREA |
Areas of a property that are used by all owners or tenants.
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| CONCESSIONS |
Benefits granted by a seller/lessor to induce a sale/lease.
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| CONDEMNATION |
1) taking private property for public use with compensation to the
owner under eminent domain. Used by governments to acquire land for
streets, parks, schools, etc., and by utilities to acquire necessary
property.
2) declaring a structure unfit for use.
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| CONSTRUCTION MANAGER |
Supervises tenant finish out and capital improvements to the property.
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| CONSULTING |
In real estate technology, the service or contracted labor of designing
the strategy, assisting implementation and/or training of users and
managers within the client company to ensure on-time and in-budget
deployment of the solution. For more information, refer to the Realm
Client Services area.
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| CONSUMER PRICE INDEX |
The most widely known of many such measures of price levels and inflation
that are reported to the U.S. government. It measures and compares,
from month to month, the total cost of a statistically determined "typical
market basket" of goods and services consumed by U.S. households.
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| CONTIGUOUS |
Actually touching; contiguous properties have a common boundary.
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| CONTINGENCY |
A requirement in a contract that must occur before that contract
can be finalized.
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| CONTRACT |
A legal agreement between entities that requires each to conduct
(or refrain from conducting) certain activities. This document provides
each party with a right that is enforceable under our judicial system.
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| CONTRACT SERVICES |
Maintenance task performed by third party laborers on a regular basis
for a specified fee.
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| CONTRACTOR |
One who contracts to supply specific goods or services, generally
in connection with development of a property.
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| CONVEY |
To deed or transfer title to another.
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| CONVEYANCE |
The transfer of the title of real estate from one to another; the
means or medium by which title of real estate is transferred.
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| COTENANCY |
Any of a number of forms of multiple ownership such as tenancy in
common and joint tenancy.
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| COVENANT |
Promises written into deeds and other instruments agreeing to performance
or nonperformance of certain acts, or requiring or preventing certain
uses of the property.
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| COVENANT NOT TO COMPETE |
Same as non-compete clause.
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| CREDIT |
1) In finance, the availability of money.
2) in accounting, a liability
or equity entered on the right side of the ledger.
3) in real estate,
an amount owed by the landlord to the tenant. (NOTE: Crediting an asset
will decrease the value of the asset. Crediting a liability or equity
will increase that liability or equity.)
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| CREDIT TENANT |
In a shopping center or office building, the tenant who occupies
the most space and/or has a nationally recognized name.
Credit tenants are considered creditworthy and attract customers or
traffic to the center.
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| CREDITOR |
One who is owed money.
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| CREDIT RATING REPORT |
An evaluation of a person's capacity (or history) of debt repayment.
Generally available for individuals from a local retail credit association;
for businesses publicly held by companies such as Dunn & Bradstreet;
and for bonds by Moody's, Standard & Poors, and Fitch's.
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| CTI™ Real Estate System |
Realm’s CTI is the most functionally rich property and asset
management solution in the industry. Designed to automate and streamline
your most costly and error-prone processes, it allows companies to
realize material productivity gains in every facet of their operation.
CTI’s suite of integrated modules serves a number of major operational
roles, including accounting, property management, asset/portfolio management,
automated consolidations, reporting and lease administration.
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| DCF, or Discounted Cash Flow |
A term used in the valuation of a real estate asset. Refers to the
cash flow generated by a leaseable property over time, minus expenses
and other factors such as inflation and capitalization rates. Generating
a DCF value is the basic function of Realm’s industry-standard
ARGUS software.
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| DEBIT |
An asset entered on the left side of the ledger. (NOTE: Debiting
an asset will increase the value of the asset. Debiting a liability
or equity will decrease that liability or equity.)
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| DEBT |
An obligation of money, goods, or service either in the present or
in the future from one person to another.
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| DEBT EQUITY RATIO |
The relationship between the total loan amount owed to the lender(s)
and the invested capital of the owner(s). In real estate investments
this ratio, also known as the leverage ratio, can be very high due
largely in part to the loan security of real estate, thus real estate
investments are often highly leveraged. Owner-occupied residential
real estate typically has a high debt-equity ratio, particularly homes
recently purchased. A $100,000 home purchased with $20,000 cash and
an $80,000 mortgage would have a debt-equity ratio of 4:1 ($80,000/$20,000).
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| DEBT FINANCING |
The use of borrowed funds, or other people's money, to purchase real
estate. Also known as debt capital as compared to equity capital, which
is the amount of one's own money used to purchase real estate.
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| DEBTOR |
One who owes debt.
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| DEBT SERVICE |
The periodic payment (monthly, quarterly, annually) necessary to
pay the interest and principal on a loan which is being amortized.
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| DEBT-TO-INCOME RATIO |
The relationship between a person's periodic (normally monthly) debt
and his or her income. While lenders use various rules of thumb in
determining the maximum amount of money a person can borrow, the ratio
often used is that the total principal, interest, taxes, and insurance
(PITI) due each month should not exceed 25 to 28 percent of the borrower’s
monthly gross income.
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| DECLINING-BALANCE DEPRECIATION |
An accelerated method of depreciation for tax purposes in which the
remaining depreciable balance each year is the base for calculating
the subsequent year's depreciation. The result is a faster write-off
in the early years than would be possible using a straight-line method
of depreciation.
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| DEED |
A written instrument, usually under seal, conveying some property
interest from a grantor to a grantee. In order for a deed to be effective
in transferring title, it must be in proper legal form and executed
as specified by the law in the state in which the property is located.
The title is actually transferred the moment the deed is properly delivered
to and accepted by the grantee. In order to protect the validity of
the title from subsequent innocent third parties purchasing the same
property from the original grantor, the deed must be recorded as required
by the particular state's recording statute.
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| DEED RESTRICTION |
An imposed restriction in a deed that limits the use of the property.
For example, a restriction could prohibit the sale of alcoholic beverages.
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| DEFAULT |
The act of not performing up to the requirements of the lease. For
example, not paying rent would result in a default.
|
| DEFERRED CHARGES |
In accounting, expenditures for intangible assets, such as mortgage
placement fees or property leasing commissions, that are to be written
off over the life of the service provided.
|
| DEFERRED INCOME |
Income to be received in the future.
|
| DEFERRED LIABILITY |
A debt that need not be paid currently. Accelerated depreciation
frequently causes a deferred income tax liability for income- producing
property.
|
| DEFERRED MAINTENANCE |
Inadequate repair and upkeep of a building which results in physical
depreciation and loss in value.
|
| DELINQUENCY DATE |
A specific time after which a penalty is incurred for nonpayment
of amounts owed.
|
| DEMISE |
A conveyance of an estate to someone for life, for a certain number
of years, or at will by means of a lease. The word demise is synonymous
with "lease" or 'let' and use of the word in a lease implies
a covenant for quiet enjoyment which means the landlord (lessor) guarantees
that the tenant (lessee) will not be disturbed by someone having superior
claims against the property.
|
| DEMISED PREMISES |
The part of a property which is leased to a tenant.
|
| DEPRECIABLE BASIS |
The amount on which depreciation deductions are based for income
tax purposes.
|
| DEPRECIABLE LIFE |
The estimated economic useful life of a depreciable asset such as
a building. Depreciable life is not a measure of how long the building
will remain standing, but rather how long the improvements are expected
to provide an economic return.
As an analogy, automobiles may last for decades, but the cost and annoyance
of repairs and the modern equipment of newer cars gives most automobiles
a short useful life. Improvements to real estate are long-lasting,
but without renovation, they steadily march to the junkyard.
|
| DEPRECIATED COST |
In taxation, the cost new minus any depreciation taken.
|
| DEPRECIATION (ACCOUNTING) |
A method of allocating the cost of a wasting asset over its estimated
useful life. For income tax purposes, depreciation is a provision for
the estimated wear and tear of an asset. Depreciation deductions can
be claimed as a tax deduction on real estate improvement (not land),
regardless of whether the market indicates an increase or decrease
in the value of the property. To claim depreciation on an income tax
return, a bookkeeping entry is required, not a cash payment. In many
real estate investment situations, depreciation deductions are of significant
value. Depreciation deductions serve to reduce the adjusted tax basis
of property, so, upon a resale, there will be a greater capital gain
on which a tax is due. Most investors prefer to enjoy substantial amounts
of current depreciation deductions in the face of a future tax because
of (1) the time value of money, and (2) the possibility of lower tax
rates upon resale.
|
| DIRECT COSTS |
Expenditures made in the construction of an improvement that can
be directly attributable to the improvement. Also known as hard costs,
direct costs include such items as labor, material, contractor's overhead,
and profit.
|
| DISBURSEMENT |
A cash expenditure.
|
| DISCOUNT |
The amount of money paid at the front end to acquire a loan. This
amount deducted from the principal at the time the loan is made and
thus represents interest paid in advance. The discount is normally
stated in terms of points or percent.
|
| DISPOSSESS |
The removal or eviction of someone from real estate through legal
action.
|
| DISTRESSED PROPERTY |
Real estate which must be sold due to a pending mortgage foreclosure.
|
| DOING BUSINESS AS (DBA) |
The name under with the tenant is operating. This name could be different
from the legal entity name. Also referred to as the Operating As Name.
|
| DOUBLE-DECLINING BALANCE DEPRECIATION |
In accounting, an accelerated depreciation method restricted to certain
qualified properties. The method calculates depreciation at twice the
rate of the straight-line method on a balance that is reduced each
year as the depreciation is taken.
|
| DOWNREIT |
A variation of a standard REIT (See Real Estate
Investment Trust).
Structured much like an UPREIT but the REIT owns and operates properties
other than its interest in a controlled partnership that owns and operates
separate properties.
|
| DRAG |
Unrecovered costs that directly impact the enterprise value of a
real estate company. Through reduced manual effort and increased process
accuracy in billing tenants according to leasing terms, companies can
create significant reductions in non-recoverable costs.
|
| DYNA™ |
Solution by Realm, provides sophisticated forecasting tools for real
estate asset and portfolio management. The task of preparing operating
projections for commercial office, retail, industrial, apartment and
hotel properties on a cash, tax or book basis is made easy. DYNA can
draw on operating budgets and perform sophisticated analyses of both
simple and complex properties. Properties can then be consolidated
into portfolios, offering a comprehensive, complete view of the organization’s
financial position.
|
|
| |
| EASEMENT |
The right, privilege, or interest that one party has in the land
of another (e.g., right-of-way or utilities).
|
| EGRESS |
Access from a land parcel to a public road or other means of exit.
Contrast with Ingress.
|
| EJECTMENT |
Action to regain possession of real property. This is a last-ditch
effort that is used when there is no relationship between landlord
and tenant.
|
| EMINENT DOMAIN |
The right of the government or a public utility to acquire property
for necessary public use by condemnation; the owner must be fairly
compensated.
|
| ENCROACHMENT |
A building, a part of a building, or an obstruction that physically
intrudes upon, overlaps, or trespasses upon the property of another.
|
| ENCUMBRANCE |
Any right to or interest in land that affects its value. Includes
outstanding mortgage loans, unpaid taxes, easements, deed restrictions.
Encumbrances also come into play in office space, where a tenant may
have first right of refusal on the space they currently occupy, or
dibs on another floor if that tenant moves out. There can be several
encumbrances at once so it is important to have these brought to the
landlord’s attention when one of these obligations comes into
play.
|
| END CAP |
A tenant whose space occupies the end of a retail shopping center.
|
| ENDORSEMENT |
Signing one's name or inscribing the receiving company on the back
of a check, usually prior to deposit. Realm’s COLLECT solution
can automate this process.
|
| ENTITY |
The legal form under which property is owned.
|
| EQUITY |
The interest or value that the owner has in real estate over and
above the liens against it.
|
| EQUITY DIVIDEND |
| The annual cash flow that an equity investor receives. |
| ESCALATION CLAUSE |
A provision in a lease that requires the tenant to pay more rent
based on an increase in costs.
|
| ESCROW |
Payments made as partial payments throughout the term of the lease.
At some designated point(s), the escrow amounts are reconciled against
the actual amounts owed.
|
| ESTOPPEL |
A doctrine of law that stops one from later denying facts which that
person once acknowledged were true and others accepted on good faith.
|
| ESTOPPEL CERTIFICATE |
A document by which the mortgagor (borrower) certifies that the mortgage
debt is a lien for the amount stated. The debtor is thereafter prevented
from claiming that the balance due differs from the amount stated.
|
| EVICTION |
The removal of someone from real estate through legal action.
|
| EVICTION NOTICE |
A landlord’s legal notice to a tenant explaining the tenant’s
default under the terms of the lease and informing him/her of a pending
eviction suit.
|
| EXCLUSIVE AGENCY |
An agreement in which one broker has exclusive rights to represent
the owner or tenant. If another broker is used, both the original and
actual broker are entitled to leasing commissions.
|
| EXCULPATORY CLAUSE |
A clause in a broker agreement that clears the owner of any responsibility
if the broker misrepresents the property.
|
| EXECUTION DATE |
The date a lease is signed.
|
| EXPANSION OPTION |
A lease clause granting a tenant the option to lease additional adjacent
space after a specified period of time.
|
|
|
|
| FAÇADE |
The exterior wall of a building.
|
| FAIR MARKET VALUE |
An economic concept denoting the price, in terms of money, at which
a willing seller and willing buyer will agree when both parties are
acting prudently, knowledgeably, and under no compulsion.
|
| FASB 13 |
A ruling of the Financial Accounting Standards Board that requires
rent to be “straight lined” (i.e., any free rent or rent
bumps are spread evenly over the lease term). Also referred to as Straight
Line Rent.
|
| FIDUCIARY |
A person who represents another on financial/property matters.
|
| FINANCIAL STATEMENT |
A written statement of the financial position of a person or company,
showing total assets and liabilities as of a certain date. Many lenders
require a financial statement as part of a loan application.
|
| FINANCING |
The difference between the purchase price and the down payment, commonly
referred to as debt or the mortgage. One of the features distinguishing
real estate from some investments is the ability to finance all or
a significant part of the purchase price with borrowed dollars.
|
| FIRST RIGHT OF REFUSAL |
A lease option that grants the tenant the first chance at leasing
a particular suite, prior to the landlord offering the suite to any
other party. Also called Right of First Refusal.
|
| FISCAL YEAR |
A business year used for accounting or tax purposes. Contrast with
Calendar Year.
|
| FIXED EXPENSES |
Expenditures such as property taxes, license fees, and property insurance
not vary directly given changes in the occupancy rate. Contrast with
Variable Expenses.
|
| FIXTURE |
Personal property which for some reason, such as the manner of attachment,
has become realty (part of the building and/or property). Such property
is also referred to as chattel realty. Examples of fixtures include
built-in cabinets in a kitchen, bathtubs, permanent bookcases, and
other such objects.
|
| FLOOR PLAN |
The layout of a building showing the exact specifications as to size
and shape of each room.
|
| FORECAST, or Forecasting |
In real estate, the process of evaluating the long-term revenues
and expenses for a property or portfolio of assets. The forecast for
most commercial real estate is usually evaluated over a 12 year term.
Many companies use Realm’s DYNA software to create forecasts
based on existing annual budgets and/or financial data from a property
management system.
|
| FREE RENT PERIOD |
A portion of the term of a lease when no rent is required. It is
offered by a landlord as a rental concession to attract tenants.
|
| FRONTAGE |
The linear distance of the front face of a commercial space.
|
|
|
|
| GENERAL CONTRACTOR |
One who constructs a building or other improvement for the owner
or developer.
May retain a construction labor force or use sub contractors.
|
| GENERAL LEDGER, or GL |
The basic accounting function of the real estate enterprise, listing
accounts, revenues and expenses. The GL workflow can be accomplished
through a property management system like Realm’s CTI real estate
system, or by using generic accounting applications with some customization.
|
| GOODWILL |
A business asset of intangible value created by customer and
supplier relations.
|
| GRACE PERIOD |
The period during which one party may fail to pay amounts due without
being considered in default.
|
| GROSS AREA |
The total floor area of a building, usually measured from its outside
walls.
|
| GROSS INCOME |
Total income from property before any expenses are deducted.
|
| GLA, or GROSS LEASABLE AREA |
The floor area that can be used by tenants. Generally measured from
the center of joint partitions to outside wall surfaces. Contrast with
Net Leasable Area.
|
| GROSS LEASE |
A lease of property whereby the landlord (i.e., lessor) pays for
all property charges usually included in ownership. These charges can
include utilities, taxes, and maintenance, among others. In a gross
lease, the tenant ONLY pays rent, with no calculation for recoverables.
They may pay part of the recovery as inflated rent. This usually happens
with distressed properties when a tenant is really needed or for short
term/seasonal or sub-lease deals. Many landlords instead use the Triple
Net Lease scenario.
|
| GROSS SALES |
The total sales made by a retail tenant at a leased space.
A percentage of gross sales is charged as rent under a percentage rent
lease.
|
| GROSS UP |
Increase a building’s operating expenses to a stated occupancy
level when the actual occupancy level is below that level. This recoverables scenario is most typical of retail but is also considered in office space.
|
| GROUND LEASE |
Only the ground is covered by the lease.
Same as land lease.
|
| GROUND RENT |
The rent earned by leased land.
|
| GUARANTY |
An assurance provided by one party that another party will perform
under a contract.
|
|
|
|
| HIGH RISE |
A commonly used expression referring to a building that is high enough
to require an elevator.
|
| HOLDBACK |
That portion of a contractor's draw under a construction loan that
is withheld by the lender until all work is completed to the satisfaction
of the lender.
Quite often the amount withheld is equal to the contractor's profit,
which means that enough of the loan is dispersed so that the sub-contractors
can be paid.
Also called Retainage.
|
| HOLD HARMLESS CLAUSE |
An exculpatory clause freeing one from personal liability.
|
| HOLDOVER TENANT |
The retention by a tenant of possession after the lease on a property
has expired. Holding over creates a tenancy at sufferance, and there
is typically a monetary punishment enforced on the tenant. Contrast
with Month-To-Month Tenant.
|
| HVAC |
Heating, ventilation and air conditioning (usually listed as a cost
item for landlords).
|
|
|
|
| INCOME |
The money or other benefit coming from the use of the property.
|
| INCOMPETENT |
An individual who is unable to handle his own affairs by reason of
some medical condition (e.g., insanity, Alzheimer's).
|
| INDEX LEASE |
Increase or decrease in rent is tied to a selected index of economic
conditions (e.g., CPI).
|
| INDUSTRIAL |
Commercial asset type including warehouse, semi-warehouse, and distribution
facilities. Sometimes includes factories, etc. which may require major
customization for the specific needs of the tenant. Industrial properties
usually have simpler recoveries and longer term leases.
|
| INDUSTRIAL PARK |
An area designed and zoned for manufacturing, warehousing and associated
activities.
|
| INGRESS |
Access from a public road or other means of entrance to a land parcel.
Contrast with Egress.
|
| INSIGHT™ |
A real estate business intelligence and reporting solution from Realm.
This easy-to-use toolset allows real estate companies to provide employees,
customers, and business partners with relevant and critical information
from within Realm’s CTI real estate system and other sources
of data.
|
| INSTITUTE OF REAL ESTATE MANAGEMENT
(IREM) |
A professional organization of property managers. Affiliated with
the National Association of Realtors. Publishes the Journal of Property
Management. Address: Institute of Real Estate Management 430 North
Michigan Avenue Chicago, IL 60611.
|
| INSTRUMENT |
A written legal document created to secure the rights of the parties
participating in the agreement.
|
| INTEREST |
1) A charge made by a lender for the use of money; or 2) the type
and extent of ownership in property.
|
| INTERNAL RATE OF RETURN (IRR) |
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.
|
| INVENTORY |
In commercial real estate, leaseable or vacant space is considered
the inventory for sale to tenants.
|
| IRREVOCABLE |
Incapable of being altered, changed, or recalled.
|
|
|
|
| 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.
|
| JOINT TENANCY |
Ownership of real property by two or more individuals, each of whom
has an undivided interest with the right of survivorship.
|
| JUDGMENT |
A formal decision issued by a court relating to the specific claims
and rights of the parties to an act or suit.
|
|
|
|
| KIOSK |
A small freestanding structure located in a shopping center or mall
from which merchandise is sold. The type of products marketed would
include film, flowers, ice cream, or any item that is uniform in nature
so that it can be purchased with little or no shopping. Typically,
the tenants of these operations pay a substantially high rent based
on a percentage of sales.
|
|
|
|
| LAND LEASE |
Only the ground is covered by the lease. Same as ground
lease.
|
| LANDLORD |
One who rents property to another; a lessor. A property owner who
surrenders the right to use property for a specific time in exchange
for the receipt of rent.
|
| LATE PAYMENTS |
A fee added to a bill after the expiration of a specific grace period.
Such payments are intended to encourage timely payment of the bill.
|
| LEASE |
A contract in which, for a payment called rent, the one entitled
to the possession of real property (lessor) transfers those rights
to another (lessee) for a specified period of time.
|
| LEASE™, or Realm LEASE |
Leasing agents are really sales people for real estate. Rather than
typing in information, they’d rather be out finding tenants and
developing relationships to keep the units occupied. Realm LEASE was
developed to improve the speed and legal accuracy of the negotiation
process, and allow lease data to be abstracted to work with property
management systems such as CTI.
|
| LEASE ABSTRACTION |
The process of reducing the text of a lease document down to its
business rules and financial components as data. Abstraction of a lease
means quantities and terms within a lease may be interpreted or acted
upon by software, as when leases within Realm LEASE can be imported
into the Realm CTI property management system.
|
| LEASE ASSUMPTION |
A transaction whereby a landlord agrees to take over the balance
of payments on a prospective tenant’s current lease if he/she
rents space in the landlord’s property.
|
| LEASE NEGOTIATION |
In the agreement between the landlord and the tenant, almost EVERYTHING
is negotiable. This means real estate managers need to be able to view,
approve and track all the variables in the lease. Each lease has its
own rules for recovery expenses, improvement costs, payment terms,
and credit. These lease terms need to be abstracted into the company’s
software to ensure that they are carried out accurately.
|
| LEASE TERM |
The period of time during which the lease is in effect. Also referred
to as Term.
|
| LEASEHOLD |
The space on which a lessee (tenant) of real estate has a lease.
|
| LEASEHOLD IMPROVEMENTS |
Fixtures attached to real estate that are generally acquired or installed
by the tenant.
Upon expiration of the lease, the tenant can generally remove them,
provided such action does not damage the property nor conflict with
the lease.
|
| LEASING AGENT |
A state-licensed agent who, for a fee, acts for property owners in
real estate transactions, within the scope of state law. Also referred
to as a Broker.
|
| LEGAL NAME |
The name one has for official purposes.
|
| LEGAL NOTICE |
Notification of others using the method required by law, typically
of a default of the lease terms.
|
| LESSEE |
A person to whom property is rented under a lease. A tenant. Contrast
with Lessor.
|
| LESSOR |
A person who rents property to another under a lease. A landlord.
Contrast with Lessee.
|
| LETTER OF CREDIT |
An arrangement, with specified conditions, whereby a bank agrees
to substitute its credit for a customer's. Used in place of cash for
a security deposit.
|
| LETTER OF INTENT |
An informal, usually non-binding, agreement among parties indicating
their serious desire to move forward with negotiations.
|
| LIABILITY |
1) a debt or financial obligation.
2) a potential loss. Contrast
with Asset.
|
| LIABILITY INSURANCE |
Protection for a property owner from claims arising from injuries
or damage to other people or property.
|
| LIEN |
A charge against property making it security for the payment of a
debt, judgment, mortgage, or taxes; it is a type of encumbrance. A
specific lien is against certain property only. A general lien is against
all of the property owned by the debtor. Contractors and sub-contractors
can put a lien against the property until they receive payments for
services rendered.
|
| LIENHOLDER |
One who holds, or benefits from, a lien.
|
| LINEAR FOOT |
A measure of one foot, in a straight line, along the ground.
|
| LISTING |
An employment contract between principal and agent that authorizes
the agent (such as a broker) to perform services for the principal
and his property.
|
| LIQUIDITY |
The ability to sell an asset and convert it into cash at a price
close to its true value in a short period of time.
|
| LOCATION |
Physical location, which will always be one of the primary factors
in determining the potential tenant demand, and thereby the value of
a property.
|
| LONG-TERM LEASE |
Generally, a commercial lease of 5 years or longer, or a residential
lease longer than one year.
|
| LOSS FACTOR |
The percentage of the gross area of a space that is lost or not leaseable
due to walls, elevator, etc. The rule of thumb in Manhattan for Loss
Factor is approximately 15%.
|
|
|
|
| MANDATORY |
A requirement that must be conformed to as specified in any written
document.
|
| MAINTENANCE |
The act of keeping a building in general repair. Lack of proper maintenance
will result in a loss in value.
|
| MAINTENANCE COSTS |
The expenditure necessary to keep a building and grounds in general
repair. Such costs appear on an income statement as an operating expense
and are the responsibility of the property manager. While maintenance
costs vary greatly from property to property, there is some degree
of uniformity with like-like properties. As such, investors and lenders
often examine the history of maintenance costs as an indication of
how a specific property has been maintained.
|
| MANAGEMENT AGREEMENT |
An employment contract between the owner of real estate and a property
management firm that agrees to oversee the management of the property.
As is true in any business agreement, the property manager or management
firm and the owner of the property should enter into a formal contract.
The management contract should include the responsibilities specified
in the employment agreement, the term and period of the contract, the
management policies to be followed, the power and authority of the
property manager, and the compensation for the management services.
Normally, a property manager's compensation is an agreed-upon percentage
of gross income. The range can vary from a very small amount, perhaps
one percent on a large structure, to as much as ten or fifteen percent.
|
| 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 collected revenue, excluding security deposits and other deposits
(e.g., prepaid rent).
|
| MANAGEMENT PLAN |
A written report of what the property management company hopes to
accomplish and how it intends to do so. Before assuming the management
of a piece of property, a long-range plan should be developed. However,
before the plan can be developed, an analysis has to be made of the
owner's objectives. Certainly, the property manager has to be confident
that these objectives can be met. A physical inspection of the property
itself has to be made, and the property manager needs to understand
existing market conditions regarding competition, rental structures
and operating expenses.
|
| MARKET PRICE |
The actual selling price of an acquired or sold property.
|
| MARKET RATE |
The rental income that a property is likely to command in the current
market. The market rate may be either higher or lower than what the
property is actually renting for under the terms of a lease.
|
| MASTER LEASE |
The dominant or main lease in a building in which a sublease exists.
Same as Primary Lease.
|
| MATURITY DATE |
The date when a note or negotiable instrument is due and payable.
|
| MECHANIC'S AND MATERIALMAN'S LIENS |
Statutory liens levied on property by persons who are not compensated
after providing labor (mechanic) or material (materialman) for the
improvements to the property.
Both types of liens are commonly referred to as mechanic's liens. The
mechanic's lien is justified on the equitable theory that work or materials
provided by contractors add to the value of the improvements and increase
the value of the land. Because of this theory, work and materials must
become permanently attached or incorporated into the land or improvements.
|
| MERCHANTS’ ASSOCIATION |
An organization of shopping center tenants intended to facilitate
joint advertising, promotion, and other activities beneficial to the
center as a whole. A fee is typically paid each month to the landlord
for a fund from which these marketing endeavors are paid.
|
| MERGER |
The absorption of one entity into another.
|
| METROPOLITAN STATISTICAL AREA (MSA) |
A reference to a geographic area which contains at least 50,000 residents
within a total metropolitan population of at least 100,000. Historically,
such an area has been referred to as a Standard Metropolitan Statistical
Area (SMSA).
|
| MINIMUM-GUARANTEED PERCENTAGE RENT
LEASE |
A type of percentage lease that provides the lessor (landlord) a
minimum rent regardless of the amount of sales. The minimum guarantee
is referred to as a “floor," referring to the fact that
the rent cannot fall below that amount.
|
| MINIMUM RENT |
The least amount of rent due from a tenant under a lease with a varying
rental schedule.
|
| MIXED-USE COMMERCIAL PROJECT |
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.
|
| MONTH-TO-MONTH TENANT |
The tenant rents for one month at a time. There is typically no monetary
penalty for the tenant, but rent may be set higher. Contrast with Holdover
Tenant.
|
| MORTGAGE REIT |
A variation of a standard REIT (See Real Estate Investment Trust).
A REIT that makes or owns loans and other obligations that are secured
by real estate collateral.
|
| MULTIPLE LISTING |
An arrangement among Real Estate Board of Exchange Members, whereby
each broker presents the broker's listings to the attention of the
other members so that if a lease results, the commission is divided
between the broker bringing the listing and the broker making the lease.
|
|
|
|
| NATIONAL ASSOCIATION OF CORPORATE
REAL ESTATE EXECUTIVES (NACORE) |
Membership includes those active with purchasing, selling, and managing
real estate held by corporations. Address: National Association of
Corporate Real Estate Executives, 471 Spencer Drive, S, Suite 8 West
Palm Beach, FL 33409.
|
| NET INCOME |
1) in accounting, the amount remaining after all expenses have been
met.
2) in appraisal, same as net operating income.
|
| NET LEASABLE AREA, or NLA |
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. Contrast with Gross Leasable Area.
|
| NET LEASE |
A lease whereby, in addition to the rent, the lessee (tenant) pays
such expenses as taxes, insurance, and maintenance. The landlord's
rent receipt is thereby "net" of those expenses. Also called
triple net lease.
|
| NET OPERATING INCOME (NOI) |
Income from property or business after operating expenses have been
deducted, but income taxes and financing expenses (interest and principal
payments).
|
| NET PRESENT VALUE (NPV) |
A method of determining whether expected performance of a proposed
investment promises to be adequate.
|
| NON-COMPETE CLAUSE |
A lease clause granting a retail tenant an exclusive right to operate
without competition on the property. The landlord agrees not to lease
space in that center to a tenant whose business is of the same nature.
|
| NON-DISTURBANCE AGREEMENT |
The tenant signs this to prevent himself from being evicted if the
property owner does not pay its mortgage to the bank.
|
| NOTARY PUBLIC |
A public officer who is authorized to witness and verify certain
documents (e.g., contracts, deeds, mortgages). Also, an affidavit may
be sworn before this public officer.
|
| NOTE |
A written instrument that acknowledges a debt and promises to pay.
|
| NOTICE OF DEFAULT |
A letter sent to a defaulting party as a reminder of the default.
May state a grace period and the penalties for failing to cure the
default.
|
| NOTICE TO QUIT |
| A notice to a tenant to vacate property. |
|
|
|
| OCCUPANCY |
Physical possession and use of real estate.
|
| OCCUPANCY PERMIT |
A permit required under the building codes of many local governments
which indicates that the property passes a final inspection. The permit
indicates that all applicable building codes have been met and that
the structure is suitable for occupancy. Also referred to a Certificate
of Occupancy.
|
| OCCUPANCY RATE |
The ratio of the space rented to the total amount of space available
for rent. A 500,000 square foot office building in which 400,000 square
feet is currently rented has an occupancy rate of 80 percent (400,000:500,000)
|
| OFFICE BUILDING |
A structure used primarily for the carrying on of business.
|
| OFFICE |
Commercial real estate asset type including office buildings and
corporate campus facilities, which may have a single anchor tenant
or dozens of unique tenants per property. Office assets usually have
complex CAM recoveries and lease components and significant market
volatility.
|
| OFFICE PARK |
A parcel of land designed and developed to provide for a number of
separate or attached office buildings. Normally located in suburban
areas such as next to a beltway surrounding a metropolitan area, office
parks are intended to provide the users with the facilities necessary
to carry on normal business.
|
| OFF-SITE IMPROVEMENTS |
Physical improvements that affect the use and value of a parcel of
land, but are not located directly on the lot. For a residential subdivision,
examples would include streets, street lights, and curbs.
|
| ON-SITE IMPROVEMENTS |
Physical improvements such as buildings, sidewalks, and landscaping
made inside the legal boundaries of the property.
|
| ON-SITE MANAGEMENT |
Property management activities that need to be performed directly
on the premises. Such activities would include the showing of available
space, maintenance, and eviction of tenants.
|
| OPEN LISTING |
A listing given to any broker without liability to compensate any
broker except the one who first secures a buyer who is ready, willing,
and able to meet the terms of the listing, or secures the acceptance
by the landlord of a satisfactory offer; the lease of the property
automatically terminates the listing.
|
| OPERATIONAL EXCELLENCE |
Increasing enterprise value through improved performance on the informational
aspects of real estate as opposed to physical improvements to assets.
Realm’s mission is to create software that enables operational
excellence for the real estate industry.
|
| OPERATING AS NAME |
The name under with the tenant is operating. This name could be different
from the legal entity name. Also referred to as the Doing Business
As (DBA).
|
| OPERATING BUDGET |
A projection of income and expenses for the operation of a property
over a one-year period.
|
| OPERATING EXPENSE RATIO (OER) |
The relationship of operating expenses to potential gross income
or effective gross income. This ratio may vary with each type of property.
However, it can be used by an appraiser/investor to compare a particular
property with similar-use properties. For apartment buildings the ratio
generally falls between 35% and 45%; however, it may be as high as
50% if the landlord is responsible for paying all utilities. Office
buildings which are expensive to maintain can have ratios exceeding
50%, while property leased under a net or net, net agreement will have
a very low operating expense ratio.
|
| OPERATING EXPENSES (OPE) |
Periodic expenses of operating income-producing property other than
debt service and income taxes. Operating expenses are those expenses
directly related to the level of occupancy and usage of the building.
These can include management fees, maintenance, ground maintenance,
utilities, supplies, legal fees, accounting fees, and other such costs.
These expenses when subtracted from gross income equal net
operating income.
|
| OPTION |
A right, given for consideration to a party (optionee) by a property
owner (optionor), to purchase or lease property within a specified
time at a specified price and terms. An option is an offer which, because
it is secured by consideration, cannot be revoked. An option may be
assigned to another person who may exercise the option. This is an
exception to the rule that only the offeree may accept an offer. Assignment
is not effective if the option itself prohibits the assignment or if
the terms are dependent on the personal credit of the original option
holder. An option is irrevocable by the optionor and will not be extinguished
by death or insanity of either party.
|
| OPTIONEE |
The holder or receiver of an option.
|
| OPTIONOR |
One who gives an option to another.
|
| ORIGINAL EQUITY |
The cash down payment applied to purchase property.
|
| OUTLOT |
An individual freestanding site for a retailer, often adjacent to
a larger shopping center. Same as Pad Site.
|
| OUTSTANDING BALANCE |
The remaining balance owed on a debt.
|
| OVERAGE RENT |
Percentage rent based on retail sales, in addition to a fixed base
rent.
|
| OVERALL RATE OF RETURN (ORR) |
The mathematical rate obtained by dividing net operating income by
the selling price or value of income-producing real estate.
|
|
|
|
| PAD SITE |
An individual freestanding site for a retailer, often adjacent to
a larger shopping center. Same as Outlot. Gas stations, convenience
stores, restaurants and some specialty stores and services are built
on pad sites.
|
| PARCEL |
A part or portion of a piece of land.
|
| PAY™ |
This A/P solution from Realm is a value-added service and technology
product. PAY streamlines payables processes across the entire real
estate company, saving significant time and money by eliminating the
manual tasks of receiving, entering and approving invoices. It works
with any vendor, and any invoice to ensure increased control, consistency
and clarity in payables processes.
|
| PERCENTAGE LEASE |
A lease of property in which the rental is based on a percentage
of the volume of sales made upon the leased premises. It usually stipulates
a minimum rental and is regularly used for retailers who are tenants.
|
| PERCENTAGE RENT |
Rent payable under a percentage lease. Typically the percentage applies
to sales in excess of a pre-established base amount of the dollar sales
volume (called a Breakpoint).
|
| PERSONAL PROPERTY |
Any property which is not real property. Examples include furniture,
clothing, and artwork.
|
| POSSESSION |
The holding, control, or custody of property for one's use, either
as owner or person with another right.
|
| POWER OF ATTORNEY |
A written instrument duly signed and executed by an individual which
authorizes an agent to act on his behalf to the extent indicated in
the document.
|
| PRELEASE |
To obtain lease commitments in a building or complex prior to its
being available for occupancy.
|
| PREMISES |
Land and tenements; an estate; the subject matter of a conveyance.
|
| PREPAID EXPENSES |
Amounts that are paid prior to the period they cover.
|
| PRIMARY LEASE |
A lease between the owner and a tenant whose interest, all or in
part, has been sublet. Same as Master Lease.
|
| PRIMARY METROPOLITAN STATISTICAL
AREA (PMSA) |
A classification of the U.S. Census Bureau applied to cities with
the following classifications. Within a metropolitan area with a population
of one million or more, there may be areas that would qualify as metropolitan
areas on their own, yet are linked to other cities in close proximity.
These individual areas are called Primary Metropolitan Statistical
Areas, while the metropolitan area containing these PMSAs is called
a Consolidated Metropolitan Statistical Area (CMSA).
|
| PRINCIPAL |
1.) The amount of money borrowed.
2.) The employer (e.g., landlord)
of an agent or broker. This is the agent's or broker's client.
|
| PRINCIPAL AND INTEREST PAYMENT (P&I) |
A periodic payment, usually paid monthly, that includes the interest
charges for the period plus an amount applied to amortization of the
principal balance. Commonly used with amortizing loans.
|
| PRINCIPAL, INTEREST, TAXES AND INSURANCE
PAYMENT (PITI) |
The periodic (typically monthly) payment required by an amortizing
loan that includes escrow deposits. Each periodic payment includes
a principal and interest payment plus a contribution to the escrow
account set up by the lender to pay insurance premiums and property
taxes on the mortgaged property.
|
| PROFIT AND LOSS STATEMENT, or P&L |
An annual financial report of a property’s actual net profit
(or loss) before taxes.
|
| PRO-FORMA STATEMENT |
(from Latin pro forma, "according to form"). financial
statements showing what is expected to occur.
|
| PROGRESS PAYMENTS |
In construction, loan payments issued to the builder as building
is completed.
|
| PROMISSORY NOTE |
A promise to pay a specified sum to a specified person under specified
terms.
|
| PROPERTY MANAGEMENT |
The operation of property as a business, including leasing, rent
collection, maintenance, etc.
|
| PROPERTY MANAGER |
The person responsible for caring out the duties of property management.
|
| PROPERTY TAX |
A government levy based on the market value of privately owned property.
Sometimes referred to as ad valorem tax or real estate tax.
|
| PRORATE |
To allocate between seller and buyer their proportionate share of
an obligation paid or due; for example, to prorate real property taxes
or insurance.
|
| PROSPECT |
A person considered likely to lease space. A prospective lessee.
|
|
|
|
| QUIET ENJOYMENT |
The right of a landlord or tenant to use the property without disturbances.
|
|
|
|
| REAL ESTATE |
In law, land and everything more or less attached to it. Ownership
below to the center of the earth and above to the heavens. As an industry,
real estate has existed throughout recorded human history.
|
| REAL ESTATE BOARD |
An organization whose members consist primarily of real estate professionals
such as brokers.
|
| REAL ESTATE COMMISSION |
State agency that enforces real estate license laws.
|
| REAL ESTATE INVESTMENT TRUST (REIT) |
A real estate mutual fund, allowed by income tax laws to avoid the
corporate income tax if it distributes at least 95% of its taxable
income to shareholders each year. It sells shares of ownership and
must invest in real estate or mortgages. It must meet certain other
requirements, including minimum number of shareholders, widely dispersed
ownership, asset and income tests.
|
| REAL ESTATE MARKET |
The potential buyers and sellers of real property at the current
time, and the current transaction activity for real property. It includes
markets for various property types, such as housing market, office
market, condominium market, land market.
|
| REAL ESTATE SYNDICATE |
When partners (either with or without unlimited liability) form a
partnership to participate in a real estate venture.
|
| REAL PROPERTY |
Land and any capital improvements (e.g., buildings) erected on the
property.
|
| REALTOR |
An active member of a local real estate board, affiliated with the
National Association of Real Estate Boards, usually referred to in
residential real estate.
|
| RECAPTURE CLAUSE |
A provision in a percentage rent lease that grants the landlord the
right to terminate the lease at the end of a certain period if gross
sales have not reached the level anticipated during lease negotiations.
|
| RECONCILIATION |
The process of comparing estimated payments (escrows) with actual
expenses.
The tenant is either credited (escrow payments were higher than actuals)
or billed (escrow payments were lower than actuals) for the reconciliation
amount.
|
| RECOVERIES, or Recoverables |
Expenses related to maintaining a property, such as landscaping,
security, CAM, public areas, taxes, etc., that the property management
or landlord must secure. These expenses can be charged back to the
tenant on an aggregate basis as part of the standard lease, rather
than having the tenant find all these services themselves. These costs
can be extremely complicated to manage and create a huge risk for owners,
Better management of recoveries is often a vital lever for creating
profitability.
|
| REGIONAL SHOPPING CENTER |
A type of retail shopping center containing 300,000 to 900,000 square
feet of shopping space and at least one major department store.
|
| REIT |
See Real Estate Investment Trust.
|
| RELOCATION CLAUSE |
A lease stipulation that allows the landlord to move the tenant within
the building or shopping center.
|
| RENEWAL OPTION |
The right, but not the obligation, of a tenant to continue a lease
at specified term and rent.
|
| RENT |
Compensation from tenant to landlord for the use of real estate.
|
| RENT BUMP |
An increase in rent during the term of a lease.
|
| RENTABLE AREA |
Same as Net Leasable Area.
|
| RENTAL RATE |
The periodic charge per unit for the use of a property. The period
may be a month, quarter, or year. The unit may be a dwelling unit,
square foot, or other unit of measurement.
|
| RENT ROLL |
A current list of all tenant information on a property or portfolio
of properties – locations occupied, rents collected and delinquent,
expected moveout and lease renewal dates, etc. This is one of the fundamental
reports for monitoring the current status and cash flow of an asset.
For instance, the rent roll view is one of the most commonly used screens
for valuating assets in Realm’s ARGUS software.
|
| RENT-UP PERIOD |
The time it takes for newly constructed properties to be fully occupied.
|
| RESIDENTIAL |
The housing asset class of real estate. Generally the demand for
residential property is fairly constant and predictable, which means
lower risk investment with lower potential profit margins. Residential
assets encompass any dwelling, including private homes (single-family
units that are usually bought or managed privately), and multi-family
units such as apartments, condos and co-op housing, which are more
likely to be rented and managed by real estate firms.
|
| RESTRICTION |
A limitation placed upon the use of property, contained in the deed
or other written instrument in the chain of title or in local ordinances
pertaining to land use.
|
| RETAIL |
Commercial real estate asset class encompassing destination retail
centers, strip malls, single-tenant pad sites and large stores. A retail
site can range anywhere from a pad site (one tenant/one building) to
a mall or chain of malls containing several hundred tenants. Retail
investments often have the highest level of complexity in terms of
leases and recoverables, and rent calculations are often based on a
percentage of sales (percentage rent) in addition to base
rent.
|
| RETAINAGE |
In a construction contract, money earned by a contractor but not
paid to the contractor until the completion of construction or some
other agreed-upon date. Also called Holdback.
|
| REVOCATION |
An act of rescinding power previously authorized.
|
| RIGHT OF FIRST REFUSAL |
The opportunity of a party to match the terms of a proposed contract
before the contract is executed. Also called First Right of Refusal.
|
| ROLLUP, Roll up, or Rollups |
The process of consolidating financial reports for a given period
of time from all records for a property or portfolio of assets. The
rollup feature of Realm’s CTI software, as well as the INSIGHT product, allows real estate companies to generate a consolidated and
categorized report at any time, which is a time and cost benefit especially
for companies with complex portfolios and financial models.
|
| RULE OF THUMB |
A common or ubiquitous benchmark. For example, it is often assumed
that each worker in an office will need approximately 250 square feet
of space.
|
|
|
|
| SATELLITE TENANT |
A smaller tenant in a shopping mall. Such tenants are dependent upon
the larger and better-known anchor tenants to attract customers to
the mall. Examples of satellite tenants include cigar stores, candy
stores, and specialty apparel stores.
|
| SECURITY DEPOSIT |
A sum of money held by a landlord from a tenant for the purpose of
securing the performance of the terms of the lease by the tenant for
such things as the payment of rent and repair of damages caused by
the tenant.
|
| SHOPPING CENTER |
A type of retail space consisting of various stores and normally
located on enough land to provide off-street parking.
|
| SINKING FUND |
Periodic deposits of money into an account that, with its interest
earnings, will be used to replace assets or to retire loans.
|
| SITUS |
Legal (Latin) term for the location of a property.
|
| SPECIFIC PERFORMANCE |
When a court requires a defendant to carry out the terms of an agreement
or contract.
|
| SQUARE FEET, or sq. ft., s.f. |
The usual method by which rental space is defined (even in many countries
that otherwise use the Metric meter for calculating distance). It is
the area of that space, calculated by taking length times width. For
example, a room 30 feet by 60 feet has an area of 1,800 square feet.
|
| STATUTE |
A law established by an act of a legislature.
|
| STATUTE OF FRAUDS |
State law (founded on ancient English law) which requires that contracts
must be reduced to written form if it is to be enforced by law.
|
| STATUTE OF LIMITATIONS |
A law barring all right of redress after a certain period of time
from the moment when a cause of action first arises.
|
| STATUTORY LIEN |
A lien imposed on property by statute (e.g., a tax lien). Contrast
with Mechanic’s and Materialman’s
Liens.
|
| STRAIGHT LINE METHOD OF DEPRECIATION |
A method of computing depreciation for income tax purposes in which
the difference between the original cost and the salvage value is deducted
in even installments over the depreciable life of the asset.
|
| STRAIGHT LINE RENT |
A ruling of the Financial Accounting Standards Board that requires
rent to be “straight lined” (i.e., any free rent or rent
bumps are spread evenly over the lease term). Also referred to as FASB
13.
|
| SUBAGENT |
An agent of an individual already acting as an agent of a principal.
|
| SUBLEASE |
A lease agreement in which the lessee (tenant) transfers some of
the interest in the leased property to a third party (sublessee) but
retains some reversionary interest for himself or herself. In a sublease,
the sublessor has no direct legal relationship is created between the
landlord and the sublessee . A sublease is really an estate within
an estate. The lessee becomes a sublessor and a landlord/tenant relationship
is established between the sublessor and the sublessee. Since the sublessor
can only convey the rights which he or she has, the sublessee is effectively
bound by any limitations in the main or underlying lease. The sublessor
remains primarily liable to the landlord for rent and the performance
of all covenants.
|
| SUBLESSEE |
The tenant under a sublease who has subleased from someone who in
turn is a lessee (tenant) of the owner of the property.
|
| SUBLESSOR |
A lessee (tenant) who leases part of his or her interest to a third
party (sublessee) but retains some interest in the property.
|
| SUBLET |
Partial transfer of a tenant’s right in a rental property to
a third party. See Sublease.
|
| SUBSCRIBING WITNESS |
The witness to the execution of an instrument who has written his
name as proof of seeing such execution.
|
| SURRENDER |
The cancellation of a lease by mutual consent of the tenant and the
landlord.
|
|
|
|
| TENANCY AT SUFFERANCE |
Tenancy established when a person who had been a lawful tenant wrongfully
remains in possession of property after expiration of a lease.
|
| TENANCY AT WILL |
A license to use or occupy lands and buildings at the will of the
owner. The tenant may decide to leave the property at any time or must
leave at the landlord’s will. Agreement may be oral or written.
|
| TENANCY BY ENTIRETY |
An estate which exists only between husband and wife. Each has equal
right of enjoyment and possession during their joint lives, and each
has the right of survivorship.
|
| TENANCY IN COMMON |
Ownership of property by two or more individuals, each of whom has
an undivided interest, without the right of survivorship.
|
| TENANT |
One who is given possession of real estate for a fixed period or
at will.
|
| TENANT CONTRIBUTIONS |
All costs that are the responsibility of the tenants over and above
the contract rent specified in the lease. Examples include the cost
of common area maintenance, snow removal, excess over tax stop, percentage
rent above fixed minimum, escalator provisions, and janitorial services.
|
| TENANT FINISH OUT |
Those additions/changes to the leased space in order for the tenant
to open for business. Also referred to as Tenant Improvements.
|
| TENANT FIXTURES |
Fixtures added to ]eased real estate by a lessee that, by contract
or by law, may be removed by the lessee upon expiration of the lease.
|
| TENANT IMPROVEMENTS, or TI |
Those additions/changes to the leased space in order for the tenant
to open for business. Also referred to as Tenant Finish Out.
|
| TENANT MIX |
The combination of retail tenants occupying a shopping center. This
must be considered very carefully to achieve maximum profit for each
merchant and the center as a whole.
|
| TERM |
The period of time during which the lease is in effect. Also referred
to as Lease Term.
|
| TIE-IN ARRANGEMENT |
A contract where one transaction depends upon another
transaction.
|
| TIME VALUE OF MONEY |
A concept that money available now is worth more than the same amount
in the future because of its potential earning capacity.
|
| TORT |
A wrongful act or violation of a legal right for which a civil action
or suit will be filed.
|
| TRIPLE NET LEASE |
A lease requiring tenants to pay all utilities, insurance, taxes,
and maintenance costs. The opposite of Gross Lease. The tenant plays
rent plus their fair share of all recoverable costs up front for the
first year. Each year the total recoverable can be recalculated. Obviously
the property manager likes this deal as they get the money up front,
but in practice the results are usually similar. See also Net Lease.
|
| TURNKEY |
The landlord completes all tenant finish out for the tenant. All
the tenant has to do is pick the key up from the landlord.
|
|
|
|
| UPREIT |
A variation of a standard REIT (See Real
Estate Investment Trust). Partners of the Existing Partnerships and a newly-formed REIT
become partners in a new partnership termed the Operating Partnership.
For their respective interests in the Operating Partnership (“Units”),
the partners contribute the properties from the Existing Partnership
and the REIT contributes the cash proceeds from its public offering.
The REIT typically is the general partner and the majority owner of
the Operating Partnership Units. After a period of time (often one
year), the partners may enjoy the same liquidity of the REIT shareholders
by tendering their Units for either cash or REIT shares (at the option
of the REIT or Operating Partnership). This conversion may result in
the partners incurring the tax deferred at the UPREIT’s formation.
The Unit holders may tender their Units over a period of time, thereby
spreading out such tax. In addition, when a partner holds the Units
until death, the estate tax rules operate in such a way as to provide
that the beneficiaries may tender the Units for cash or REIT shares
without paying income taxes.
|
| URBAN PROPERTY |
Property in a city or a high-density area.
|
| USEABLE SPACE |
The floor area of a building that can be used for the tenant’s
business.
This excludes things such as stairwells, restrooms, elevator shafts,
etc.
|
| USEFUL LIFE |
The period of time over which property is expected to have utility.
|
|
|
|
| VACANCY RATE |
The percentage of all 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.
|
| VACATE |
To move out.
|
| VALID |
A binding situation that is authorized and enforceable by law.
|
| VALUATION |
Estimated price, value, or worth. Also, the act of identifying a
property's worth via an appraisal. In commercial real estate, valuation
usually refers to the cash flow (DCF) generated through rents by a
leaseable asset over time, which is the basic function of Realm’s
ARGUS software.
|
| VARIABLE EXPENSES |
Property operating costs that increase with occupancy. Contrast with
Fixed Expenses.
|
| VARIANCE |
1) Government authorization to use or develop a property in a manner
which is not permitted by the applicable zoning regulations. 2.) The
difference between the amount budgeted and the amount actually paid
or received.
|
| VENDOR |
A person from whom a good or service was purchased.
|
| VIOLATION |
Act, condition, or deed that violates the permissible use of property.
|
| VOID |
Something that is unenforceable.
|
| VOIDABLE |
A situation which is capable of being unenforceable but is not so
unless direct action is taken.
|
|
|
|
| WAIVER |
The intentional relinquishment or abandonment of a specific claim,
privilege, or right.
|
| WALK-THROUGH |
The physical inspection of property that takes place
immediately prior to closing for the purpose of ensuring the owner
that the property is in the same physical condition as when the tenant
first leased the space.
|
| WAREHOUSE |
A building used to receive and store goods and merchandise.
In terms of classifying such property, warehouses are normally located
in an area zoned for either commercial or industrial property.
|
| WORK LETTER |
A letter given by a landlord to a tenant detailing the
amount and type of work the landlord and the tenant will each do in
preparing the property for occupancy by the tenant. Usually negotiated
during the leasing phase.
|
| WORKOUT |
A loan (promissory note) agreed upon by the landlord
and the tenant as a way for the tenant to repay amounts in default.
|
|
|
|
| XML |
A simple, standardized convention for identifying and transferring
a stream of data over the Internet or any other network. XML enables
multiple applications to send and receive data without proprietary
or custom integration. Realm’s reXML data standard, based on
XML, allows real estate applications from Realm and other software
vendors to share information by defining the common properties of real
estate data.
|
|
|
|
| ZONE |
An area, delineated by a governmental authority, which is authorized
for and limited to specific uses.
|
| ZONING ORDINANCE |
An exercise of police power by a county or municipality to regulate
and control the character and use of property.
|
|
