| Abatement: A
reduction or decrease; usually applies to the forgiveness
of rent or a decrease of assessed valuation of ad valorem
taxes after the assessment and levy.
Above Building Standard: Specialized
design and engineering services and all construction
necessary to personalize tenant space.
Absorbed Space: Net
change in leased space between two dates.
Absorption: The rate
at which land or buildings will be sold or leased
in the marketplace during a predetermined period
of time, usually a month or a year. Also called "Market
Absorption."
Absorption Period: The
number of months required to convert vacant space
into leased space assuming no new delivered space.
Computed by dividing the average monthly absorbed
space during a recent period into the current vacant
space.
Ad Valorem: (According
to value) Used in reference to general property tax,
which is usually based on the official valuation
of property.
Add-On Factor: Considered
a loss factor, the percentage of gross rentable square
footage which is lost to the tenant’s physical
occupancy.
Adequate Rate Covenant: An
agreement often required in revenue bond-financed
projects; guarantees the operator will charge adequate
rates to produce revenue necessary to cover principal
and interest payments.
Alienation Clause: A
type of acceleration clause where a debt becomes
due in its entirety upon the transfer of owner-ship
of a secured property. See also "Due on Sales
Clause" and "Acceleration Clause."
Allowance Over Building Shell: One
of three arrangements often used for financing tenant
improvements (finishing out office space to accommodate
a tenant such as walls, doors, carpeting etc.) 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. Tenants may ask for a contingency in
the event the actual build-out costs are less than
the allowance, requiring the landlord to return the
savings in the form of rent abatement or other concession.
Annual Percentage Rate (APR): APR
reflects the cost of a loan on a yearly basis. It
may be higher than the note rate because it includes
interest, loan origination fees, loan discount points,
and other credit costs paid to the lender.
Anticipatory Breach: Occurs
when one party to a contract, prior to time of performance,
informs the other of his or her intent not to perform.
Example: The buyer informs the seller before the
closing date of his or her intent not to buy.
Appraisal: The estimation
and opinion of value placed upon a piece of land
based upon a factual analysis by a qualified professional;
the process of estimation and the report itself.
Appreciation: An increase
in the value of property caused by an improvement
or the elimination of negative factors.
"As Is" Condition: Premises
accepted by a buyer or tenant in the condition existing
at the time of the sale or lease, including all physical
defects.
Assessment: (1) An
estimate of property value for the purpose of imposing
taxes. (2) A fee imposed on property, usually to
pay for public improvements such as streets and sewers.
Asset-Based Lender: A
lender who loans money based primarily on the values
of an asset—accounts receivable, inventory,
a place of equipment, real estate—rather than
on the financial strength of the business, which
is the primary criterion for banks.
Assignment: A transfer
between parties of title to any property, real or
personal, or of any rights or estates in the property.
Common assignments include leases, mortgages and
deeds of trust.
Attachment: Legal
procedure to aid in the collection of a debt. Usually
the court issues a writ to seize the property of
a debtor and holds it pending the outcome of a lawsuit,
keeping the property available for sale to pay any
money judgement entered in such lawsuit.
Attorn: To turn over
or transfer to another money or goods. To agree to
recognize a new owner of a property and to pay him
rent. See also "Letter of Attornment."
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Balloon Payment: A
large payment due on a loan. Generally a balloon
payment is required when regular monthly or quarterly
payments have not covered both the increase due and
the principal of the loan.
Bankrupt: The condition
when one is found to be unable to repay one’s
debts by a court having proper jurisdiction. The
bankruptcy may be one of two types: one that is petitioned
by the debtor (voluntary) or petitioned by creditors
(involuntary).
Bankruptcy: Proceedings
under federal statutes to relieve a debtor who has
been declared bankrupt from insurmountable debt.
After addressing certain priorities and exemptions,
the bankrupts property and other assets are distributed
by the court to creditors as full satisfaction for
the debt.
Base Rent: A set amount
used as a minimum rent in a lease which also employs
a percentage or other allocation for additional rent.
Base Year: The year
upon which a direct expense escalation of rent is
based. See also "Escalation Clause."
Below-grade: Any facility
or part of a facility located underground or below
the surface grade.
Breach of Warranty: The
failure of the seller of real property to pass title
as either expressed or implied by law in the conveyancing
document.
Buffer: A strip of
land established as a transition between distinct
land uses. May contain natural or planted shrubs,
walls or fencing, singly or in combination.
Building Classifications: Class "A"— Building
has excellent location and access to attract the
highest quality tenants. Building must be of superior
construction and finish, relatively new or competitive
with new buildings, and providing professional on-site
management. Class "B"—Building with
good location, management, construction land tenancy.
Can compete at low end of Class A. Class "C"—Generally
an older building with growing functional land/or
economic obsolescence. Class "D"—An
older building in need of extensive renovation as
a result of functional obsolescence or deterioration.
Building Code: A set
of laws, usually enacted by city ordinance or other
local jurisdiction, regulating the design, materials
and construction of buildings.
Building Standard: A
list of construction materials and finishes used
in building out office space for a tenant that the
landlord contributes as part of the tenant improvements.
Examples of standard building items are: doors, partitions,
lights, floor covering, telephone outlets, etc. May
also specify the quantity and quality of the materials
to be used and often carries a dollar value. See
also "Workletter."
Building Standard Plus Allowance: One
of three arrangements often used for financing tenant
improvements (finishing out office space to accommodate
a tenant such as walls, doors, carpeting etc.) Under
this arrangement the landlord lists in detail all
materials and costs to make the premises suitable
for occupancy and provides a negotiated allowance
for the tenant to customize or upgrade materials.
See Also: "Workletter."
Buildout: The cost
of configuring and finishing new or relet space in
accordance with a tenant’s specifications.
Build To Suit: A method
of leasing property whereby the landlord builds a
new building in accordance with a tenant’s
specifications.
Bullet Loan: Also
known as a Construction Loan, any of a variety of
short-term (generally five to seven years) financing
provided by a lender to a developer to cover the
costs of construction and lease-up of a new building
with the expectation that it would be replaced by
long-term (or "permanent") financing provided
by an institutional investor once most of risk involved
in construction and lease-up had been overcome resulting
in an income-producing property.
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Capitalization: A
process of determining the value of real property
in which project income is divided by a predetermined
annual rate (capitalization rate). For example,
a building with annual project income of $100,000
is worth $1,000,000 at a 10 per cent capitalization
rate (S 100,000/10% = $1,000,000). See "Capitalization
Rate."
Capitalization Rate: The
rate that is considered a reasonable return on and
of investment (on the basis of both the investor’s
alternative investment possibilities and the risk
of the investment). Used to determine and value real
property through the capitalization process. Also
called "free and clear return." See "Capitalization."
Carrying Charges: Various
costs that are incidental to property ownership (e.g.,
taxes, insurance costs and maintenance expenses).
Certificate of Occupancy: A
certificate issued by a local government building
department or agency stating that a building is in
a condition suitable for occupancy. Sometimes also
called a "C of 0" or a Non-Residential
Use and Occupancy Permit (NON RUP).
Chapter 11: A section
of the Federal Bankruptcy Code dealing with business
reorganizations. A separate section, referred to
as Chapter 7, deals with business liquidations.
Clear-Span Facility: A
parking structure with vertical columns on the outside
edges of the structure and a clear span between columns,
making it unnecessary for vehicles to maneuver between
columns.
Common Area: The total
area within the shopping center that is not designed
for rental to tenants but that is available for common
use by all tenants or groups of tenants, their invitees,
and adjacent stores. Parking and its appurtenances,
malls, sidewalks, landscaped areas, public toilets,
truck and service facilities, and the like are included
in the common area.
Common Area Charges: Include
income collected from tenants for operating and maintaining
items pertaining to common areas. Shopping center
leases usually contain a clause requiring the tenant
to pay its share of operation and maintenance on
common areas and defining the basis on which charges
are made and the type of cost items allocable to
maintenance of the common area. Of the ways to prorate
the charges among tenants, the most common are (1)
a prorated charge based on a tenant’s leased
area as a portion of the total leasable area of the
center or the linear exposure in store frontage,
(2) a fixed charge for a stated period, and (3) a
variable charge based on a percentage of sales. Some
centers include a cost-of-living increase in the
common area charges.
Comparables: Recorded
sales of properties similar in size, use, construction
quality, age, and often located within the same submarket
used as comparisons to determine the fair market
value of another particular property.
Competitive Space: Space
in office buildings which contain or are intended
to contain more than one occupant. In addition to
the multiple tenant criterion, typical characteristics
of Competitive Space include: tenants generally have
short-term leases (10 years or less) and the interior
of the building is not designed with one organization
in mind but rather to accommodate the widest variety
of tenants.
Concessions: Cash
expended by the landlord in the form of rent abatement,
build-out allowance, or other payments to induce the
tenant to sign a lease.
Condemnation: The
process by which private property is taken by a govern-mental
agency for public use without the consent of the
owner, but only upon payment of just compensation.
See also "Eminent Domain."
Construction Management: Construction
supervision by a qualified manager.
Consumer Price Index (CPI): A
federal government index that measures the change
in the cost of a variety of goods and services. Used
in loans, purchase agreements and leases as a measure
by which to adjust future payments to reflect inflation.
Also called "Cost-of-Living Index."
Contiguous Space: Adjoining
office space.
Contract Documents: The
design plans and specifications for construction
of a facility. Working drawings that detail for the
contractor the exact manner in which a project should
be built. See also "Specifications;" "Working
Drawings."
Contract Rent: Rent
paid under a lease. The actual rent as opposed to
the market rental value of the property.
Conveyance: Most commonly
refers to the transfer of title to land between parties.
The term may also include most of the instruments
by which an interest in real estate is created, mortgaged
or assigned.
Core Factor: The percentage
of common areas in a building (rest rooms, hallways)
that, when added to the net usable square footage
equals the net rentable square footage. May be computed
for a building or floor of a building. A "Loss
Factor" or "Load Factor" is calculated
by dividing the rentable square footage by the usable
square footage. See also "Design Efficiency."
Cost Approach: A method
of appraising real property whereby the replacement
cost of a structure is calculated using current costs
of construction.
Covenant: A private,
legal restriction on the use of land, recorded in
the land records.
Covenant of Quiet Enjoyment: Usually
inserted in leases or conveyances whereby landlord
or grantor promises that the tenant or grantee shall
enjoy possession of the premises in peace and quiet
without disturbance.
Cumulative Discount Rate: A
discount factor applied to the rental rate that takes
into effect all landlord lease concessions expressed
as a percentage of base rent.
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Dedicate: Transfer
of property from private to public ownership.
Deed: Generally, a
conveyancing instrument given by the seller to pass
fee title to property upon sale.
Deed In Lieu Of Foreclosure: A
deed given by an owner/borrower to a lender to prevent
the lender from bringing foreclosure proceedings.
Deed Of Trust: An
instrument securing a loan that is used in many states
in place of a mortgage. Property is transferred to
a trustee by the borrower (trustor), in favor of
the lender (beneficiary), and reconveyed to the borrower
upon payment in full.
Default: The general
failure to perform a promised task or to pay an obligation
when due. Some specific examples are: (1) Failure
to make a payment of principal or interest or other
type of financial obligation when due. (2) The breach
or failure to perform any of the terms of a note
or the covenants of a mortgage or deed of trust.
Deficiency Judgment: Commonly,
the amount for which the borrower is personally liable
on a note and mortgage if the foreclosure sale does
not bring enough to cover the amount owed. Actually,
the judgment is for the total amount of the obligation
and not for the deficiency. Any recoveries from a
foreclosure sale are deducted from the judgment.
Delivered Buildings: Buildings
that have completed construction and are ready for
tenant build out. May or may not yet have a Certificate
of Occupancy.
Demising Walls: The
boundaries that separate a tenant’s space from
another tenant’s space and from a public corridor.
Density: Number of
dwelling units divided by the gross acreage being
developed.
Design/Build: A system
in which a single entity is responsible for both
the design and construction of a facility, often
involving the fast-track method of construction;
also referred to as "design/construct."
Depreciation: (1)
Decrease in the usefulness, and therefore value,
of real property improvements or other assets caused
by deterioration or obsolescence. (2) A loss in value
as an accounting procedure to use as a deduction
for in-come tax purposes.
Distraint: The act
of taking (legally or illegally) personal property
and retaining control until the property owner performs
an obligation. Commonly, a landlord takes possession
of personal property of a tenant in default until
the default is satisfied.
Distress Sale: The
sale of property under less than favorable conditions.
Usually, the seller is experiencing financial difficulties
and is under extreme pressure to sell.
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Earnest
Money: The monetary advance by a purchaser
of part of the purchase price as evidence of
good faith. The earnest money is used to bind
the parties to the contract of sale. See also "Deposit."
Easement: A right
to use the property of another created by grant,
reservation, agreement, prescription or necessary
implication. It is either for the benefit of land "appurtenant," such
as the right to cross A to get to B, or "in
gross," such as a public utility easement.
Economic Feasibility: A
project’s feasibility in terms of costs and
revenue, with excess revenue establishing the degree
of feasibility.
Economic Rent: Calculations
or analysis to determine market rental value of a
property at any given time, even though the actual
rent may be different.
Effective Rent: The
rental rate actually achieved by the landlord after
deducting the value of concessions from the base
rental rate paid by a tenant, usually expressed as
an average rate over the term of the lease.
Efficiency Factor: The
number resulting from dividing the Usable Area by
the Gross Building Area in an office building, providing
a benchmark measurement for that building’s
use as an office building.
Eminent Domain: A
right of the government to acquire private property
for public use by condemnation, in return for just
compensation.
Encroachment: Generally,
a structure which extends impermissibly over a property
line, easement boundary or building setback line.
Encumbrance: Any right
to, or interest in, real property that may exist
in one other than the owner, but which will not prevent
the transfer of fee title. A claim, lien, charge
or liability attached to and binding real property.
Environmental Impact Report: A
report generally prepared by an independent company
detailing the probable environmental effect of a
development on the surrounding area.
Equity: The value
of one’s interest in a property, consisting
of its fair market value less any outstanding debt
or other encumbrances.
Equity Kicker: Also
called a participation loan. Under this kind of loan
often used by non-bank lenders with start-up businesses—the
lender gets not only interest payments and principal
repaid, but the right to buy equity (part ownership
in the company) as well. Equity participation is
generally required for riskier deals or in return
for lower rates.
Equity Participation: The
participation by a lender in the equity ownership
of a project as one of the conditions for granting
a loan. Used by financial institutions to partially
offset the effects of inflation. Also called "Equity
Kicker."
Equity of Redemption: Not
the same as the redemption period after a foreclosure
sale, which is a right established by statute. Properly,
the right to pay off the mortgage lien in default
by payment of the principal, interest and costs due.
Escalation Clause: A
clause in a lease providing for increased rent at
a future time. May be accomplished by several means
such as (1) Fixed increase—A provision that
calls for a definite, periodic rental increase; (2)
Cost of living—A clause that ties the rent
to a government cost of living index, with periodic
adjustments as the index changes; or (3) Direct expense—Rent
adjustments based on changes in expenses paid by
the landlord, such as tax increases, increased maintenance
costs, etc.
Estoppel Certificate: A
statement concerning the status of an agreement and
the performance of obligations under the agreement
relied upon by a third party, including a prospective
lender or purchaser. In the context of a lease, a
statement by a tenant identifying that the ease is
in effect and certifying that no rent has been prepaid
and that there are no known outstanding defaults
by the landlord (except those specified).
Escrow Agreement: A
written agree-ment usually made between a buyer,
seller and escrow agent. The escrow agreement sets
forth the basic obligations of the parties, describes
the objects deposited in escrow, and instructs the
escrow agent concerning the disposition of the objects
deposited.
Exclusive Listing: A
written agreement between a real estate broker and
a building owner in which the owner promises to pay
a fee or commission to the broker if specified real
property is sold or leased during a stated period.
The broker may or may not be the cause of the sale
or lease.
Expense Stop: Provision
in a lease establishing the maximum level of operating
expense(s) to be paid by the landlord. Expenses beyond
this level are to be reimbursed by the tenant. May
be applied to specific expenses only (e.g., property
taxes or insurance).
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Face Rental
Rate: The "asking" or nominal
rental rate published by the landlord.
Fair Market Value: A
term usually found in appraisals that attempts to
determine the cash price that would likely be negotiated
between a willing seller and willing buyer in a reasonable
amount of time. For a sale to be considered a reflection
of "Fair Market Value," it must meet all
the conditions of a fair sale whereby: (1) both buyer
and seller act prudently, knowledgeably and under
no necessity to buy or sell, i.e., other than in
a forced or liquidation sale; (2) the property must
be offered on the open market for a reasonable amount
of time, taking into consideration the property type
and local market; and (3) payment is made in cash
or terms equivalent to cash. When a sale is unlikely,
i.e., when it is unlikely to be completed within
12 months, the appraiser must discount all cash flows
generated by the property to ascertain the estimate
of Fair Value.
Feasibility Study: An
analysis of needs, costs of recommended improvements,
and anticipated revenue and costs; establishes the
basis for the construction of an individual improvement
or a complete system.
Fee Simple: An estate
of real property that the owner has unrestricted
powers to dispose of and which can be left by will
or inherited. Commonly used as a synonym for ownership.
Finance Charge: The
cost of credit as a dollar amount. It includes any
charges payable by the borrower as a condition of
the loan. The finance charge includes the total amount
of interest, points, loan fees and other credit charges
paid for the term of the loan.
FIRREA: The Financial
Institutions Re-form Recovery and Enforcement Act
of 1989. Created the Resolution Trust Corp. (RTC)
and placed new restrictions on savings and loans
regarding real estate investment.
First Mortgage: A
mortgage creating a lien against a property which
has priority over all other voluntary liens which
exist against the property. Foreclosure of a first
mortgage lien will generally extinguish or cut off
any second mortgage lien or other subordinate lien.
First Refusal Right: A
clause occasionally inserted in a lease that gives
a tenant the first opportunity to buy a property
if the owner decides to sell. The owner must have
a legitimate offer which the tenant can match or
refuse.
Fixed Costs: Costs,
such as rent, which do not fluctuate in proportion
to the level of sales or production.
Flex Space: A one
or two story buildings with little or no common areas,
high ceilings, load bearing floors and loading dock
facilities. Usually configured to allow a small amount
of office space in combination with light assembly
or warehouse/distribution uses.
Floor/Area Ratio (FAR): The
ratio of the bulk area of a building to the land
on which it is situated. Calculated by dividing the
total square footage in the building by the square
footage of land area.
Floodplain: Land
adjoining a river that would flood if the river overflowed
its banks.
Force Majeure: A
force that cannot he controlled or resisted. In other
words, something beyond the control of the parties
involved. Includes acts of God (e.g., flood, tornadoes,
etc.) and acts of man (e.g., riots, strikes, arson,
etc.).
Foreclosure: A proceeding,
in or out of court, designed to extinguish all rights,
title, and interest of the owner(s) of property in
order to sell the property to satisfy alien against
it.
Full Recourse: A
borrowing with an unconditional guaranty. Should
the harrower become delinquent under a full recourse
loan, he or she must accept full responsibility for
the loan.
Full Service Rent: A
rental rate that includes operating expenses and
real estate taxes for the first year. The tenant
is generally still responsible for any increases
in operating expenses over the base year amount.=
Functional Design: Design
of a structure or facility that increases its overall
efficiency and provides maximum user acceptance;
a parking concept plan showing traffic flow, stall
geometry, and other features that determine the interior
design of parking facilities.
Future Proposed Space: Commercial
space in proposed development projects which either
have not started construction or set a construction
start date. Future Proposed projects include all
those waiting for a lead tenant, financing, zoning,
approvals or any other event necessary to begin construction.
Also may refer to the future phases of a multi-phase
project that have not yet been built.
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General Contractor: The
party that contracts for the construction of an entire
building or project, rather than a portion of the
work. The general contractor hires subcontractors,
(e.g., plumbing contractors, electrical contractors,
etc.), coordinates all work, and is responsible for
payment to the sub-contractors.
General Partner: A
member of a partnership who has authority to bind
the partnership. A general partner also shares in
the profits and losses of the partnership. See also "Limited
Partnership;" "Partnership."
Graduated Lease: A
lease, generally long term in nature, with varied
rental payments and usually based on periodic appraisal
or simply the passage of time.
Grant: To transfer
an interest in real property; either the fee or a
lesser interest, such as an easement.
Grantee: One to whom
a grant of property or property rights is made; generally,
the buyer.
Grantor: One who
grants property or property rights; generally, the
seller.
Gross Absorption: Absorption
is a measure of the amount of office space leased
over a period of time. Gross absorption is a measure
of the total square feet leased over a period of
time with no consideration for office space vacated
in the same area during the same period. See also: "Net
Absorption".
Gross Building Area: The
total floor area in an office building measured in
square feet or square meters that is associated with
that building’s use as office building. The
area extends to the outer surface of exterior walls
and windows and includes office area, retail area,
and other rentable areas such as vending machine
space and storage area, but excludes parking and
roof space.
Gross Lease: A lease
that provides that the landlord shall pay all expenses
of the leased property, such as taxes, insurance,
maintenance, utilities, etc.
Ground Lease: A lease
covering the use of land only, with the lease sometimes
secured by improvements installed by the tenant.
Ground Rent: Rent
paid for vacant unimproved property. If the property
is improved, ground rent is that portion of the total
earnings attributable to the land only.
Guarantor: One who
makes a guaranty.
Guaranty: Agreement
whereby the guarantor agrees to pay the debt or perform
the obligation of another who fails to do so. Differs
from la surety agreement in that there must be a
failure to pay or perform before the guaranty can
be in effect.
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Hard
Dollars: The actual cash proceeds from
a loan that are given to the seller.
Highest and Best Use: The
reasonably probable and legal use of vacant land
or an improved property, which is physically possible,
appropriately supported, financially feasible, and
that results in the highest value. The four criteria
the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility and maximum
profitability.
High Rise: A building
higher than 25 stories above ground level.
Hold Over Tenant: A
tenant who retains possession after the expiration
of a lease.
HVAC: The acronym
for Heating Ventilating and Air-Conditioning. Refers
to the equipment used to heat and cool a building.
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Improved Value: An
appraisal term that encompasses the total value of
land and improvements rather than the separate values
of each.
Improvements: Generally,
the term refers to buildings, but may include any
permanent structure or other development, such as
a street, utilities, etc.
Indirect Costs: Development
costs other than direct material or direct labor
costs, including administrative and office expenses,
financing costs and property taxes.
Inventory: When referring
to a market of office or industrial space, the total
amount of rentable square feet of existing and delivered
space in a given category, for example, prime office
space. Inventory refers to all space within a certain
proscribed market without regard to its availability
or condition, and can include both office and flex
and warehouse space.
Involuntary Conveyance: An
involuntary transfer of real property without the
consent of the owner, such as by a divorce decree,
condemnation, etc.
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Judgment: The decision
of a court of law. Money judgments, when recorded,
become a lien on real property of the defendant.
Judgment Lien: A
lien placed against the property of a judgment debtor.
An involuntary lien.
Judgment Mortgage: A
mortgage creating a lien which is inferior or subordinate
to a prior lien. Foreclosure of a junior mortgage
will not extinguish any lien which is superior to
it.
Just Compensation: In
a condemnation proceeding, the term refers to the
amount paid to the property owner. The story is that
in order to be "just," the property owner
should be no richer or poorer than before the taking.
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Land
Contract: An installment contract for
the sale of land whereby the seller has legal
title until paid in full. The buyer has equitable
title during the contract term.
Landlord’s Lien: Several
types of landlord’s liens are created by
contract or by statute. Some examples are: 1) a
contractual landlord’s lien; 2) statutory
landlord’s lien; and 3) landlord’s
remedy of distress (or right of distraint), which
is not truly a lien but has a similar effect.
Landlord’s Warrant: A
warrant enabling a landlord to levy upon a tenant’s
personal property (e.g., furniture, etc.) and to
sell this property at a public sale to collect delinquent
rent.
Land, Tenements and Hereditaments: Originally
used to describe freehold estates only. The terms
have come to mean the most technical and all-inclusive
description of real estate.
Lease: An agreement
whereby the owner of real property (i.e., landlord)
gives the right of possession to another (i.e., tenant)
for a specified period of time (i.e., term) and for
a specified consideration (i.e., rent).
Lease Commencement Date: The
date on which beneficial occupancy commences and
the legal terms of the lease go into effect.
Leasehold Improvements: Improvements
made to leased premises by a tenant.
Legal Description: A
method of geographically identifying a parcel of
land that is acceptable in a court of law.
Legal Owner: The
term is used to distinguish the legal owner from
the equitable owner and not as opposed to an illegal
owner. The legal owner has title to the property,
although the title may actually carry no rights to
the property other than to act as a lien.
Legal Title: Usually
title without ownership rights, such as the title
placed in a trustee under a deed of trust, or the
title in a vendor under a land contract.
Letter of Credit: An
engagement, pledge or commitment by a bank or person,
made at the request of a customer, stating that the
issuer will honor drafts or other demands for payment
upon full compliance with the conditions specified
in the letter of credit.
Letter of Attornment: A
letter from a grantor to a tenant, stating that a
property has been sold, and directing rent to be
paid to the grantee (i.e., the new owner). See also "Attorn."
Letter of Intent: A
formal method through which a prospective developer,
buyer or tenant expresses his/her interest in property.
Depending on the language, a legal obligation may
be created.
Lien: An encumbrance
against property for money, either voluntary or involuntary.
All liens are encumbrances but all encumbrances are
not liens.
Lienholder: A mortgagee
or other creditor who has a lien against the property
of another.
Lien Waiver (Waiver of Liens): Generally,
a waiver of mechanic’s lien rights signed by
a general contractor and his subcontractors.
Like-Kind Property: A
tax term used in certain real property exchanges.
Property must be exchanged for like kind property
and the tax consequences postponed pursuant to Section
1031 of the Internal Revenue Code.
Limited Partnership: A
partnership created under state law which consists
of one or more general partners who conduct the business
and are responsible for any losses, and one or more
special or limited partners who contribute capital
and are liabLe only up to the amount contributed.
Listing Agreement: An
agreement between a real estate broker and the property
owner which authorizes the broker to assist in the
sale or lease of that property in return for a fee,
commission or other form of compensation. See also: ‘Exclusive
Listing Agreement."
Long Term Lease: A
lease whose term exceeds ten years from initial signing
until the date of expiration or renewal option.
Low Rise: A building
with fewer than seven stories above ground level.
Lump-Sum Contract: A
construction contract requiring the contractor to
complete a building for a specified amount, usually
established by competitive bidding. The contractor
absorbs any loss or retains any profit.
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Maker: One
who executes (i.e., signs) a note in the capacity of
the maker (i.e., borrower).
Market Indicators: Statistical
measures of construction and real estate activity,
including issued permits, indices of building costs,
deeds recorded and homes for sale.
Market Price: The
price a property brings in a given market. Commonly
used interchangeably with market value, although
not truly the same.
Market Rent: See "Economic
Rent."
Market Study: A forecast
of future demand for a type of project along with
recommendations as to quantity to be sold or leased
and prices to be charged. Also called "Marketability
Study."
Marketable Title: Title
to real property that can be readily marketed (i.e.,
sold) to a reasonably prudent purchaser aware of
the facts and their legal meaning concerning liens
and encumbrances.
Market Rent: The
rental income that a property would most probably
command on the open market; indicated by current
rents paid and asked for comparable space as of the
date of the appraisal.
Market Value: The
most probably price which a property should bring
a competitive and open market under all conditions
requisite to a fair sale, the buyer and seller, each
acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit
is this definition is the consummation of a sale
as of a specified date and the passing of title from
seller to buyer under conditions whereby: (1) buyer
and seller are typically motivated; (2) both parties
are well informed or well advised, and acting in
what they consider their own best interests; (3)
a reasonable time is allowed for exposure in the
open market; (4) payment is made in terms of cash
in U.S. dollars or in terms of financial arrangements
comparable thereto; and (5) the price represents
the normal consideration for the property sold unaffected
by special or creative financial or sales concessions
granted by anyone associated with the sale.
Master Lease: A primary
lease that controls subsequent leases and which may
cover more property than sub-sequent leases.
Master Plan: (1)
A zoning plan for an entire governmental subdivision,
(e.g., a city). A comprehensive plan to allow a city
to grow in an orderly manner, both economically and
ecologically. (2) A developer’s plan for a
multi-phase office park or mixed use development
that takes into account all proposed or projected
uses, improvements and amenities.
Mechanic’s Lien: A
claim created by state statutes for the purpose of
securing priority of payment for the price or value
of work performed and materials furnished in construction
or repair of improvements to land, and which attaches
to the land as well as to the improvements.
Metes and Bounds: The
boundary lines of land described in accordance with
their terminal points and angles. Originally metes
referred to distance and bounds referred to direction.
Today the words have no individual meaning of practical
significance.
Mid-Rise: A building
with between seven and 25 stories above ground level.
Mixed-Use: Space
within a building or project provided for more than
one use (e.g., an apartment building with office
space, a hotel with office space, or a retail establishment
with apartments).
Mortgage: The instrument
that evidences an interest in real estate and created
to provide a pledge as security for the performance
or repayment of a loan. The borrower (i.e., mortgagor)
retains possession and use of the property.
Mortgagee: The party
that lends the money and receives the mortgage.
Mortgagor: The party
that borrows the money and gives the mortgage on
the property.
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Net Absorption: Absorption
is a measure of the amount of office space leased
over a period of time. Net absorption is a measure
of the total square feet leased over a period of
time taking into consideration office space vacated
in the same area during the same period.
Net Lease: A lease
in which the tenant pays, in addition to rent, certain
costs associated with a leased property, including
property taxes, insurance premiums, repairs, utilities,
and maintenance. There are also ‘net-net" (double
net) and ‘net-net-net" (triple net) leases,
depending upon the degree to which the tenant is
responsible for operating costs.
Net Rentable Area: Floor
area of a building less any vertical penetrations
of the floors. No deductions are made for necessary
columns and projections of the building. (BOMA Standard)
Non-Competitive Space: Space
in office buildings which contain or are intended
to contain one office occupant so that the space
is rarely if ever available for lease or sublease.
Non-Recourse Loan: A
loan which does not allow for a deficiency judgment
against a borrower in the event of default. The borrower
cannot be held personally liable. The lender’s
only available recourse in the event of default is
the collateral or property.
Nonjudicial Foreclosure Sale: A
property sale by a trustee under a deed of trust,
or a mortgage under a power of sale of a mortgage.
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Open Space: The
total area of land and/or water not improved by a
building, structure, street, road or parking area,
or containing only such improvements as are complementary,
necessary or appropriate to the use and enjoyment
of the open area.
Operating Expenses: The
actual cost of operating income producing property,
including utilities and similar day-to-day expenses,
taxes, insurance and reserves for the replacement
of items that wear out.
Operating Cost Escalation: Refers
to the clause in a lease agreement used to adjust
rents over the term of a lease.
Ownership: Rights
to the use, enjoyment, and alienation of property
to the exclusion of others.
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Parking Index: Figure
representing the number of parking spaces available
per 1,000 square feet of gross leasable area.
Partial Taking: The
taking of part of an owner’s property under
the laws of eminent domain. Compensation must be
based on damages or benefits to the remaining property,
as well as the portion taken.
Pass Throughs: Building
and operating expenses that are paid by the tenant
under the terms of a lease.
Percentage Lease: A
lease, generally on a retail business property, in
which the rent is calculated as a percentage of sales.
There is usually a minimum or "base" rent
in the event of poor sales.
Performance Bond: A
bond posted by a contractor guaranteeing the owner
that the bonding company will complete construction
if the contractor defaults.
"Phantom" Space: Generally
refers to space that is under lease to a tenant
but not presently occupied. Usually created when
a tenant consolidates or reduces operations in
space it leases prior to the end of its lease term.
The vacant but leased space may or may not be formally
marketed on a sublet basis or counted among a market’s
vacancy.
PITI (Principal, Interest,
Taxes And Insurance): Acronym used to
indicate what is included in a monthly mortgage
payment on real property. Principal, interest,
taxes and insurance are the four major portions
of a typical monthly payment.
Planned Delivery Space: Office
space that is currently under construction or renovation
and will be completed (delivered to the market) within
two years. Does not include Proposed or Future Proposed
Space.
Plat (Plat Map): A
map dividing a parcel of land into lots, as in a
subdivision.
Power of Sale: Clause
in a mortgage or deed of trust giving the mortgagee
or trustee the power to sell the property in the
event of default.
Precast Concrete: Concrete
building components fabricated at a plant site and
shipped to the site of construction.
Prelease: A signed
lease for space in a multi-tenant office building
which has not yet received a Certificate of Occupancy.
Prime Space: First
generation (new) space that is currently available
for lease but has never before been occupied by a
tenant.
Prime Tenant: The
major tenant in a building, shopping center, etc.
Proffer: A development
plan and/or written condition that, when offered
by an owner and accepted by the county, becomes a
legally binding part of the property in question.
Punch List: An itemized
list noting incomplete or unsatisfactory construction.
Usually prepared by the tenant architect after the
contractor has notified the owner that the tenant
space is substantially complete.
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Quitclaim
Deed: A deed operating as a release and,
as such, intended to pass to the grantee any title,
interest, or claim that the grantor may have in
the property, but not containing any warranty of
valid interest or title in the grantor.
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Raw Land: Land
in its natural state. Land that has not been subdivided
into lots, does not have water, sewers, streets,
utilities, or other improvements necessary before
a structure can be constructed.
REO (Real Estate Owned): All
real estate directly owned by a lender, including
real estate taken to satisfy a debt. Includes real
estate acquired by lenders through foreclosure; or
in settlement of any other obligation to the lender.
Real Property: (1)
Land and anything permanently affixed to the land,
such as buildings, fences, and those things attached
to the buildings, such as light fixtures, plumbing
and heating fixtures, or other items which would
be personal property if not attached. (2) May refer
to rights in real property as well as the property
itself.
Recapture: That portion
of the gain from the sale of real estate that is
taxed at ordinary income tax rates. Calculated as
the difference between the accelerated depreciation
taken and the straightline depreciation that would
have been allowed.
Recourse: The right
of a lender or holder of a note secured by a mortgage
to look to the personal assets of the borrower or
endorser for payment should, not just to the property.
Rehab: A building
undergoing extensive renovation in order to cure
obsolescence. Some rehab projects are so extensive
that tenants may not be in the building during the
work period.
Renewal Option: The
right of a tenant to renew (i.e., extend the term
of) a lease for a stated period of time and rent
at an amount that can be determined.
Rent: Consideration
paid for the occupancy and use of real property.
A general term covering any consideration (not only
money).
Rent Commencement Date: The
date on which a tenant begins paying rent. Depending
upon the nature of the marketplace, it may coincide
with the lease commencement date or it maybe several
months after. It will never begin before the lease
commencement date.
Rentable Square Feet: Usable
square feet plus a percentage (the core factor) of
the common areas on the floor, including hallways,
bathrooms and telephone closets. (And sometimes main
lobbies.) Rentable square footage is the number of
square feet on which a tenant’s rent is based.
Rentable Usable Ratio: The
number resulting from dividing the Total Rentable
Area in a building by the Usable Area. The inverse
of this ratio describes the proportion of space that
an occupant can expect to utilize.
Rental Concession: See
Abatement."
Rent-Up Period: The
period of time following construction of a new building
when tenants are actively sought and the project
is approaching stabilized occupancy.
Right Of First Refusal: See "First
Refusal Right."
Running With The Land: This
term is generally synonymous with and usually used
in reference with easements and covenants. It also
means passing with the transfer of the land.
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Sale-Leaseback: A
financing arrangement in which a property owner sells
all or part of the property to an investor and then
leases it back. Although the lease actually follows
the sale, both are agreed to as part of the same
transaction.
Second Mortgage: A
mortgage that ranks after a first mortgage in priority.
Properties may have two, three, or more mortgages,
deeds of trust, or land contracts as liens at the
same time. Legal priority determines the designation
first, second, third, etc.
Secondary Space: Space
which has been previously occupied and becomes available
for lease. Includes both relet and sublet space.
Security Deposit: Generally,
a deposit of money by a tenant with a landlord to
secure performance of a lease.
Seisen (Seizen): The
term originally referred to the completion of feudal
investiture by which a tenant was admitted into the
field to render services to the lord or proprietor.
Today it has come to mean possession under a legal
right (usually a fee interest).
Setback: The distance
from a lot line or other reference point, within
which no structure may be located.
Setback Ordinance: Part
of a zoning ordinance that regulates the distance
from the lot line to the point where improvements
may be constructed.
Site Analysis: The
study of a specified parcel of land (and the surrounding
area) to determine its suitability for a specific
use.
Site Development: All
improvements made to a site before a building may
be constructed, such as grading, utility installation,
etc.
Site Plan: A detailed
plan, to scale, depicting development of a parcel
of land and containing all information required by
the zoning ordinance.
Slab: The exposed
wearing surface laid over the structural support
beams of a building.
Soft Dollars: That
portion of equity investment that may be tax-deductible
in the first year. See also "Hard Dollars." Space
Plan: Sometimes called the preliminary plan. A graphic
representation of a tenant’s office space requirements,
showing wall and door locations, room sizes, and
some furniture layouts.
Special Assessment: Any
special charge levied against real property for public
improvements (e.g., sidewalks, sewers, etc.) that
benefit the assessed property.
Specific Performance: A
lawsuit in which the court compels one of the parties
to perform or carry out the provisions of a contract
into which he has entered.
Speculative Space: Any
prime space that has not been leased to a tenant
prior to commencing construction on a new building.
Step-Up Lease (Graded Lease): A
lease calling for set increases in rent at set intervals.
Straight Lease (Flat Lease): A
lease calling for the same amount of rent to be paid
periodically (usually monthly) for the entire term
of the lease.
Strip Center: Any
shopping area, generally with common parking, comprised
of a row of stores.
Subcontractor: One
who works under a general contractor;often a specialist,
such as an electrical contractor, cement contractor,
etc.
Subdivision Plat: A
detailed drawing, to scale, depicting division of
a parcel of land into two or more lots and containing
engineering considerations and other information
required.
Subordination Agreement: An
agreement by which the priority of a mortgage lender
is relinquished in favor of that of a lender that
would otherwise he junior in status.
Surety: One who voluntarily
binds himself to be obligated for the debt or obligation
of another. A common example is the co-maker of a
note. Surety differs from guarantor, although the
terms are commonly (and mistakenly) used interchangeably.
Surface Rights: The
rights (i.e., easements) to use the surface of land,
including the right to drill or mine through the
surface when subsurface rights are involved.
Survey: The measurement
of the boundaries of a parcel of land, its area and
sometimes its topography.
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Taking: A
common synonym for condemnation or eminent domain.
Tax Base: Assessed
valuation of real property, which is multiplied by
the tax rate to determine the amount of tax due.
Tax Lien: (1) A lien for nonpayment of property taxes.
Attaches only to the property upon which the taxes
are unpaid. (2) A federal income tax lien. May attach
to all property of the person owning the taxes.
Tax Roll: A list containing
the descriptions of all parcels in the county, the
names of the owners (or those receiving the tax bill),
assessed values and tax amounts.
Tenant: (1) A holder
of property under a lease. (2) Originally, one who
had the right to possession, irrespective of the
title interest.
Tenant At Will: One
who holds possession of premises by permission of
the owner or landlord, but without agreement for
a fixed term.
Tenant Improvements: Improvements
to land or buildings to meet the needs of tenants.
May be new improvements or remodeling, and may be
paid for by the landlord, the tenant, or shared.
See also "Leasehold Improvements;" Workletter."
"Time Is Of The Essence": Clause
used in contracts to bind one party to performance
at or by a specified time in order to bind the other
party to performance.
Title: The means whereby
one has just and full possession of real property.
Title Insurance: Insurance
against loss resulting from defects of title to a
specifically described parcel of real property. Defects
may run to the fee (i.e., chain of title) or to encumbrances.
Title Search: A review
of all recorded documents affecting a specific piece
of property to determine the present condition of
title.
Total Inventory: Total
square footage of rentable office or industrial space,
vacant and occupied, ready for tenant finish. Includes
owner-occupied space.
Trade Fixtures: Personal
property used in a business and attached to a structure,
but removable upon sale because it is deemed to be
part of the business, not of the real estate.
Triple Net (NNN) Rent: Rent
stipulated in a lease in which the tenant agrees
to pay a share of the landlord’s operating
expenses or real estate taxes for the building proportionate
to the amount of space it occupies. See also "Full
Service Rent."
Turn Key Project: A
project in which the developer is responsible for
the total completion of a building (including interior
design and construction) or demised premises to the
customized requirements of a future owner or tenant.
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Under Construction: Planned
buildings for which construction has started but
have not yet been granted a Certificate of Occupancy.
Planned buildings are not included.
Under Contract: A
property for which a purchase offer has been accepted
by the seller is said to be "under contract." Generally,
the prospective buyer is given a certain period of
time in which to perform feasibility studies and
finalize financing arrangements. During the time,
the seller cannot entertain offers from other buyers
unless the purchase contract is allowed to expire
without going to closing.
Unencumbered: Describes
title to property that is free of liens and any other
encumbrances. Free and clear.
Unimproved Land: Most
commonly refers to land without buildings; it can
also mean land in its natural state. See also: "Raw
Land."
Use: Specific purpose
for which a parcel of land or a building is designed,
arranged, intended, occupied or maintained.
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Vacancy Factor: The
amount of gross revenue lost because of vacant space;
an allowance item on proforma income statements,
usually calculated as a percentage of gross revenue.
Vacancy Rate: A measurement
expressed as a percentage of the total amount of
available space compared to the total inventory of
space. Computed by multiplying vacant space times
1OO and divided by total inventory.
Vacant Space: Existing
space which is currently being marketed for sale
or lease, excluding sublet space.
Variance: A permit
that grants a property owner relief from certain
provisions of a zoning ordinance when, because of
the particular physical surroundings, shape or orographical
condition of the property, compliance would result
in a particular hardship or practical difficulty
which would deprive the owner of the reasonable use
of the land or building involved.
Vendee: Purchaser
or "buyer," generally used in real property
context.
Vendor: The person
who transfers property by sale. Another word for "seller." Commonly
used in land contract sales.
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Warranty: A
binding promise made at the time of a sale whereby
the seller gives the buyer certain assurances as
to the condition of the property.
Wear and Tear: The
deterioration or loss in value caused by the tenant’s
normal and reasonable use. In many leases the tenant
is not responsible for "normal wear and tear." See
also "Normal Wear and Tear."
Weighted Average Rental Rates: Rental
rates averaged to the amount of space available in
each building per market area.
Workletter: The standard
building items that the landlord contributes las
part of the tenant improvements. Examples of standard
building items are: doors, partitions, lights, floor
covering, telephone outlets, etc. The Workletter
may specify the quantity and quality of the materials
to be used and often carries a dollar value.
Working Drawings: The
set of plans for a project that, in combination with
a set of specifications, comprise the contract documents
indicating the exact manner in which a project should
be built.
Workout: The process
by which a borrower attempts to negotiate with a
lender to restructure the borrower’s debt rather
than go through foreclosure proceedings.
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Zoning: A
method of regulating use of real estate by dividing
a city or other area into zones and designating which
uses may be permitted for land in each zone.
Zoning Ordinance: The
set of laws and regulations, generally at the city
or county level, that control the use of land and
construction of improvements in a given area or zone.
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