Commercial Real Estate Glossary

Definition: A 1031 Exchange refers to Section 1031 of the U.S. Internal Revenue Code, which enables real estate investors to defer capital gains taxes by reinvesting the proceeds from the sale of an investment property into another like-kind property. To qualify, the exchange must follow IRS rules, including strict timelines and use of a qualified intermediary.

CRE Relevance: Widely used in commercial real estate to preserve equity and scale portfolios, 1031 Exchanges are strategic tools for wealth-building among family offices, institutional investors, and high-net-worth individuals. They support tax-efficient asset transitions into larger, stabilized, or more diversified holdings.

Related Terms: Disposition, Acquisition, Holding Period, Internal Rate of Return (IRR), Investment Value, Depreciation Expense, Portfolio Management, Replacement Cost

Definition: An absolute net lease is a commercial real estate agreement where the tenant is responsible for all property-related costs, including taxes, insurance, maintenance, and structural repairs. This structure is often referred to as a “true triple net” lease.

CRE Relevance: Common in single-tenant net lease investments, this structure provides investors with stable, predictable cash flow and minimal operational involvement, ideal for passive commercial real estate portfolios.

Related Terms: Net Operating Income (NOI), Capitalization Rate (Cap Rate)

Definition: Absorption measures the rate at which available commercial real estate space is leased or sold in a specific market over a given period.

CRE Relevance: Used to gauge market demand and leasing velocity, absorption is a key indicator in market analysis, underwriting, and strategic planning for developers and investors.

Related Terms: Net Absorption, Vacancy Rate, Market Study

Definition: Accrued depreciation represents the cumulative loss in property value due to wear and tear, outdated features, or adverse external influences, calculated relative to the property’s replacement cost.

CRE Relevance: A key input in the cost approach to valuation, this concept is used by appraisers to assess older commercial buildings and determine current market value.

Related Terms: Depreciation Expense, Cost Approach

Definition: An acquisition refers to the act of gaining control or ownership of a commercial real estate asset through purchase, development, or long-term lease.

CRE Relevance: It marks the beginning of the CRE investment lifecycle, triggering due diligence, financing, appraisal, and long-term asset management strategies.

Related Terms: Disposition, Due Diligence

Definition: Adjusted basis is the property’s original purchase price modified by capital improvements and tax depreciation. It represents the owner’s tax-adjusted investment.

CRE Relevance: Used in determining capital gains or losses upon sale, the adjusted basis is critical for real estate investors and tax professionals.

Related Terms: Capital Expenditures (CapEx), Depreciation Expense

Definition: A legally binding contract that outlines the terms, conditions, and obligations of both buyer and seller in a commercial real estate transaction.

CRE Relevance: Provides transactional transparency and legal protection.

Related Terms: Purchase Price

Definition: An appraisal is a professional assessment of a property’s market value, typically performed by a licensed appraiser for financing, sale, or reporting purposes.

CRE Relevance: Essential in underwriting, lending, and compliance, appraisals inform investment decisions and capital allocation.

Related Terms: Market Value, Cost Approach, Income Approach

Definition: A valuation scenario assuming a property is completed and stabilized, even if construction or renovation is still underway.

CRE Relevance: Used in development underwriting, this value supports construction loans, bridge financing, and pro forma modeling.

Related Terms: Appraisal

Definition: All square footage in a property or portfolio that is currently vacant or will become vacant and is available for lease or sale.

CRE Relevance: This metric is fundamental to market supply analysis and is a core data point in leasing strategy and vacancy rate calculations.

Related Terms: Vacancy Rate, Leasing Activity

Definition: A financial statement that presents a snapshot of an entity’s assets, liabilities, and equity at a specific point in time.

CRE Relevance: Analyzed by lenders and investors to assess a CRE sponsor’s leverage, solvency, and financial position.

Related Terms: Cash Flow Statement, Income Statement

Definition: A strategic framework that connects performance indicators, such as occupancy and ROI to long-term commercial real estate investment objectives.

CRE Relevance: Used in asset management to align property operations with portfolio goals and to measure investor performance.

Related Terms: Key Performance Indicators (KPI), Performance Management

Definition: A reference fiscal year used in commercial leases to calculate the tenant’s share of operating expense increases over time.

CRE Relevance: This financial safety metric is used in underwriting to assess risk exposure and cash flow coverage in commercial real estate financing.

Related Terms: Operating Expenses (OpEx), Escalation Clause

Definition: The break-even ratio is the percentage of a commercial property’s gross income needed to cover operating expenses and debt service.

CRE Relevance: Measures financial safety margin and investment risk.

Related Terms: Net Operating Income (NOI)

See also: Break-Even Ratio (BER) – includes full breakdown, example, and how it’s used in valuation.

Definition: Strategic planning to ensure business operations can continue during emergencies or disruptions, including natural disasters, cyberattacks, or power failures.

CRE Relevance: Critical in mission-critical CRE assets like data centers, healthcare, and financial institutions to safeguard operations and asset stability.

Related Terms: Risk, Workplace Strategy

Definition: Funds used to upgrade or improve a commercial property, extending its useful life or increasing its value.

CRE Relevance: CapEx is factored into underwriting and long-term asset management planning and significantly influences net cash flow projections

Related Terms: Capital Planning

Definition: A capital gains tax is levied on the profit realized from the sale of an asset such as commercial real estate, when the sale price exceeds the adjusted basis (purchase price plus capital improvements minus depreciation). Long-term gains may be taxed at different rates than short-term gains, depending on holding period and jurisdiction.

CRE Relevance: In commercial real estate, capital gains taxes can significantly reduce net sale proceeds. Sophisticated investors often utilize 1031 Exchanges and strategic holding periods to defer or mitigate these taxes, thereby enhancing portfolio returns.

Related Terms: 1031 Exchange, Disposition, Adjusted Basis, Holding Period, Depreciation Expense, Investment Value, Internal Rate of Return (IRR), Net Present Value (NPV)

Definition: A long-term lease treated similarly to asset ownership, where the lessee assumes most of the risks and benefits.

CRE Relevance: Classified as both an asset and liability on balance sheets, capital leases impact a property’s financing and reporting.

Related Terms: Operating Lease, Leasehold Interest

Definition: The process of budgeting and managing capital expenditures across a property or real estate portfolio.

CRE Relevance: Integral to long-term asset performance, capital planning aligns investment strategy with operational needs and future upgrades.

Related Terms: Recurring Capital Expenditures, Property Lifecycle

Definition: The Capital Stack refers to the hierarchical structure of financing used to fund a real estate investment. It outlines the order in which capital contributors, such as senior debt, mezzanine debt, preferred equity, and common equity, have claims on the property’s income and proceeds.

CRE Relevance: Understanding the capital stack is critical for evaluating an investment’s risk and return profile. Investors higher in the stack (e.g., senior lenders) have lower risk and priority repayment, while those lower in the stack (e.g., common equity) take on more risk in exchange for higher potential returns. The capital stack is essential in underwriting, structuring joint ventures, and communicating risk tiers to investors.

Related Terms: Debt Service Coverage Ratio (DSCR), Loan-to-Value Ratio (LTV), Preferred Equity, Internal Rate of Return (IRR), Equity Multiple

Definition: A percentage that reflects the expected return on a commercial real estate investment, calculated by dividing NOI by purchase price.

CRE Relevance: Cap rates are central to CRE valuation and risk assessment, used in acquisitions, dispositions, and investor comparisons.

Related Terms: Net Operating Income (NOI), Market Value

See also: Capitalization Rate (Cap Rate) – includes full breakdown, example, and how it’s used in valuation.

Definition: The net income remaining after operating expenses are paid, excluding financing and taxes.

CRE Relevance: A key indicator of an asset’s financial performance and a cornerstone metric in CRE investment analysis.

Related Terms: Cash Flow Statement, Net Cash Flow, Internal Rate of Return (IRR)

Definition: A financial statement detailing the sources and uses of cash over a period.

CRE Relevance: Helps investors evaluate liquidity, financing needs, and property-level performance in the commercial real estate sector.

Related Terms: Income Statement, Balance Sheet

Definition: A performance metric that compares annual pre-tax cash flow to the total equity invested.

CRE Relevance: Used by CRE investors to assess yield on invested capital, especially for stabilized or income-generating assets.

Related Terms: Net Cash Flow, Internal Rate of Return (IRR)

See also: Cash-On-Cash Return (COC) – includes full breakdown, example, and how it’s used in valuation.

Definition: Property primarily used for business purposes such as office buildings, retail centers, industrial facilities, and multifamily (5+ units).

CRE Relevance: This broad category forms the foundation of real estate investing, leasing, valuation, and development strategies.

Related Terms: Income Approach, Triple Net Lease

Definition: Shared spaces within a commercial property, such as lobbies, corridors, and restrooms, not leased to any single tenant.

CRE Relevance: Affects rentable-to-usable ratios and contributes to the overall tenant experience and operational costs.

Related Terms: Common Area Maintenance (CAM) Expenses, Usable Area

Definition: Costs incurred for maintaining common spaces, typically allocated to tenants in NNN or modified gross leases.

CRE Relevance: An important element in lease structuring and tenant expense obligations.

Related Terms: Operating Expenses (OpEx), Base Year

Definition: Common Equity represents the residual ownership interest in a real estate asset after all debts, preferred equity, and other senior claims are paid. Common equity investors are typically the last to be paid but have an unlimited upside in returns once obligations to other tiers are met.

CRE Relevance: In commercial real estate, common equity is the most subordinated and riskiest position in the capital stack, but it also carries the highest potential return. Common equity investors often include sponsors, developers, and joint venture partners. Their returns are driven by capital appreciation, cash flow distributions, and successful exits. Understanding this layer is crucial when evaluating the risk-return profile of an investment.

Related Terms: Preferred Equity, Capital Stack, Internal Rate of Return (IRR), Equity Multiple, Real Estate Exit Strategy

Definition: Appraisal technique using recently sold comparable properties to estimate value.

CRE Relevance: This method supports pricing strategies and appraisals for standard, income-producing CRE assets.

Related Terms: Appraisal

Definition: The process of calculating future value by applying interest over multiple periods.

CRE Relevance: A core principle in real estate financial modeling, compounding underpins projections in internal rate of return (IRR) and investment growth.

Related Terms: Discounting

Definition: A property valuation method that estimates value by adding the land cost and replacement/build cost, then subtracting accrued depreciation.

CRE Relevance: Often applied to unique or specialized CRE assets where income or comparable data is limited.

Related Terms: Appraisal, Accrued Depreciation

Definition: The required return rate used to justify a commercial real estate investment, reflecting opportunity cost and financing structure.

CRE Relevance: Key in feasibility studies and Discounted Cash Flow (DCF) models, cost of capital benchmarks investor expectations and project hurdle rates.

Related Terms: Weighted Average Cost of Capital (WACC), Internal Rate of Return (IRR)

Definition: The ratio of a property’s net operating income (NOI) to its annual debt obligations.

CRE Relevance: A crucial underwriting metric for lenders, DSCR assesses a borrower’s ability to repay loans using property cash flow.

Related Terms: Net Operating Income (NOI), Capitalization Rate (Cap Rate)

See also: Debt Service Cover Ratio (DSCR) – includes full breakdown, example, and how it’s used in valuation.

Definition: Repair or maintenance work that has been postponed, potentially affecting asset condition and valuation.

CRE Relevance: Often identified during due diligence, deferred maintenance is a risk factor in underwriting and property repositioning.

Related Terms: Accrued Depreciation, Capital Expenditures (CapEx)

Definition: A non-cash accounting deduction that reflects a property’s loss in value over time due to physical deterioration or obsolescence.

CRE Relevance: Important for tax strategies, depreciation affects taxable income and after-tax returns for real estate investors.

Related Terms: Accrued Depreciation, Adjusted Basis

Definition: Also known as hard costs, expenditures for construction labor, materials, and equipment.

CRE Relevance: Used in construction budgets and cost control during development or redevelopment projects.

Related Terms: Indirect Costs, Cost Approach

Definition: Operating costs that can be directly attributed to a tenant’s space, such as utilities or janitorial services.

CRE Relevance: Direct expenses inform lease negotiations, especially in full-service or expense-stop leases.

Related Terms: Operating Expenses (OpEx), Common Area Maintenance (CAM) Expenses

Definition: The share of unoccupied space directly controlled by landlords, excluding space available for sublease.

CRE Relevance: More accurately reflects leasing fundamentals in a given market and helps forecast potential absorption.

Related Terms: Vacancy Rate, Available Space

Definition: The return rate used to convert future income into present value in financial models like Discounted Cash Flow (DCF).

CRE Relevance: Central to Net Present Value (NPV) and Discounted Cash Flow) DCF analysis for investment decisions.

Related Terms: Discounted Cash Flow, Net Present Value (NPV)

Definition: A valuation approach based on estimating the present value of projected future cash flows from a commercial real estate asset.

CRE Relevance: DCF is used to assess high-value or complex properties and supports long-term investment strategy modeling.

Related Terms: Income Approach, Net Present Value (NPV)

Definition: The process of adjusting future income or costs to present value using a discount rate.

CRE Relevance: A fundamental financial modeling technique in real estate investment analysis and feasibility studies.

Related Terms: Present Value (PV), Discounted Cash Flow (DCF)

Definition: The process of exiting a commercial real estate investment via sale, refinance, or 1031 exchange.

CRE Relevance: Marks the final phase of the asset lifecycle, triggering the realization of returns, capital gains, and portfolio reallocation.

Related Terms: Acquisition, Capital Gains Tax

Definition: Comprehensive review of a property’s physical, financial, legal, and market condition before acquisition.

CRE Relevance: Due diligence is critical in mitigating investment risk, validating underwriting assumptions, and ensuring compliance.

Related Terms: Acquisition, Appraisal, Title Search

Definition: A strategy aligning asset and liability durations to mitigate interest rate risk in real estate finance.

CRE Relevance: Important in structuring CRE loans, refinancing strategies, and matching project lifespans to financing terms.

Related Terms: Refinance, Loan-to-Value Ratio (LTV)

Definition: A legal right granted to a party to use a portion of another’s property for a specific purpose, such as utilities or access.

CRE Relevance: Easements affect development potential, title insurance, and long-term property valuation in commercial real estate.

Related Terms: Encumbrance, Zoning Ordinances

Definition: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating performance before financial and accounting adjustments.

CRE Relevance: EBITDA is commonly used in REIT analysis and corporate real estate portfolio benchmarking to assess profitability.

Related Terms: Cash Flow Statement, Income Statement

Definition: Initiatives aimed at improving economic health in a region, typically involving real estate investment, infrastructure, and job creation.

CRE Relevance: Drives commercial property demand in emerging markets and informs site selection and investment timing strategies.

Related Terms: Feasibility Analysis, Market Study

Definition: The period during which a commercial building contributes economic value and generates income.

CRE Relevance: Used in depreciation calculations, renovation decisions, and investment hold period planning.

Related Terms: Useful Life

Definition: The perceived age of a property based on condition, maintenance, and updates, rather than actual years since construction.

CRE Relevance: Influences appraised value and depreciation schedules in CRE assessments.

Related Terms: Accrued Depreciation, Economic Life

Definition: The specific date on which a valuation, appraisal, or financial analysis is considered accurate.

CRE Relevance: Ensures relevance and reliability of comparable data and market assumptions used in investment analysis.

Related Terms: Appraisal, Market Value

Definition: Total potential rental income from a commercial property after subtracting vacancy and credit losses.

CRE Relevance: EGI is foundational to calculating net operating income (NOI) and supports income-based valuation models.

Related Terms: Net Operating Income (NOI), Potential Gross Income (PGI)

See also: Effective Gross Income (EGI) – includes full breakdown, example, and how it’s used in valuation.

Definition: A valuation ratio calculated by dividing property price by its effective gross income.

CRE Relevance: Used in quick comparisons of income-producing properties, especially in early-stage acquisition screening.

Related Terms: Gross Rent Multiplier (GRM), Capitalization Rate (Cap Rate)

Definition: The actual rent received per square foot after accounting for concessions, tenant improvements, and rent abatements.

CRE Relevance: Provides a realistic measure of lease economics and tenant revenue contribution in CRE performance analysis.

Related Terms: Net Rentable Area (NRA)

Definition: The government’s legal right to acquire private property for public use with fair compensation.

CRE Relevance: Affects ownership control, long-term planning, and investor risk in urban redevelopment and infrastructure corridors.

Related Terms: Zoning Ordinances, Appraisal

Definition: A legal or financial claim against a property, such as a lien, easement, or restrictive covenant, that may affect its use or transfer.

CRE Relevance: Evaluated during title review and due diligence, encumbrances can impact valuation, financing, and marketability.

Related Terms: Title Search, Easement

Definition: The process of cleaning up environmental contaminants on a real estate site.

CRE Relevance: A major consideration in land acquisition, redevelopment feasibility, and financing of industrial or brownfield properties.

Related Terms: Due Diligence

Definition: The difference between a property’s market value and the total outstanding debt secured by the asset.

CRE Relevance: A core metric for assessing leverage, refinancing opportunities, and investor ownership position.

Related Terms: Loan-to-Value Ratio (LTV), Refinance

Definition: Equity Multiple measures the total cash return on equity invested over the life of a real estate investment. It’s expressed as a ratio of total cash distributions to total equity contributed. For example, an equity multiple of 2.0x means the investor doubled their original investment.

CRE Relevance: Equity Multiple is a key metric for evaluating total return, especially in long-hold or opportunistic real estate deals. Unlike IRR, which accounts for time, Equity Multiple shows absolute return and is commonly used by sponsors and investors to benchmark performance. It’s particularly useful for comparing projects with similar durations or when used in conjunction with IRR for a more comprehensive return picture.

Related Terms: Internal Rate of Return (IRR), Return on Investment (ROI), Cash-on-Cash Return, Capital Stack, Real Estate Investment Analysis

Definition: A lease provision that allows periodic rent increases based on inflation indexes, expense increases, or fixed schedules.

CRE Relevance: Helps landlords offset rising operating costs and maintain property income performance over time.

Related Terms: Operating Expenses (OpEx), Base Year

Definition: Portion of a property’s land that is not required for current use but may be developed or sold in the future.

CRE Relevance: Represents hidden value or expansion potential, especially in urban infill or underutilized sites.

Related Terms: Highest and Best Use (HABU)

Definition: The estimated duration a property will remain on the market before it is sold at fair value.

CRE Relevance: Used in appraisals and sales planning, exposure time reflects market demand and listing strategy.

Related Terms: Market Study, Appraisal

Definition: An in-depth study that evaluates whether a commercial real estate development or investment project is economically and operationally viable.

CRE Relevance: This analysis helps sponsors, lenders, and developers forecast profitability, assess market conditions, and mitigate risk before committing capital.

Related Terms: Market Study, Economic Development

Definition: The legal or ethical responsibility to act in the best interest of another party, often in financial or investment matters.

CRE Relevance: Asset managers, brokers, and advisors in commercial real estate are often bound by fiduciary duties to ensure transparency, loyalty, and conflict-free decision-making.

Related Terms: Lease Administration

Definition: The strategic management of funds, capital markets, and investment vehicles used to acquire, operate, and dispose of commercial real estate assets.

CRE Relevance: Finance underpins all aspects of CRE from acquisitions and loan structuring to equity fundraising and return modeling.

Related Terms: Capital Planning, Weighted Average Cost of Capital (WACC)

Definition: The process of preparing and presenting financial records in accordance with Generally Accepted Accounting Principles (GAAP).

CRE Relevance: Essential for internal reporting, tax filings, investor communications, and real estate portfolio audits.

Related Terms: Balance Sheet, Income Statement

Definition: Strategic oversight of an organization’s financial operations, including budgeting, forecasting, and capital allocation.

CRE Relevance: Drives investment decisions, operational efficiency, and long-term value creation in real estate portfolios.

Related Terms: Finance, Performance Management

Definition: The Fixed-Charge Coverage Ratio (FCCR) measures a property’s ability to cover all fixed financial obligations, including debt service, lease payments, and other fixed charges, with its operating income. It’s a broader variant of the Interest Coverage Ratio.

CRE Relevance: FCCR is used by lenders and investors to evaluate a property’s or borrower’s solvency and repayment capacity beyond just interest or loan payments. It’s especially relevant in triple-net lease deals, build-to-suit properties, or credit tenant leases, where tenants may have long-term financial obligations. A higher FCCR indicates a stronger buffer against default and cash flow strain.

Related Terms: Interest Coverage Ratio, Debt Service Coverage Ratio (DSCR), Net Operating Income (NOI), Operating Expenses (OpEx)

Definition: The total allowable building area expressed as a ratio of the site’s total land area (e.g., 3.0 FAR = 3x buildable space).

CRE Relevance: A critical metric in zoning, FAR regulates building density, height, and land use potential in urban development.

Related Terms: Zoning Ordinances, Highest and Best Use (HABU)

Definition: A property’s practical effectiveness in serving its intended purpose, considering layout, configuration, and user efficiency.

CRE Relevance: A key determinant of marketability, tenant satisfaction, and obsolescence risk in CRE asset performance.

Related Terms: Obsolescence, Depreciation Expense

Definition: A metric used by REITs that reflects cash flow from operations, excluding depreciation and gains from property sales.

CRE Relevance: FFO is the primary performance indicator for publicly traded REITs and helps assess recurring income potential.

Related Terms: Net Operating Income (NOI), EBITDA

Definition: Non-permanent assets essential to business operations, such as desks, lighting, and appliances, typically not part of the structural real estate.

CRE Relevance: Often included in tenant build-outs or leasing incentives, FF&E costs are capitalized and impact total occupancy cost.

Related Terms: Tenant Improvements (TI), Capital Expenditures (CapEx)

Definition: The anticipated value of an investment or asset at a specific point in the future, based on projected growth or returns.

CRE Relevance: Key in IRR modeling and cash flow forecasting, future value informs development feasibility and portfolio growth strategies.

Related Terms: Present Value (PV), Discount Rate

Definition: A standardized set of accounting rules and practices used in the United States to ensure consistency and transparency in financial reporting.

CRE Relevance: In commercial real estate, GAAP guides how property income, expenses, assets, and liabilities are recorded and reported, particularly for REITs and institutional portfolios.

Related Terms: Income Statement, Cash Flow Statement

Definition: The total square footage of commercial space that is newly leased or occupied over a specific time period, not adjusted for tenant move-outs.

CRE Relevance: Used to track leasing momentum and tenant demand in CRE markets, gross absorption helps developers and brokers identify growth trends.

Related Terms: Absorption, Net Absorption

Definition: The total enclosed floor area of a commercial building, including all floors, basements, and mechanical spaces.

CRE Relevance: GBA is used for planning, construction budgeting, and tax assessments, especially in property comparisons and zoning reviews.

Related Terms: Gross Leasable Area (GLA), Usable Area

Definition: The total floor area that can be leased to tenants, including storage, mezzanines, and basements, measured from exterior wall to exterior wall.

CRE Relevance: A fundamental metric for determining rent potential, tenant share of expenses, and marketing strategy in retail and office CRE.

Related Terms: Net Rentable Area (NRA), Gross Building Area (GBA)

Definition: A lease agreement where the landlord covers all or most property operating expenses, including taxes, insurance, and maintenance.

CRE Relevance: Common in office leases, this structure simplifies budgeting for tenants and shifts operational risk to the landlord.

Related Terms: Triple Net Lease

Definition: The total income a commercial property could generate after vacancy losses but before deducting operating expenses.

CRE Relevance: GOI is a preliminary figure used in pro forma modeling and to assess the income-producing potential of CRE assets.

Related Terms: Effective Gross Income (EGI), Net Operating Income (NOI)

See also: Gross Operating Income (GOI) – includes full breakdown, example, and how it’s used in valuation.

Definition: A simplified valuation metric calculated by dividing the property’s purchase price by its gross annual rental income.

CRE Relevance: Useful for quick comparisons in smaller or residential-type commercial assets, GRM complements cap rate and income-based valuations.

Related Terms: Effective Gross Income Multiplier (EGIM), Market Rent

See also: Gross Rent Multiplier (GRM) – includes full breakdown, example, and how it’s used in valuation

Definition: Insurance coverage that protects commercial property owners from losses caused by natural hazards like fire, windstorms, and certain weather events.

CRE Relevance: Often a lender requirement in commercial mortgages, hazard insurance impacts total operating costs and investor risk exposure.

Related Terms: Insurance

Definition: The most profitable, legally permissible, and physically possible use of a property that results in the highest value.

CRE Relevance: HABU is a fundamental appraisal principle and drives development feasibility, zoning analysis, and acquisition strategy.

Related Terms: Appraisal, Market Study

Definition: The duration for which a commercial property is held in a portfolio from acquisition to disposition.

CRE Relevance: Determines depreciation schedules, affects IRR calculations, and guides timing of exit strategies.

Related Terms: Disposition, Internal Rate of Return (IRR)

Definition: Physical enhancements to land or structures, such as buildings, HVAC systems, or interior build-outs.

CRE Relevance: Improvements increase a property’s value and usability, impacting leasing, tax basis, and appraisal.

Related Terms: Tenant Improvements (TI), Capital Expenditures (CapEx)

Definition: A real estate valuation method based on a property’s ability to generate income, typically using NOI and cap rate.

CRE Relevance: One of the three primary appraisal methods in CRE, especially for income-generating assets like office, retail, and multifamily. The other two methods are the Cost Approach and the Sales Comparison Approach.

Related Terms: Net Operating Income (NOI), Capitalization Rate (Cap Rate)

Definition: Financial statement showing revenues, expenses, and net income over a time period.

CRE Relevance: Essential for evaluating a commercial property’s operating performance, lender reporting, and internal benchmarking.

Related Terms: Balance Sheet, Cash Flow Statement

Definition: Also called soft costs, these include architectural fees, permits, financing costs, and legal expenses during development.

CRE Relevance: Must be included in total project budgeting for accurate development feasibility and ROI forecasting.

Related Terms: Direct Costs

Definition: The portion of a property’s value covered by an insurance policy, typically excluding land and including only improvements.

CRE Relevance: Used to calculate insurance premiums and ensure adequate risk coverage in CRE underwriting.

Related Terms: Hazard Insurance, Appraisal

Definition: Financial protection against loss or damage to a real estate asset due to specified risks.

CRE Relevance: Required in most financed deals, insurance is a standard part of operating expenses and risk management.

Related Terms: Title Insurance

Definition: The ratio of net operating income to annual interest expense, measuring a property’s ability to meet its financing obligations from operations.

CRE Relevance: This ratio is a fundamental lender underwriting metric, particularly for interest-only loans or during construction periods when principal payments are not yet applicable. A higher ratio indicates a lower credit risk and stronger cash flow coverage, while a lower ratio may trigger lender scrutiny or concerns about loan covenants. Often used alongside DSCR in evaluating loan viability and risk.

Related Terms: Net Operating Income (NOI), Debt Service Coverage Ratio (DSCR), Loan-to-Value Ratio (LTV), Capital Stack

Definition: The discount rate that sets the net present value of future cash flows to zero.
CRE Relevance: IRR is one of the most commonly used metrics in CRE to compare project returns and assess investment performance over time.

Related Terms: Net Present Value (NPV), Holding Period

See also: Internal Rate of Return (IRR) – includes full breakdown, example, and how it’s used in valuation.

Definition: The length of time during which capital remains invested in a commercial property, often tied to project timelines or fund structures.

CRE Relevance: Used to assess exposure to market cycles and time sensitivity of expected returns.

Related Terms: Holding Period, Internal Rate of Return (IRR)

Definition: The specific value of a property to a particular investor based on their criteria, strategy, or tax position may differ from market value.

CRE Relevance: Investment value reflects subjective factors in pricing decisions and private deal negotiations.

Related Terms: Market Value, Value-in-Use

Definition: A business arrangement where two or more parties share ownership, returns, risks, and governance of a real estate investment.

CRE Relevance: Joint ventures are widely used in CRE to combine capital and expertise, especially in large-scale developments and institutional investments.

Related Terms:

Definition: Payment required by law to a property owner for property taken through eminent domain.

CRE Relevance: Ensures that property owners are fairly compensated during public acquisitions or redevelopment projects.

Related Terms: Eminent Domain

Definition: Quantitative metrics used to evaluate the performance of a commercial real estate asset or portfolio relative to strategic goals.

CRE Relevance: KPIs like occupancy, leasing velocity, and NOI are essential in asset management, reporting, and investment tracking.

Related Terms: Balanced Scorecard (BSC), Internal Rate of Return (IRR)

Definition: A lease provision allowing the landlord to terminate the lease if certain performance benchmarks (e.g., sales thresholds) are not met.

CRE Relevance: Common in retail leases, kick-out clauses protect landlords from underperforming tenants and allow for re-leasing flexibility.

Related Terms:

Definition: Incentives such as rent abatements, free rent periods, or tenant improvement allowances offered to attract or retain tenants.

CRE Relevance: Common during soft markets to maintain occupancy and stabilize income.

Related Terms: Tenant Improvements (TI), Effective Rental Rate

Definition: The amount of interior building space available for lease to tenants, often measured from interior wall to interior wall.

CRE Relevance: Directly influences rental income potential and is a core figure in pro forma modeling and valuation.

Related Terms: Gross Leasable Area (GLA), Net Rentable Area (NRA)

Definition: A contractual agreement in which a property owner (landlord) grants occupancy rights to a tenant in exchange for rent.

CRE Relevance: Leases govern the terms of occupancy, rent escalations, expense responsibilities, and renewal options, crucial for CRE income stability.

Related Terms: Leasehold Interest, Operating Lease

Definition: A concise summary of a lease agreement’s key financial and legal terms, including rent, term, options, and obligations.

CRE Relevance: A vital tool in acquisitions, lease audits, and asset-level reporting, especially in large portfolios.

Related Terms: Operating Expenses (OpEx)

Definition: The process of summarizing key terms and clauses of a lease agreement for quick reference and reporting.

CRE Relevance: Supports lease administration and portfolio management by enabling efficient data review and compliance monitoring.

Related Terms: Lease Administration, Lease Abstract

Definition: Ongoing oversight of lease terms, payments, compliance, renewals, and critical dates across a CRE portfolio.

CRE Relevance: Critical for ensuring accurate rent collection, minimizing risk, and maintaining strong tenant relationships.

Related Terms: Lease Abstracting, Performance Management

Definition: Clause allowing either party to end the lease early under specified conditions.

CRE Relevance: Provides flexibility but may introduce vacancy risk or early termination fees into investment analysis.

Related Terms: Kick-Out Clause

Definition: The ownership interest held by a landlord, which includes the right to receive rental income under the terms of a lease.

CRE Relevance: Relevant in property sales, appraisal, and legal ownership documentation.

Related Terms: Leasehold Interest

Definition: The portion of a property that is currently under an active lease agreement with a tenant.

CRE Relevance: Used to calculate occupancy rates, revenue forecasts, and property stabilization metrics.

Related Terms: Occupied Space, Vacancy Rate

Definition: The tenant’s legal interest in occupying a space as granted by the lease terms for a fixed period.

CRE Relevance: Leasehold interests are often subject to valuation in ground leases, subleases, or for financing purposes.

Related Terms: Leased Fee Interest, Lease

Definition: The total volume of new leases signed within a given market or property during a set timeframe.

CRE Relevance: Indicates tenant demand and market velocity, influencing pricing strategy and absorption forecasting.

Related Terms: Absorption, Available Space, Vacancy Rate

Definition: A use of property that was legal under previous zoning but is no longer compliant under current regulations.

CRE Relevance: Limits redevelopment or expansion options and may impact financing or resale opportunities.

Related Terms: Zoning

Definition: A non-binding document that outlines the preliminary terms of a potential lease or sale agreement.

CRE Relevance: Establishes negotiation terms and timeline for due diligence in CRE transactions.

Related Terms: Due Diligence

Definition: Levered Return is the return on a real estate investment after accounting for the impact of financing (debt). It reflects the performance of the investor’s equity, taking into account loan payments, interest, and leverage.

CRE Relevance: Levered return is crucial for evaluating the true equity performance of a real estate investment when financing is involved. While leverage can amplify gains, it also increases risk. This metric is essential for sponsors, equity investors, and lenders when assessing expected returns in deals using mortgages or structured debt. It’s often used in conjunction with metrics like IRR and Cash-on-Cash Return.

Related Terms: Unlevered Return, Internal Rate of Return (IRR), Cash-on-Cash Return, Debt Service Coverage Ratio (DSCR), Capital Stack

Definition: An estimation method for total costs associated with acquiring, operating, and disposing of a real estate asset over its entire life.

CRE Relevance: Used in sustainability and asset management to evaluate long-term value and operational efficiency.

Related Terms: Capital Planning, Functional Utility

Definition: The likely price a property would sell for under forced-sale or distressed conditions.

CRE Relevance: Used in bankruptcy, loan recovery scenarios, and risk analysis for high-leverage assets.

Related Terms: Market Value, Appraisal

Definition: The ratio of the loan amount to the appraised value or purchase price of a commercial real estate asset.

CRE Relevance: A core lending metric used to assess risk and determine financing limits in CRE debt underwriting.

Related Terms: Refinance

See also: Loan-to-Value (LTV) – includes full breakdown, example, and how it’s used in valuation.

Definition: A focused evaluation of real estate supply, demand, pricing, absorption, and demographic trends in a specific submarket or property type.

CRE Relevance: Crucial for making informed acquisition, leasing, and development decisions in commercial real estate investment strategy.

Related Terms: Market Study, Feasibility Analysis, Absorption

Definition: The rental rate a property would command under current market conditions, excluding incentives or concessions.

CRE Relevance: Used in lease negotiations, valuations, and investment modeling to compare asking rents and identify over/under-market leases.

Related Terms: Market Value, Effective Rental Rate

Definition: A macroeconomic examination of market dynamics, including trends in supply, demand, construction, and demographics across a region.

CRE Relevance: Serves as the foundation for site selection, risk mitigation, and long-term portfolio strategy in CRE investment.

Related Terms: Market Analysis, Feasibility Analysis

Definition: The estimated price a property would achieve in a fair, competitive market with informed, willing parties.

CRE Relevance: Used in appraisals, underwriting, and financial reporting.

Related Terms: Appraisal, Value – As Is

Definition: A microeconomic evaluation focused on demand drivers for a specific property or project, often used to optimize tenant mix or assess build-out potential.

CRE Relevance: Supports tenant mix decisions, lease-up forecasts, and optimization of space in repositioning or speculative developments.

Related Terms: Highest and Best Use (HABU), Feasibility Analysis

Definition: A property title free of defects, liens, or encumbrances that could prevent transfer or create legal uncertainty.

CRE Relevance: A requirement for closing most CRE sales and for securing title insurance or lender financing.

Related Terms: Title Insurance, Title Search

Definition: Any physical or legal condition that adversely affects the value or usability of a property and must be disclosed.

CRE Relevance: Impacts valuation and transaction risk and is typically addressed during due diligence.

Related Terms: Due Diligence, Encumbrance

Definition: Mezzanine Financing is a hybrid capital structure positioned between senior debt and equity in the capital stack. It typically takes the form of subordinated debt or preferred equity, offering lenders or investors fixed returns with warrants or equity conversion rights as added upside.

CRE Relevance: In commercial real estate, mezzanine financing is often used to bridge the gap between a property’s total cost and the amount supported by senior debt and sponsor equity. It allows developers or sponsors to reduce equity requirements while accessing higher leverage, albeit at higher cost and with increased risk. Common in large-scale developments, recapitalizations, and value-add deals.

Related Terms: Capital Stack, Preferred Equity, Common Equity, Loan-to-Value Ratio (LTV), Internal Rate of Return (IRR)

Definition: The net change in occupied space in a market over a defined time period, accounting for move-ins and move-outs.

CRE Relevance: Indicates true tenant demand and leasing momentum, which is key for forecasting rents and assessing construction risk.

Related Terms: Gross Absorption, Vacancy Rate, Leasing Activity

Definition: The cash remaining after all operating expenses and capital expenditures are paid, before debt service.

CRE Relevance: Used in IRR and DCF modeling to evaluate income performance and return projections in CRE underwriting.

Related Terms: Net Operating Income (NOI)

Definition: Income generated from a property after all operating expenses are deducted but before capital expenditures, debt service, and taxes.

CRE Relevance: The cornerstone metric in CRE valuation, underwriting, and investment performance measurement.

Related Terms: Capitalization Rate (Cap Rate), Effective Gross Income (EGI)

See also: Net Operating Income (NOI) – includes full breakdown, example, and how it’s used in valuation.

Definition: When a property’s allowable tax deductions exceed its taxable income, resulting in a loss that can offset future tax liability.

CRE Relevance: NOLs are valuable tax planning tools in CRE portfolios, particularly during repositioning or high capital expenditures (CapEx) years.

Related Terms: Depreciation Expense

Definition: The current value of future cash flows generated by a property, discounted at a required rate of return.
CRE Relevance: A critical investment metric that evaluates whether a CRE project meets an investor’s return expectations.

Related Terms: Discount Rate, Internal Rate of Return (IRR)

See also: Net Present Value (NPV) – includes full breakdown, example, and how it’s used in valuation.

Definition: The total square footage that a tenant pays rent on, excluding shared common areas.

CRE Relevance: Determines lease rates, tenant allocations, and total rental revenue in commercial properties.

Related Terms: Usable Area, Gross Leasable Area (GLA)

Definition: A reduction in property value due to outdated design, features, location, or changes in surrounding market conditions.

CRE Relevance: Affects leasing, valuation, and repositioning decisions in CRE portfolios, especially for aging or poorly located assets.

Related Terms: Functional Utility, Accrued Depreciation

Definition: Space currently occupied by tenants or owners. It may be calculated to include or exclude subleased space.

CRE Relevance: Used to calculate occupancy rates, cash flow projections, and overall asset performance.

Related Terms: Total Occupied Space, Vacancy Rate

Definition: Expenditures related to infrastructure outside the immediate development site, such as roads, sidewalks, and utility hookups.

CRE Relevance: Impact total project cost and are considered during feasibility and entitlement reviews.

Related Terms: Direct Costs

Definition: Expenses incurred directly on the development parcel, including grading, foundation, utilities, and building construction.

CRE Relevance: A major component of development budgets and capital planning in ground-up commercial projects.

Related Terms: Direct Costs, Off-site Costs

Definition: A ratio expressing total operating expenses as a percentage of effective gross income.

CRE Relevance: Used to evaluate efficiency and benchmark property performance against comparable assets

Related Terms: Net Operating Income (NOI), Operating Expenses (OpEx)

See also: Operating Expense Ratio (OER) – includes full breakdown, example, and how it’s used in valuation.

Definition: Recurring costs required to operate and maintain a property, including management, maintenance, insurance, and utilities.

CRE Relevance: Affects net operating income (NOI) and lease pass-throughs, making it a critical underwriting and valuation input.

Related Terms: Common Area Maintenance (CAM) Expenses, Base Year

Definition: A lease where the landlord retains most risks and benefits of ownership, and the asset is not capitalized on the tenant’s balance sheet.

CRE Relevance: Affects how leases are structured and reported.

Related Terms: Capital Lease, Lease

Definition: A property’s net operating income divided by its total value or sale price—used to determine return on investment.

CRE Relevance: A primary metric in CRE valuation and market comparisons, particularly for stabilized income-producing assets.

Related Terms: Capitalization Rate (Cap Rate), Net Operating Income (NOI)

Definition: The number of parking spaces available per 1,000 square feet of rentable area in a commercial property.

CRE Relevance: Essential for site planning and tenant mix in suburban office, retail, and medical office developments.

Related Terms: Gross Leasable Area (GLA), Site Selection

Definition: The time it takes for a real estate investment to recover its initial capital outlay from net cash flow.

CRE Relevance: Used to evaluate capital improvements, energy efficiency upgrades, and short-term investment feasibility.

Related Terms: Net Present Value (NPV), Internal Rate of Return (IRR)

Definition: The strategic process of monitoring and improving asset or portfolio performance to align with financial goals.

CRE Relevance: Used in asset management to track KPIs, reduce costs, and increase long-term value.

Related Terms: Balanced Scorecard (BSC), Key Performance Indicators (KPI)

Definition: Comparative analysis of real estate portfolios against peer portfolios or industry standards.

CRE Relevance: Reveals inefficiencies and opportunities for capital reallocation or operational improvements.

Related Terms: Portfolio Management, Performance Management

Definition: The ability of a real estate portfolio to scale, adapt, or pivot in response to business changes or market conditions.

CRE Relevance: Supports corporate real estate strategy, site optimization, and long-term occupancy planning.

Related Terms: Lease Administration, Site Selection

Definition: Oversight and strategic alignment of multiple commercial properties to optimize performance, risk, and return.

CRE Relevance: Enables scalability, capital efficiency, and strategic asset allocation in CRE investment portfolios.

Related Terms: Portfolio Optimization, Acquisition

Definition: The process of adjusting a real estate portfolio through sales, acquisitions, or repositioning to meet business objectives.

CRE Relevance: A continuous process that improves value, reduces risk, and enhances overall asset performance.

Related Terms: Performance Management, Market Study

Definition: The maximum rental income a property could generate at 100% occupancy with no rent loss.

CRE Relevance: Forms the starting point for income-based valuation models and leasing projections.

Related Terms: Effective Gross Income (EGI), Net Operating Income (NOI)

Definition: Portions of a development that are leased prior to construction completion or certificate of occupancy.

CRE Relevance: Reduces lease-up risk, improves financing terms, and signals strong tenant demand.

Related Terms:

Definition: Preferred Equity is a class of investment in a real estate deal that sits between debt and common equity in the capital stack. Preferred equity holders receive priority returns (often fixed or structured) before common equity but after all debt obligations are paid.

CRE Relevance: Preferred equity is commonly used to fill funding gaps without increasing senior debt. It offers higher returns than debt but lower risk than common equity, making it attractive to investors seeking a balance between yield and risk. In commercial real estate, preferred equity plays a key role in capital structuring, syndications, and joint ventures, especially in development or value-add projects.

Related Terms: Capital Stack, Common Equity, Mezzanine Financing, Internal Rate of Return (IRR), Equity Multiple

Definition: The value today of a future cash flow, discounted using a specific rate of return.

CRE Relevance: A foundational concept in real estate valuation, Present Value is central to Discounted Cash Flow modeling and investment decision-making.

Related Terms: Net Present Value (NPV)

Definition: The Price-to-Rent Ratio compares the purchase price of a property to its annual rental income. It’s a simple valuation metric that helps assess whether it’s more cost-effective to buy or rent a property and can indicate if a market is overvalued or undervalued.

CRE Relevance: While commonly used in residential real estate, this ratio can also provide macro-level insights into commercial property pricing, particularly in markets with mixed-use, multifamily, or small-scale retail properties. It’s useful for market comparisons, acquisition screening, and understanding the relative value between income vs. asset price. A higher ratio suggests lower income yield and potential overpricing; a lower ratio may indicate better return potential.

Related Terms: Gross Rent Multiplier (GRM), Capitalization Rate (Cap Rate), Rental Yield, Internal Rate of Return (IRR)

Definition: The complete span of a property’s investment journey, from acquisition through operation, improvement, and eventual disposition.

CRE Relevance: Informs long-term strategic planning, asset management, and capital expenditure decisions.

Related Terms: Acquisition, Disposition

Definition: A recurring tax based on a property’s assessed value imposed by local governments.

CRE Relevance: A major operating expense that impacts NOI, lease structures, and tenant pass-throughs in NNN deals.

Related Terms: Operating Expenses (OpEx), Real Estate Taxes

Definition: The amount paid to acquire a commercial real estate asset or controlling interest therein.

CRE Relevance: Serves as the investment basis for depreciation, tax strategy, and return projections.

Related Terms: Adjusted Basis, Agreement of Sale

Definition: An individual or entity that meets financial, legal, and sometimes experiential criteria to complete a commercial real estate purchase.

CRE Relevance: Ensures deal credibility and reduces execution risk by confirming that the buyer has the resources and intent to close.

Related Terms: Due Diligence, Agreement of Sale

Definition: A Real Estate Exit Strategy is a planned method for an investor or sponsor to monetize or divest a property investment, typically through sale, refinance, or recapitalization. It outlines how and when the investor intends to realize returns and recover capital.

CRE Relevance: Exit strategies are essential to any real estate investment plan. They influence hold period assumptions, return projections (IRR, Equity Multiple), and risk management. A clearly defined exit strategy helps align investor expectations, support underwriting, and optimize timing based on market cycles. Common strategies include disposition at stabilization, value-add execution with sale, or cash-out refinance.

Related Terms: Holding Period, Internal Rate of Return (IRR), Disposition, Net Present Value (NPV), Capital Stack

Definition: Real Estate Investment Analysis is the process of evaluating a property’s financial viability, risk profile, and potential return. It involves assessing metrics such as NOI, IRR, ROI, Cap Rate and cash flow to determine whether an investment aligns with strategic goals.

CRE Relevance: This analysis is foundational to every stage of the investment lifecycle, from acquisition and underwriting to asset management and disposition. It helps investors, family offices, and institutional buyers make data-driven decisions by forecasting returns, risks and value creation potential. Comprehensive investment analysis improves capital allocation and reduces uncertainty in both core and value-add strategies.

Related Terms: Net Operating Income (NOI), Internal Rate of Return (IRR), Return on Investment (ROI), Capitalization Rate (Cap Rate), Due Diligence

Definition: A corporate structure that pools investor capital to own and operate income-producing real estate, offering pass-through taxation.

CRE Relevance: REITs provide liquidity, diversification, and stable income streams to investors seeking exposure to CRE without direct ownership.

Related Terms: Equity, Net Operating Income (NOI)

Definition: Property-based taxes imposed by municipalities, based on assessed value.

CRE Relevance: A significant operating expense in CRE, property taxes influence NOI, lease agreements, and tenant cost allocations.

Related Terms: Property Tax, Operating Expenses (OpEx)

Definition: Embedded choices in real estate assets, such as the ability to expand, convert, exit early, or redevelop, that add strategic flexibility.

CRE Relevance: Utilized to enhance value and adjust risk in response to market changes, real options are particularly relevant in urban and mixed-use assets.

Related Terms: Portfolio Flexibility, Site Selection

Definition: Planned, periodic investments in building systems and infrastructure necessary to maintain property functionality over time.

CRE Relevance: Affects long-term cash flow, asset value, and budgeting in CRE operations and underwriting.

Related Terms: Capital Expenditures (CapEx), Tenant Improvements (TI)

Definition: The process of replacing an existing loan with a new one, often to secure better terms, pull out equity, or extend the hold period.

CRE Relevance: Enables capital recycling, improves cash flow, and plays a role in exit and recapitalization strategies.

Related Terms: Loan-to-Value Ratio (LTV)

Definition: Rental Yield is the annual rental income generated by a property expressed as a percentage of its value or purchase price. It measures the income return on a real estate investment, independent of appreciation or financing.

CRE Relevance: Rental yield is a quick and essential metric for comparing cash flow performance across markets or property types. It helps investors assess income efficiency and identify properties that offer strong cash-on-cash performance. In commercial real estate, gross and net rental yield are often used in market studies, underwriting, and return projections.

Related Terms: Gross Rent Multiplier (GRM), Capitalization Rate (Cap Rate), Cash-on-Cash Return, Net Operating Income (NOI), Price-to-Rent Ratio

Definition: The estimated cost to rebuild a structure of similar utility using current materials and construction methods.

CRE Relevance: Used in insurance underwriting, property valuation, and highest-and-best-use analysis for CRE assets.

Related Terms: Reproduction Cost, Insurable Value

Definition: The cost to construct an exact replica of an existing building, including original materials and layout.

CRE Relevance: Primarily used in historical property valuation and special-use facility assessments.

Related Terms: Replacement Cost, Appraisal

Definition: Legal limitations placed on property use, typically recorded in deeds or HOA agreements.

CRE Relevance: Affects development rights, lease terms, and asset repositioning potential in CRE transactions.

Related Terms: Zoning Ordinances

Definition: Return on Investment (ROI) measures the total profitability of a real estate investment by comparing the net profit to the total capital invested. It is expressed as a percentage and captures both cash flow and appreciation over the investment period.

CRE Relevance: ROI is a core metric for evaluating the overall performance of a property or project. It helps investors assess how efficiently their capital was deployed and how much value was created. ROI is often used during dispositions, financial reporting, and deal comparisons, especially in long-term holds or stabilized assets.

Related Terms: Internal Rate of Return (IRR), Cash-on-Cash Return, Equity Multiple, Net Operating Income (NOI), Real Estate Investment Analysis

See also:Return on Investment (ROI) – includes full breakdown, example, and how it’s used in valuation.

Definition: A method used to estimate a property’s resale value at the end of a holding period by applying a terminal cap rate to forecasted NOI.

CRE Relevance: Crucial in discounted cash flow (DCF) models to capture projected exit value and investor returns.

Related Terms: Capitalization Rate (Cap Rate)

Definition: The potential for an investment’s actual returns to differ from expected outcomes, influenced by market, operational, and financial factors.

CRE Relevance: Understanding risk is fundamental to CRE underwriting, asset allocation, and portfolio management.

Related Terms: Discount Rate, Internal Rate of Return (IRR)

Definition: A transaction in which an owner sells a property and immediately leases it back from the buyer.

CRE Relevance: Frees capital while retaining operational control, common for corporate users.

Related Terms: Lease, Net Operating Income (NOI)

Definition: Understanding risk is fundamental to CRE underwriting, asset allocation, and portfolio management.

CRE Relevance: Used in appraisals and broker opinions of value (BOV), this approach helps determine competitive market pricing.

Related Terms: Appraisal, Market Value

Definition: A Document outlining specific tasks, deliverables, and timelines in a real estate project.

CRE Relevance: Critical in construction, property management, and service contracts.

Related Terms: Lease Administration, Tenant Improvements (TI)

Definition: A Contract specifying expected service quality between a provider and client.

CRE Relevance: Common in facilities and property management arrangements.

Related Terms: Scope of Work (SOW)

Definition: The process of evaluating and choosing optimal locations for commercial property investment or development based on access, zoning, demographics, and market trends.

CRE Relevance: Critical in development, expansion, and corporate real estate planning to align real estate with business goals.

Related Terms: Market Study, Portfolio Flexibility

Definition: A deed where the grantor warrants the title only for the duration of their ownership.

CRE Relevance: Offers limited title protection compared to a General Warranty Deed.

Related Terms: Title Insurance, Title Search

Definition: A development built without pre-leases, relying on market demand post-completion.

CRE Relevance: Carries higher leasing and market risk but can deliver outsized returns when absorption is strong.

Related Terms: Pre-leased Space, Feasibility Analysis

Definition: Projected NOI under full, mature occupancy and normal operating conditions.

CRE Relevance: Used as a baseline in valuation and underwriting models.

Related Terms: Effective Gross Income (EGI), Net Operating Income (NOI)

Definition: The consistent level of occupancy a property achieves under normal market conditions, typically 90–95%.

CRE Relevance: Used to determine property stabilization in underwriting and signals risk reduction in cash flow.

Related Terms: Stabilized Net Operating Income (Stabilized NOI), Pre-leased Space

Definition: Land or assets no longer needed for business use, often sold or repurposed.

CRE Relevance: Represents opportunity for value-add investment, redevelopment, or land banking strategies.

Related Terms: Excess Land, Disposition

Definition: Recurring property costs related to real estate taxes and insurance premiums, often passed through to tenants.

CRE Relevance: A key component of operating expenses, especially in triple net lease (NNN) structures.

Related Terms: Operating Expenses (OpEx), Hazard Insurance

Definition: Costs a tenant is responsible for, including rent, CAM, taxes, insurance, and utilities.

CRE Relevance: Central to lease structuring and tenant cost analysis.

Related Terms: Common Area Maintenance (CAM) Expenses, Triple Net Lease

Definition: Custom interior modifications made to a space to suit a tenant’s operational needs, funded by either the landlord or tenant.

CRE Relevance: A standard part of lease negotiations; impacts cash flow, lease structure, and property depreciation schedules.

Related Terms: Landlord Concessions, Scope of Work (SOW)

Definition: Principle that money available now is worth more than the same amount in the future.

CRE Relevance: Foundation for DCF, NPV, IRR, and capitalization calculations.

Related Terms: Discount Rate, Internal Rate of Return (IRR)

Definition: Legal documentation of property ownership and rights.

CRE Relevance: Ownership clarity is critical for transactions and financing.

Related Terms: Title Search, Title Insurance

Definition: An insurance policy that protects property owners and lenders from financial loss due to title defects, liens, or disputes.

CRE Relevance: Required in most transactions; ensures clean title transfer and mitigates legal risks in acquisitions.

Related Terms: Title Search, Special Warranty Deed

Definition: A review of public records to confirm legal ownership and uncover liens or claims before transferring property.

CRE Relevance: A vital step in CRE due diligence and legal risk management.

Related Terms: Title Insurance, Encumbrance

Definition: The total area currently occupied within a property or portfolio (direct and subleased).

CRE Relevance: Used in calculating occupancy rates and benchmarking leasing performance.

Related Terms: Occupied Space, Vacancy Rate

Definition: One of several classes of securities within a structured real estate investment, each with unique risk/return profiles.

CRE Relevance: Used in complex CMBS or securitized real estate deals.

Related Terms: Risk

Definition: A framework measuring a project’s People, Planet, and Profit outcomes.

CRE Relevance: Important in ESG and sustainable investment strategies.

Related Terms:

Definition: A lease where tenants pay base rent and all operating expenses, including taxes, insurance, and maintenance.

CRE Relevance: Popular with passive investors for its predictable income and reduced landlord responsibilities.

Related Terms: Absolute Net Lease, Common Area Maintenance (CAM) Expenses

Definition: The return on a real estate investment calculated without the use of debt, based solely on the property’s net operating income (NOI) and total project cost. It reflects the performance of the asset as if it were acquired entirely with equity (all cash).

CRE Relevance: Unlevered return is essential for evaluating the true operating performance of a property, independent of capital structure. It allows investors, especially institutional or equity-only buyers, to compare assets on a level playing field. Also used to benchmark against market cap rates, unlevered IRR, and cost of capital before introducing leverage into the model.

Related Terms: Net Operating Income (NOI), Levered Return, Internal Rate of Return (IRR), Yield on Cost (YOC), Capitalization Rate (Cap Rate)

Definition: The space within a building that can be occupied by tenants, measured from the interior finish of perimeter walls to the center of demising walls.

CRE Relevance: Crucial for calculating leasable square footage and comparing tenant efficiency.

Related Terms: Net Rentable Area (NRA), Gross Leasable Area (GLA)

Definition: The estimated duration a building or component will provide economic value or service.

CRE Relevance: Important for depreciation schedules, capital planning, and renovation timing in CRE asset management.

Related Terms: Depreciation Expense, Capital Planning

Definition: The percentage of total leasable space in a property or market that is currently unoccupied.

CRE Relevance: A key market indicator used to evaluate demand, pricing strategy, and investment risk.

Related Terms: Absorption, Occupied Space

Definition: The estimated value of a property under its current physical and economic conditions.

CRE Relevance: Used in appraisals, especially for acquisitions or distressed assets not requiring further renovation.

Related Terms: Appraisal, Market Value

Definition: The value of property to a specific user, typically for internal use, and not necessarily market value.

CRE Relevance: Important in specialized asset valuation.

Related Terms: Net Present Value (NPV), Investment Value

Definition: Costs that change in direct proportion to occupancy or usage levels, such as utilities or janitorial services.

CRE Relevance: Impact tenant pass-through charges and NOI variability.

Related Terms: Operating Expenses (OpEx), Net Operating Income (NOI)

Definition: A physical inspection of a property to identify maintenance needs or verify lease compliance.

CRE Relevance: Supports due diligence, asset management, and tenant turnover processes.

Related Terms: Due Diligence, Tenant Improvements (TI)

Definition: The average rate a company is expected to pay to finance its assets, weighted by the proportion of debt and equity.

CRE Relevance: Used in DCF models and feasibility analysis to determine project hurdle rates and assess capital efficiency.

Related Terms: Cost of Capital, Internal Rate of Return (IRR)

Definition: The average lease duration across a property or portfolio, weighted by income or square footage.

CRE Relevance: Affects cash flow predictability and valuation.

Related Terms: Lease

Definition: The integration of people, places, and technology to improve how work is done within real estate environments.

CRE Relevance: Drives space utilization, lease structuring, and long-term portfolio planning in corporate real estate.

Related Terms: Business Continuity Planning

Definition: A rent increase mechanism tied to outperforming a financial benchmark or market trigger.

CRE Relevance: Occasionally used in performance-based leases.

Related Terms: Escalation Clause, Base Year

Definition: The income return on an investment, typically expressed as a percentage of cost or value.

CRE Relevance: Measures investment performance and is key to comparison across assets.

Related Terms: Capitalization Rate (Cap Rate), Yield on Cost (YOC)

Definition: A valuation method applying a single year’s NOI to a cap rate.

CRE Relevance: Standard practice for stabilized assets.

Related Terms: Capitalization Rate (Cap Rate), Income Approach

Definition: A development metric calculated by dividing a project’s stabilized NOI by total project cost.

CRE Relevance: Used to compare development feasibility and return expectations against market cap rates.

Related Terms: Net Operating Income (NOI), Capitalization Rate (Cap Rate)

See also: Yield on Cost (YoC) – includes full breakdown, example, and how it’s used in valuation.

Definition: The difference between the cap rate of a property and the prevailing interest rate or benchmark.

CRE Relevance: Indicates the relative attractiveness of a real estate investment.

Related Terms: Capitalization Rate (Cap Rate), Risk

Definition: Municipal laws governing land use and property development standards.

CRE Relevance: Determines what can be built and how property can be used.

Related Terms: Zoning Ordinances

Definition: Detailed regulations within zoning laws that control building height, density, use, and setbacks.

CRE Relevance: Affects entitlement, development feasibility, and investment strategy for all CRE asset types.

Related Terms: Restrictive Covenants