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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.
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."
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.
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.) Often used in
a yet-to-be-built building, 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.
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 Sts and sewers.
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.
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.
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".
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 and construction.
Can compete at low end of Class "A". Class "C"-Generally an
older building with growing functional and/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".
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.
C.A.M.: Common Area Maintenance
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% capitalization rate
($100,000/10%= $1,000,000). See "Capitalization Rate Inside".
Capitalization Rate: The
rate that is considered a reasonable return on investment
(on the basis of both the investor's alternative investment
possibilities and the risk of the investment). Used to determine
and value real property through the capitalization process.
Also called "free and clear return". See "Capitalization".
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 O" or a Non-Residential
Use and Occupancy Permit (NON RUP).
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 submaket used as comparisons
to determine the fair market value of another particular property.
Condemnation: The process
by which private property is taken by a governmental agency
for public use without consent of the owner, but only upon
payment of just compensation. See also "Eminent Domain".
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.
Conveyance: Most commonly
refers to the transfer of title of 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 (restrooms, hallways) that,
when added to the net usable square footage equals the net
rentable square footage. May be computed for a building or
a floor of a building. A "Loss Factor" or "Load Factor" is
calculated by dividing the rentable square footage by the
usable square footage.
Cost Approach: A method of
appraising real property whereby the replacement cost of a
structure is calculated using current costs of construction.
Covenant of Quiet Enjoyment:
inserted in leases or conveyances whereby landlord or grantor
promises that the tenant or grantee shall enjoy possession
of the premised in peace and quiet without disturbance.
Deed: Generally, a conveyancing
instrument given by the seller to pass fee title to property
upon sale.
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 income tax
purposes.
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.
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.
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 diving 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. See,
Also "Condemnation".
Equity: The value of one's
interest in a property, consisting of its fair market value
less any outstanding debt or other encumbrances. 
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 cost 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 lease 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
agreement 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 an 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).
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.
Flex Space: A one or two
story building 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.
Force Majeure: A force that
cannot be controlled or resisted. In other words, something
beyond the control of the parties involved. Includes acts
of God (e.g. tornadoes, floods, etc.) and acts of man (e.g.
riots, arson, or strikes, etc.)
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. Also called a "Land
Lease".
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.
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.
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.
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.
Lease: An agreement whereby
"the owner of real property gives the right of possession
to another for a specified period of time and for a specified
consideration".
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. Also see "Tenant
Improvements" and "Workletter".
Legal Description: A method
of geographically identifying a parcel of land that is acceptable
in a court of law.
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 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 no liens.
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.
Listing Agreement: An agreement
between a real estate broker and the property owner which
authorizes the broker to assist in the sale or lease in that
property in return for a fee, commission or other form of
compensation. See also "Exclusive Listing Agreement". 
Market Value: The most probable
price 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 in 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
agreements 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 subsequent leases.
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.
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.
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. See
also "Gross Absorption".
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. See also "Gross
Lease".
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-Recourse Loan: A loan
which does not allow for a deficiency judgement 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.
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 the 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.
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.
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.
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.
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 may be several months later. 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, 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.
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.
Security Deposit: Generally,
a deposit of money by a tenant with a landlord to secure performance
of a lease.
Setback: The distance from
a lot line or other reference point, within which no structure
may be located.
Site Analysis: The study
of a specified parcel of land (and the surrounding area) to
determine its suitability for a specific use.
Site Plan: A detailed plan,
to scale, depicting development of a parcel of land and containing
all information required by the zoning ordinance.
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.
Speculative Space: Any prime
space that has not been leased to a tenant prior to commencing
construction on a new building.
Survey: The measurement of
the boundaries of a parcel of land, its area and sometimes
its topography.
Tax Base: Assessed valuation
of real property, which is multiplied by the tax rate to determine
the amount of tax due.
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 used to bind one party to performance
at or by a specified time in order to bind the other party
to performance.
Title Insurance: Insurance
against loss resulting from defects of title to a specifically
described parcel of real property. Defects 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 part of the business,
not of the real estate.
Triple Net (NNN) Rent: Rent
stipulated in a lease in which a 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" (not included in our
list).
Turn Key Project: A Project
in which a developer is responsible for the total completion
of a building (including interior design and construction)
or demised premises of the customized requirements of a future
owner or tenant.
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 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.
Vacancy Factor: The amount
of gross revenue lost because of vacant space, an allowance
item on pro forma 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 space. Computed by multiplying
vacant space times 100 and dividing by total inventory.
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 topographical 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.
Warranty: A binding promise
made at the time of 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's normal and reasonable use.
In many leases the tenant is not responsible for "normal
wear and tear".
Workletter: The standard
building items that the landlord contributes as 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. See also
"Contract Documents" (not on our list).
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.
Reprinted with permission from Black's
Guide, written by: E Andrew Keeney. |
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