Class A, B, and C Office Buildings in Commercial Real Estate
Explore the different office asset classes and how properties are classified into each category.
Commercial Property Loans
Everything in Commercial Property Loans in the Commercial Real Estate Glossary.
Articles
ARV: After-Repair Value in Commercial Real Estate
An after-repair value of a property is simply the property's market value after any repairs, renovations, or improvements have taken place.
1031 Exchanges in Commercial Real Estate
A 1031 exchange allows a commercial property seller to defer taxes from the sale of a property if they acquire another, similar property within 180 days.
Commercial Real Estate Leases: Understanding Gross, Double Net, and Triple Net Leases
TI/LC: Tenant Improvements / Leasing Commission In Commercial Real Estate
A tenant improvement, or TI, refers to the improvements a commercial property owner makes to the interior of a rental space in order to suit the needs of a new
LTV: Loan To Value Ratio In Commercial Real Estate Loans
The loan-to-value ratio, or LTV, is a measure of the relationship between the loan amount and the value of the commercial real estate (collateral). It is used t
LIBOR: London Interbank Offered Rate
The London Interbank Offered Rate, or LIBOR, is the interest rate central banks in London are charged for short-term borrowing.
LTC: Loan to Cost Ratio In Commercial Real Estate Loans
The loan-to-cost ratio, or LTC, is used in commercial real estate to calculate the percentage a construction or rehabilitation project's loan amount represents
Prime Interest Rate in Commercial Property Loans
The prime interest rate is the interest rate banks charge their most favored customers. It is based on the federal funds rate.
Rent Ceiling in Commercial Real Estate
A rent ceiling is the highest price that a landlord can charge for rent. In most cases, rent ceilings apply to multifamily properties and are a result of city a
Special Purpose Entities in Commercial Real Estate
A special purpose entity or single purpose entity (SPE) is a legal entity used to acquire and finance a specific investment while limiting risk for all parties
Understanding Personal Guarantees on Commercial Mortgages
A personal guarantee pledges the private assets of an individual borrower to secure a commercial mortgage.
Conditional Use Permits in Commercial Real Estate
A conditional use permit (CUP) allows a landowner to use their land in a way not permitted by ordinary zoning regulations. They can address nearly any type of n
Deed in Lieu in Commercial Real Estate
In real estate, a deed in lieu, also known as a deed in lieu of foreclosure, is a potential alternative to a foreclosure or a short sale. It generally involves
Commercial Zoning in Commercial Real Estate
Zoning is the process of segmenting land into zones, each of which permits and prohibits specific land uses. Zoning also regulates elements like the height, den
Internal Rate Of Return (IRR) Calculator & Usage
An internal rate of return (IRR) is a calculation investors use to determine the likely rate of growth of capital (as it relates to both time and yield) for a p
Mini Perm Loans in Commercial Real Estate
Mini perm loans are generally used to finance an income-generating commercial property that has recently been built, but does not yet have the income to qualify
Tenancy in Common (TIC) in Commercial Real Estate
Tenancy in common (TIC) is a type of commercial real estate ownership structure in which more than one party owns a specific property. Tenancy in common can mak
BPS: Basis Points In Commercial Mortgages
Basis points are used to measure many financial instruments, including the fees, spreads and rates in commercial real estate finance.
Value-Add Commercial Properties
Value-add refers to the purchase of a building for the purpose of adding value. Value-add may come from lowering operational expenses and increasing revenue.
Cash on Cash Returns For Commercial Real Estate Investments
A cash on cash return calculation determines the amount of annual income an investor earns on a piece of real estate when compared to the amount of cash investe
The Importance of Debt Yield in Commercial Property Loans
Debt yield is a measure of risk for commercial mortgage lenders. It takes into account the net operating income of a commercial property to determine how quickl
Capitalization Rates (Cap Rates) in Commercial Real Estate
The capitalization rate, or cap rate, is calculated by dividing the net operating income of a property by its market value. This is the key tool appraisers use
Balloon Payments in Commercial Real Estate
Balloon mortgages are two-step financial products that see a borrower make installment-like payments for a certain number of periods before a much larger final
DSCR: Debt Service Coverage Ratio
Debt service coverage ratio or DSCR, is a comparison between net operating income and debt service on an annual basis and is generally one of the most important
Understanding Replacement Reserves
Replacement reserves is a budget line item used by commercial property underwriters to address periodic maintenance on systems that wear out faster than the bui
Loan Constant: Mortgage Constant
The loan constant, also known as the mortgage constant, is the calculation of the relationship between debt service and loan amount on a fixed rate commercial r
Soft Step Down In Commercial Property Loans
A step down requires the payment of a set percentage of the outstanding amount of the loan. That percentage declines as the loan ages. While a typical step down
Interest-Only Loans in Commercial Real Estate
An interest-only loan is a type of loan in which the borrower only needs to pay the interest, not the principal, for a specific amount of time. This period will
New Markets Tax Credits (NMTC) in Commercial Real Estate
The New Markets Tax Credit (NMTC) is a federal tax incentive program designed to encourage investment in low-income communities. Since congress started allocati
Historic Tax Credits (HTC) in Commercial Real Estate
The Historic Tax Credit, or HTC program, is a 20% federal tax credit designed to encourage investors to fund the substantial rehabilitation of historic structur
Effective Gross Income in Commercial Real Estate
Effective gross income (EGI), is all the income generated by a property, including rent, tenant reimbursements, and income from sources such as vending machines
Commercial MLS in Commercial Real Estate
A multiple listing service, or MLS, is a software system used by real estate brokers in order to represent the sellers of properties, search for properties for
Refinancing Commercial Real Estate Loans
Refinancing is a key part of your commercial property investment strategy, particularly when interest rates are fluctuating or if you have a partially amortizin
Tenant Reimbursements in Commercial Real Estate
Tenant reimbursements, also known as tenant recoveries, are expenses which are paid back to a landlord by a tenant. Common examples of tenant reimbursements inc
Commercial Equity Loans: The Basics
If you need capital to make repairs or renovations to your commercial property, or you’d like additional funds to purchase a new investment property, you may wa
Commercial Property Management Fees in Commercial Real Estate
A typical commercial property management fee is anywhere between 4-12% of the rent for a commercial property, though this can vary greatly upon several factors,
Lease Renewal in Commercial Real Estate
Commercial leases can last as little as a few months, or as long as 20 years or more. In contrast, multifamily apartment leases are typically 12 months, with so
Securitization in Commercial Real Estate
Securitization is the process in which commercial or residential real estate loans are pooled together, packaged into a financial product, and sold to investors
Debt Coverage Ratio in Commercial Real Estate
Debt Coverage Ratio (DCR), is a measurement of a property’s net operating income divided by its debt service. A property’s Debt Coverage Ratio, which is also kn
Commercial Equity Lines of Credit in Commercial Real Estate
Commercial equity lines of credit, also known as CELOCs, involve a commercial real estate owner being given a line of credit that allows them to borrower agains
Earnest Money in Commercial Real Estate
Earnest money is a deposit made by a buyer to demonstrate their serious intent to purchase a commercial property. This money is usually held in escrow until the
Subletting in Commercial Real Estate
A sublease, or sublet, occurs when a tenant assigns part or all of their lease to a new tenant. In general, most commercial leases permit subletting, but not al
Loan Seasoning in Commercial Real Estate
In commercial real estate finance, seasoning refers to the amount of time that a borrower has held a specific loan. Therefore, a seasoned loan is a one that has
Carve-Out Guarantees in Commercial Real Estate Finance
The carve-out guarantee gives a lender the authority to require payment for a commercial real estate loan beyond the actual value of the property if foreclosure
Return on Investment in Commercial Real Estate
In commercial real estate, return on investment (also known as ROI), is a measurement of how much money an investor receives from an investment after all expens
Investment Variables in Commercial Real Estate
When it comes to making a decision on whether to invest in a commercial property, there are a variety of variables that an investor can take into account. First
Appraisals in Commercial Real Estate
A commercial property appraiser conducts an appraisal, which provides a market value of a commercial real estate asset. This is essential when seeking financing
Waterfall and Promote Structures in Commercial Real Estate
A waterfall and promote structure, also known as a waterfall model, is a method for distributing the profits from a real estate investment in an uneven way. Typ
Price Per Key in Commercial Real Estate
In hotel construction and acquisition, price per key is a metric that compares the amount of money spent on building or acquiring the hotel with the number of r
Break-even Ratio in Commercial Real Estate
The break-even ratio for a property is the percentage of its gross operating income that the property needs to break even, i.e. for costs to equal expenses. Inv
Floor Plate in Commercial Real Estate
In commercial real estate, the floor plate is the amount of leasable square footage on an individual floor of a building.
RevPar: Revenue Per Available Room in Commercial Real Estate (+ Calculator)
RevPar, or revenue per available room, is a measure of a hotel's financial performance, which can be calculated by dividing a hotel's total room revenue by the
Power Centers in Commercial Real Estate
A power center is an outdoor shopping center with multiple big-box retailers, as well as an array of smaller retailers, restaurants, and other kinds of business
Clear Height in Commercial Real Estate
In industrial real estate, a property's clear height is the height to which product can safely be stored on racking. Clear height can also be defined as the hei
Restrictive Covenants in Commercial Real Estate
Restrictive covenants are restrictions placed on the use of a property. In commercial real estate, restrictive covenants may be placed on a property by a lender
Anchor Tenants in Commercial Real Estate
An anchor tenant is the largest or most prominent store in a retail commercial real estate development, intended to help draw customers into the area. In strip
Operating Expense Ratio in Commercial Real Estate
An operating expense ratio, or OER, sometimes simply known as an expense ratio, is a metric comparing a property's operating expenses to the amount of income it
Amortization in Commercial Real Estate
Amortization is the process of spreading a loan into payments that consist of both principal and interest over a set timeline, called an amortization schedule.
Equity Multiple in Commercial Real Estate
Use our calculator to find your equity multiple, comparing the cash an investor has put into an investment to the amount of cash the investment has generated ov
Prepayment Penalties in Commercial Real Estate
In commercial real estate loans, a prepayment penalty is a fee charged to borrower if they attempt to repay their loan early. When a lender issues a loan, they
Discounted Cash Flow Analysis in Commercial Real Estate
Discounted Cash Flow Analysis, or DCF analysis, is a method used to determine the current value of a set of cash flows using a predetermined discount rate. In p
Assumable Loans in Commercial Real Estate
In commercial real estate, an assumable loan is a loan that can be taken over by a buyer when the owner of the property sells. Determining whether or not a loan
The 1% and 2% Rules in Commercial Real Estate
The 1% rule states that a property's monthly rent must be at least 1% of its purchase price in order for the owner to break even. The 2% rule states that a prop
Load Factor in Commercial Real Estate
A load factor, also known as a loss factor, is a metric that compares the amount of space a tenant has to pay for in a commercial lease, versus the amount of sp
Occupancy Rate in Commercial Real Estate
Occupancy rate is an important metric for temporary housing, and can be measured by dividing the number of occupied units by the number of available units.
Multifamily Property Classes in Commercial Real Estate
Much like office properties are classified by quality as either "A", "B", or "C" properties, multifamily properties such as apartments can also be classified th
CTL: Credit Tenant Leases in Commercial Real Estate
A credit tenant lease (CTL) is a form of commercial real estate financing in which a loan is given for a property with a long-term lease (usually 10+ years), ty
Parking Ratio in Commercial Real Estate
A parking ratio is a statistic that takes the number of available parking spaces in commercial property and divides it by the property's entire gross leasable a
FAR: Floor Area Ratio in Commercial Real Estate
This metric, particularly important for developers, is the ratio of a building's size compared to the land, and many zoning commissions place limitations on how
Breakeven Occupancy in Commercial Real Estate
Breakeven occupancy is the occupancy at which a commercial real estate property goes from having an operating deficit to an operating surplus. It can also be de
Expense Stops in Commercial Real Estate
In a full service gross lease, the tenant pays a base rental rate, and landlord is typically responsible for paying any additional expenses (such as CAM fees),
ADR: Average Daily Rate in Commercial Real Estate
Average Daily Rate, or ADR, is one of the most important metrics that hotels use in order to determine the income and profitability of a property. ADR can be de
LURA: Land Use Restrictive Agreements in Commercial Real Estate
In certain multifamily real estate projects, an owner/developer will give up some of their rights via a Land Use Restrictive Agreement, or LURA, in order to rec
GRM: Gross Rent Multiplier in Commercial Real Estate
When it comes to determining whether a commercial or multifamily real estate project is a good investment, there are a variety of methods you can use-- and one
LIHTC: Low Income Housing Tax Credits in Commercial Real Estate
Low Income Housing Tax Credits, or LIHTC credits, are federal tax credits designed to encourage private businesses to invest in affordable housing. LIHTCs apply
NPV: Net Present Value in Commercial Real Estate
Net present value, or NPV, is a financial metric that can help commercial real estate investors determine whether they're getting a certain return-- a 'target y
GSF: Gross Square Feet in Commercial Real Estate
Gross square feet, or GSF, is the entire square footage of a building. GSF typically includes areas such as the building core, maintenance and operations areas,
PSF: Per Square Foot in Commercial Real Estate
PSF, or per square foot, is the way that many commercial real estate rental and sale transactions are calculated. Most commercial leases are set at a specific P
GLA: Gross Leasable Area in Commercial Real Estate
Gross leasable area (GLA) is the amount of space in a commercial building that can be rented by a tenant, including basements, mezzanines, or upper floors.
Percentage Leases in Commercial Real Estate
In commercial real estate, a percentage lease is a form of lease that requires a tenant to pay a percentage of their revenues in addition to a base rent, which
Sale Leaseback in Commercial Real Estate
In commercial real estate, a sale leaseback is a transaction in which one party sells a piece of real estate, and then leases that real estate back from the new
TTM: Trailing Twelve Months in Commercial Real Estate
TTM, or trailing twelve months, is measurement of a project's financial data for the last 12 months. TTM figures do not always represent the last fiscal year, t
GPR: Gross Potential Rent in Commercial Real Estate
GPR, or gross potential rent, is the maximum amount of rent money an owner or investor can expect to make from a property during a specific time period. Gross p
BPO/BOV: Broker Price Opinions in Commercial Real Estate
A BPO, or broker price opinion, also known as a BOV, or broker opinion of value, is an estimate provided by a real estate broker to help a potential investor ge
FNMA: Fannie Mae Mortgage Association in Commercial Real Estate
FNMA, or Fannie Mae Mortgage Association, is a U.S. government sponsored enterprise that focuses on expanding housing opportunities across the United States. To
S&U: Sources and Uses in Commercial Real Estate
A S&U, or sources and uses statement, is a document that shows where the funding for a commercial real estate project is coming from-- and how that capital is u
RR: Rent Rolls in Commercial Real Estate
A rent roll is a list of a property’s current tenants and how much they pay in rent. In practice, a rent roll is perhaps the best way to determine the true inco
R&M: Repairs and Maintenance in Commercial Real Estate
R&M, or repairs and maintenance, refers to work done on a commercial property that is designed simply to maintain the property’s current condition. This include
LTPP: Loan To Purchase Price in Commercial Real Estate
LTPP, or loan to purchase price, is a metric that compares the size of the loan to the purchase price of the property. It's similar to loan to value (LTV) ratio
T3: Trailing Three Months in Commercial Real Estate
T3, or trailing three months, is measurement of a commercial real estate project's finances for the last 3 months. T3 can be a great tool for investors, since i
Step-Down Prepayment Penalties on Commercial Property Loans
It is called a step-down penalty because the amount gets smaller the longer the loan is in place. For example, a typical step-down might be 5% of the outstandin
Due Diligence in Commercial Real Estate
Due Diligence refers to the practice of investigating or auditing a prospective investment in order to confirm facts. The audit includes analyzing different asp
Compound Interest in Commercial Real Estate
Compound Interest is when interest is added to the principal amount after each period, and the next recurring interest calculation includes the principal along
Recourse Debt Versus Non-Recourse Debt in Commercial Real Estate
Recourse debt, also referred to as a recourse loan refers to a debt where the lender is able to claim the borrower’s assets if he or she fails to pay back the d
Mezzanine Financing
Mezzanine Financing in commercial real estate authorizes a lender to convert a debt into equity in the event that a borrower defaults. For example, if the borro
Preferred Equity Investments in Commercial Real Estate
In a preferred equity investment, the investor is considered an equity partner and therefore benefits from a fixed rate of return.
APR: Annual Percentage Rate in Relation to Commercial Real Estate
The Annual percentage rate or "APR" is the true interest rate that must be paid for a loan over the course of a year. Used to get a much better idea of the actu
U.S. Treasury Yields and Commercial Mortgage Rates
Commercial mortgage rates are influenced by the U.S. Treasury yields, where lower treasury yields lead to lower mortgage rates. This results in larger homes at
What is a Commercial Mortgage Loan?
A commercial mortgage loan is a commercial real estate loan that is secured by commercial property. A commercial real estate loan is an agreement in which the p
Modified Gross Leases in Commercial Real Estate
The modified gross lease, also sometimes referred to as the modified net lease, is a combination of the gross lease and the net lease. The operating expenses ar
Interest Rate Caps in Commercial Property Loans
An interest rate cap is used to limit the risk on a floating rate commercial property loan. A floating rate property loan has a variable interest rate, borrower
Earnouts in Commercial Real Estate Loans
An earn out is an agreement by the lender to increase the loan amount at the advent of a certain event. Earn outs are structured such that the additional money
Holdbacks in Relation to Commercial Property Loans
A holdback is a clause in the commercial property loan that seeks to put aside a certain portion of the loan until an objective has been accomplished. Holdbacks
OpEx: Operational Expenditures in Commercial Real Estate
Operating expenditures are ongoing costs incurred in the operation and maintenance of a commercial property. Unlike CapEx, OpEx is fully tax-deductible in the y
CapEx: Capital Expenditure in Commercial Real Estate
Capital expenditure or "CapEx" are the funds used to acquire, upgrade or repair the property. It also includes the acquisition of equipment for said property. A
CAM Fees in Commercial Real Estate
Common Area Maintenance or "CAM" fees are charges incurred in a commercial lease. CAM is paid by a tenant to their landlord. CAM is charged on top of the basic
Loan Guarantee Fees in Commercial Real Estate
Loan guarantee fees are the fees charged to lenders for services like bundling, selling, and reporting mortgage-backed securities (MBS) to applicable investors.
Fixed Interest Rates and Variable Interest Rates in Commercial Real Estate
Every loan agreement comes standard with a form of interest that must be paid. Interest rates can be negotiable but usually appear in one of two forms: Variabl
Debenture in Commercial Real Estate
A debenture is a type of bond or rather a loan certificate given by a company that is unsecured and is supported by credit rather than collateral or physical as
Loan Origination Fees in Commercial Real Estate
An origination fee when referring to a loan is the sum of money charged by a lender upon entering a loan agreement for the cost of processing the loan.
NOFA: Notice of Funding Availability in Commercial Real Estate
NOFA or Notice of Funding Availability is a statement issued by the GRRHP (under the USDA) in the Federal Register. The statement will contain information on t
GRRHP: Guaranteed Rural Rental Housing Program in Commercial Real Estate
The GRRHP or Guaranteed Rural Rental Housing Program is a federal government initiative which backs loans made by private lenders to developers of rural homes.
FHLB: Federal Home Loan Banks in Commercial Real Estate
An FHLB (sometimes referred to as an FHLBank) or Federal Home Loan Bank is a region based bank that is part of a federally backed group of banks who provide hou
CFR: Code of Federal Regulations in Commercial Real Estate
CFR stands for Code of Federal Regulations. The CFR is the codification of the general andpermanent rules and regulations published in the Federal Register by t
O&M: Operating and Maintenance Expenses in Commercial Real Estate
O&M refers to operating and maintenance expenses; such as property and liability insurance premiums, utility installation charges and deposits, maintenance equi
AMI: Area Median Income in Commercial Real Estate
AMI stands for Area Median Income and is a statistic published by HUD. It is the household income of the median (middle) household in an area. HUD releases the
HUD in Relation to Commercial Real Estate?
HUD is the term used to describe The United States Housing and Urban DevelopmentDepartment, which is the federal department tasked with creating decent housing
Defining Yield Maintenance In Commercial Mortgages
Yield maintenance is a prepayment penalty on an existing commercial mortgage. It acts as a guarantee for the commercial property lender who made the original co
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