Abatement: Often and commonly referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.
Above Building Standard: Upgraded finishes and specialized designs necessary to accommodate a tenant's requirements.
Absorption: The rate, expressed as a percentage, at which available space in the marketplace is leased during a predetermined period of time. Also referred to as Market Absorption.
Absorption Rate: The net change in space available for lease between two dates, typically expressed as a percentage of the total square footage.
Ad Valorem: According to value. This is a tax imposed on the value of property (references a general property tax), which is typically based on the local government's valuation of the property.
Add-On Factor: Often referred to as the Loss Factor or Rentable/Usable (R/U) Factor, it represents the tenant's pro-rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. It is usually expressed as a percentage which can then be applied to the usable square footage to determine the rentable square footage upon which the tenant will pay rent.
Allowance Over Building Shell: Most often used in a yet-to-be constructed property, the tenant has a blank canvas upon which to customize the interior finishes to their specifications. 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.
Anchor Tenant: The major or prime tenant in a shopping center, building, etc.
Annual Percentage Rate (APR): The actual cost of borrowing money, expressed in the form of an annual interest rate. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points, and other credit costs paid to the lender.
Appraisal: An estimate of opinion and value based upon a factual analysis of a property by a qualified professional.
Appreciation: The increased value of an asset.
"As-Is" Condition: The acceptance by the tenant of the existing condition of the premises at the time the lease is consummated. This would include any physical defects.
Assessment: A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.
Assignment: A transfer by lessee of lessee's entire estate in the property. Distinguishable from a sublease where the sub-lessee acquires something less than the lessee's entire interest.
Attorn: To turn over or transfer to another money or goods. To agree to recognize a new owner of a property and to pay him/her rent. In a lease, when the tenant agrees to attorn to the purchaser, the landlord is given the power to subordinate tenant's interest to any first mortgage or deed of trust lien subsequently placed upon the leased premises.
Balloon Payment: A large principal payment that typically becomes due at the conclusion of the loan term. Generally, it reflects a loan amortized over a longer period than that of the term of the loan itself (i.e. payments based on a 25 year amortization with the principal balance due at the end of 5 years). See Bullet Loan.
Bankrupt: The condition or state of a person (individual, partnership, corporation, etc.) who is unable to repay it's debts as they are, or become, due.
Bankruptcy: Proceedings under federal statures to relieve a debtor who is unable or unwilling to pay its debts. After addressing certain priorities and exemptions, the bankrupt's property and other assets are distributed by the court to creditors as full satisfaction for the debt. See also Chapter 11.
Base Rent: A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease. See also Escalation Clause, Operating Expense Escalation and Percentage Lease.
Base Year: Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences. Once the base year expenses are known, the lease essentially becomes a dollar stop lease.
Below-grade: Any structure or a portion of a structure located underground or below the surface grade of the surrounding land.
Building Classifications: Building classifications in most markets refer to Class "A", "B", "C" and sometimes "D" properties. While the rating assigned to a particular building is very subjective, Class "A" properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking. These buildings, of course, command the highest rental rates in their sub-market. As the "Class" of the building decreases (i.e. Class "B", "C" or "D") one component or another such as age, location or construction of the building becomes less desirable. Note that a Class "A" building in one sub-market might rank lower if it were located in a distinctly different sub-market just a few miles away containing a higher end product.
Building Code: The various laws set forth by the ruling municipality as to the end use of a certain piece of property and that dictate the criteria for design, materials and type of improvements allowed.
Building or "Core" Factor: Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage. See also Rentable/Usable Ratio.
Building Standard: A list of construction materials and finishes that represent what the Tenant Improvement (Finish) Allowance / Work Letter is designed to cover while also serving to establish the landlord's minimum quality standards with respect to tenant finish improvements within the building. Examples of standard building items are: type and style of doors, lineal feet of partitions, quantity of lights, quality of floor covering, etc.
Building Standard Plus Allowance: The landlord lists, in detail, the building standard materials and costs necessary to make the premises suitable for occupancy. A negotiated allowance is then provided for the tenant to customize or upgrade materials. See also Work Letter.
Build-out: The space improvements put in place per the tenant's specifications. Takes into consideration the amount of Tenant Finish Allowance provided for in the lease agreement. See also Tenant Improvement Allowance.
Build-To-Suit: An approach taken to lease space by a property owner where a new building is designed and constructed per the tenant's specifications.
Bullet Loan: Any short-term, generally five to seven years, financing option that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. Essentially, should the refinancing not be available, often due to the property not performing as anticipated, the borrower is "shot" and the property is subject to foreclosure. An example of this is when a developer borrows to cover the costs of construction and carry-costs for a new building with the expectation that it would be replaced by long-term (or "permanent") financing provided by an institutional investor once most of risk involved in construction and lease-up had been overcome resulting in an income-producing property.
Capital Expenses: This type of expense is most often defined by reference to generally accepted accounting principles (GAAP), but GAAP does not provide definitive guidance on all possible expenditures. Accountants will often disagree on whether or not to include certain items.
Capitalization: A method of determining value of real property by considering net operating income divided by a predetermined annual rate of return. See Capitalization Rate.
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.
Carrying Charges: Costs incidental to property ownership, other than interest (i.e. taxes, insurance costs and maintenance expenses), that must be absorbed by the landlord during the initial lease-up of a building and thereafter during periods of vacancy.
Certificate of Occupancy: A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant's space), has been satisfactorily inspected and is/are in a condition suitable for occupancy.
Chapter 7: That portion of the Federal Bankruptcy code that deals with business liquidations. Chapter 11 is that part of the Federal Bankruptcy code that deals with business reorganizations.
Chapter 11: That portion of the Federal Bankruptcy code that deals with business reorganizations. Chapter 7 is that part of the Federal Bankruptcy code that deals with business liquidations.
Clear-Span Facility: A building, most often a warehouse or parking garage, with vertical columns on the outside edges of the structure and a clear span between columns.
Circulation Factor: Interior space required for internal office circulation not accounted for in the Net Square Footage. Based upon our experience, we use a Circulation Factor of 1.35 x the Net Square Footage for office and fixed drywall areas and a Circulation Factor of 1.45 x the Net Square Footage for open area workstations. See also Net Square Footage and Usable Square Footage.
Common Area: There are two components of the term "common area". If referred to in association with the Rentable/Usable or Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants and their invitees (i.e. lobbies, corridors, restrooms, etc.). On the other hand, the cost of maintaining parking facilities, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the term "common area" when calculating the tenant's pro-rata share of building operating expenses.
Common Area Maintenance (CAM): This is the amount of Additional Rent charged to the tenant, in addition to the Base Rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements (see Capital Expenses) that are made to the property.
Comparables: Lease rates and terms of properties similar in size, construction quality, age, use, and typically located within the same sub-market and used as comparison properties to determine the fair market lease rate for another property with similar characteristics.
Concessions: Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses, cabling expenses or other monies expended to influence or persuade the tenant to sign a lease.
Condemnation: The process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain. See also Eminent Domain.
Construction Management: The actual construction process is overseen by a qualified construction manager who ensures that the various stages of the construction process are completed in a timely and seamless fashion, from getting the construction permit to completion of the construction to the final walk-through of the completed leased premises with the tenant.
Consumer Price Index ("CPI"): Measures inflation in relation to the change in the price of a fixed market basket of goods and services purchased by a specified population during a "base" period of time. It is not a true "cost of living" factor and bears little direct relation to actual costs of building operation or the value of real estate. The CPI is commonly used to increase the base rental periodically as a means of protecting the landlord's rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record keeping necessary for operating expense escalations.
Contiguous Space: (1) Multiple suites/spaces within the same building and on the same floor which can be combined and rented to a single tenant. (2) A block of space located on multiple adjoining floors in a building (i.e., a tenant leases floors 6 through 12 in a building).
Contract Documents: The complete set of design plans and specifications for the construction of a building or of a building's interior improvements. Working Drawings specify for the contractor the precise manner in which a project is to be constructed. See also Specifications and Working Drawings.
Conveyance: Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.
Core Factor: Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U) Factor, it 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: A written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts or, uses or non-use of a property and/or land.
Covenant of Quiet Enjoyment: The old "quiet enjoyment" paragraph, now more commonly referred to as "Warranty of Possession", had nothing to do with noise in and around the leased premises. It provides a warranty by Landlord that it has the legal ability to convey the possession of the premises to Tenant; the Landlord does not warrant that he owns the land. This is the essence of the landlord's agreement and the tenant's obligation to pay rent. This means that if the landlord breaches this warranty, it constitutes an actual or constructive eviction.
Cumulative Discount Rate: The interest rate used in finding present values that when applied to the rental rate takes into account all landlord lease concessions and then expressed as a percentage of base rent.
Dedicate: To appropriate private property to public ownership for a public use.
Deed: A legal instrument transferring title to real property from the seller to the buyer upon the sale of such property.
Deed In Lieu Of Foreclosure: A deed given by an owner/borrower to a lender to satisfy a mortgage debt and avoid foreclosure. See also Foreclosure.
Deed Of Trust: An instrument used in many states in place of a mortgage by which real property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), to secure repayment of a debt.
Default: The general failure to perform a legal or contractual duty or to discharge an obligation when due. Some specific examples are: 1) Failure to make a payment of rent when due. 2) The breach or failure to perform any of the terms of a lease agreement.
Deficiency Judgment: Imposition of personal liability on a borrower for the unpaid balance of mortgage debt after a foreclosure has failed to yield the full amount of the debt.
Demising Walls: The partition wall that separates one tenant's space from another or from the building's common area such as a public corridor.
Design/Build: A system in which a single entity is responsible for both the design and construction. The term can apply to an entire facility or to individual components of the construction to be performed by a subcontractor; also referred to as "design/construct".
Depreciation: Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence.
Distraint: The act of seizing (legally or illegally) personal property based on the right and interest which a landlord has in the property of a tenant in default.
Dollar Stop: An agreed dollar amount of taxes and operating expense (expressed for the building as a whole or on a square foot basis) over which the tenant will pay its prorated share of increases. May be applied to specific expenses (e.g., property taxes or insurance).
Earnest Money: The monetary advance by a buyer of part of the purchase price to indicate the intention and ability of the buyer to carry out the contract.
Easement: A right of use over the property of another created by grant, reservation, agreement, prescription or necessary implication. It is either for the benefit of adjoining land ("appurtenant"), such as the right to cross A to get to B., or for the benefit of a specific individual ("in gross"), such as a public utility easement.
Economic Feasibility: A building or project's feasibility in terms of costs and revenue, with excess revenue establishing the degree of viability.
Economic Rent: The market rental value of a property at a given point in time, even though the actual rent may be different.
Effective Rent: The actual rental rate to be 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: Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Core Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage.
Eminent Domain: A power of the state, municipalities, and private persons or corporations authorized to exercise functions of public character to acquire private property for public use by condemnation, in return for just compensation. See also Condemnation.
Encroachment: The intrusion of a structure which extends, without permission, over a property line, easement boundary or building setback line.
Encumbrance: Any right to, or interest in, real property held by someone other than the owner, but which will not prevent the transfer of fee title (i.e. a claim, lien, charge or liability attached to and binding real property).
Environmental Impact Statement: Documents which are required by federal and state laws to accompany proposals for major projects and programs that will likely have an impact on the surrounding environment.
Equity: The fair market value of an asset less any outstanding indebtedness or other encumbrances.
Escalation Clause: A clause in a lease which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs, etc. This may be accomplished by several means such as fixed periodic increases, increases tied to the Consumer Price Index or adjustments based on changes in expenses paid by the landlord in relation to a dollar stop or base year reference.
Estoppel Certificate: A signed statement certifying that certain statements of fact are correct as of the date of the statement and can be 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 made between the parties to a contract and an escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the monies (or other things of value) to be deposited in escrow, and instructs the escrow agent concerning the disposition of the monies deposited.
Exclusive Agency Listing: A written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased during the listing period. The broker need not be the procuring cause of the lease.
Expense Stop: An agreed dollar amount of taxes and operating expense (expressed for the building as a whole or on a square foot basis) over which the tenant will pay its prorated share of increases. May be applied to specific expenses (e.g., property taxes or insurance).
Face Rental Rate: The "asking" rental rate published by the landlord.
Fair Market Value: The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Also known as FMV.
Finance Charge: The amount paid for the privilege deferring payment of goods or services purchased, including any charges payable by the purchaser as a condition of the loan.
First Generation Space: Generally refers to new space that is currently available for lease and has never before been occupied by a tenant. See also Second Generation Space.
First Mortgage: The senior mortgage which, by reason of its position, has priority over all junior encumbrances. The holder of the first or senior mortgage has a priority right to payment in the event of default.
First Refusal Right or Right Of First Refusal (Purchase): A lease clause giving a tenant the first opportunity to buy a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept.
First Refusal Right or Right Of First Refusal (Adjacent Space): A lease clause giving a tenant the first opportunity to lease additional space that might become available in a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept. This right is often restricted to specific areas of the building such as adjacent suites or other suites on the same floor.
Fixed Costs: Costs, such as rent, which do not fluctuate in proportion to the level of sales or production.
Flex Space: A building providing its occupants the flexibility of utilizing the space. Usually provides a configuration allowing a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse distribution, etc. Typically also provides the flexibility to relocate overhead doors. Generally constructed with little or no common areas, load-bearing floors, loading dock facilities and high ceilings.
Floor Area Ratio (FAR): The ratio of the gross square footage 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 by the parties to a contract and prevents said parties from complying with the provisions of the contract. This includes acts of God such as a flood or a hurricane or, acts of man such as a strike, fire or war.
Foreclosure: A procedure by which the mortgagee ("lender") either takes title to or forces the sale of the mortgagor's ("borrower") property in satisfaction of a debt. See also Deed In Lieu Of Foreclosure.
Full Recourse: A loan on which an endorser or guarantor is liable in the event of default by the borrower.
Full Service Rent: An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount. See also Pass Throughs.
Future Proposed Space: Space in a proposed commercial development which is not yet under construction or where no construction start date has been set. Future Proposed projects include all those projects waiting for a lead tenant, financing, zoning, approvals or any other event necessary to begin construction. Also may refer to the future phases of a multi-phase project not yet built.
General Contractor: The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, (e.g., plumbing, electrical, etc.), coordinates all work, and is responsible for payment to subcontractors.
General Partner: A member of a partnership who has authority to bind the partnership. A general partner also shares in the profits and losses of the partnership. See also Limited Partnership.
Graduated Lease: A lease, generally long term in nature, which provides that the rent will vary depending upon future contingencies, such as a periodic appraisal, the tenant's gross income or simply the passage of time.
Grant: To bestow or transfer an interest in real property by deed or other instrument; either the fee or a lesser interest, such as an easement.
Grantee: One to whom a grant is made.
Grantor: The person making the grant.
Gross Absorption: A measure of the total square feet leased over a specified period of time with no consideration given to space vacated in the same geographic area during the same time period. See also Net Absorption.
Gross Building Area: The total floor area of the building measuring from the outer surface of exterior walls and windows and including all vertical penetrations (e.g. elevator shafts, etc.) and basement space.
Gross Lease: A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.
Ground Rent: Rent paid to the owner for use of land, normally on which to build a building. Generally, the arrangement is that of a long-term lease (e.g. 99 years) with the lessor retaining title to the land.
Guarantor: One who makes a guaranty. See also Guaranty.
Guaranty: Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so. Differs from a surety agreement in that there is a separate and distinct contract rather than a joint undertaking with the principal. See also Guarantor.
