A GLOSSARY OF TERMS

FOR REAL ESTATE

INVESTMENT MANAGERS

Compiled with the Assistance of:

Clarion Partners
Institutional Real Estate, Inc.
William Lee Roberts
Joseph M. Del Medico, Jr.
Joseph F. Patterson, Jr.
For the
National Association of Real Estate
Investment Managers (NAREIM)

Third Edition
February 2000
 FORWARD
By

Fredric Halperin, President

National Association of
Real Estate Investment Managers (NAREIM)

This Glossary of Terms was initially collected from both the Asset/Portfolio Management and Asset
Management Accounting Forums. It is intended to be a document that is continually revised and
expanded reflecting the changes taking place in our industry. If you have a word (with or without a
definition) you would like to add to the document, or believe your definition is more reflective of current
usage, please fax the information to NAREIM at 310-445-2565.

NAREIM has a commitment to promote the communication and exchange of both technical and
professional information within our industry. This publication is a first step in an ongoing process to
facilitate better communications and understanding between the varied disciplines, which are involved
in the institutional real estate investment management process.

If this industry can learn to be consistent in its communication with each other and with the users of its services,
it will improve comparability and understanding and reduce costs by eliminating the need for interpretation of its
reports.
 Index

I Glossary A – Z Pages 1 - 82

II Addenda Glossary Terms Pages 83 - 85

 opinion as the condition of title. Still in
-A- use in some states, but giving way to the
use of title insurance.
Abatement (Rental) A reduction or
elimination of rent payments for a specified
Acceleration Clause Clause used in an
period of time, usually granted by the
installment note and mortgage (or deed of
landlord as an inducement to the tenant to
trust), which gives the lender the right to
enter into or to renew a lease.
demand payment in full upon the
happening of a certain event, such as
Abatement (Tax) A reduction in real
failure to pay an installment by a certain
property tax granted by a taxing authority
date, change of ownership without the
as the result of an appeal. In some
lender’s consent, destruction of the
jurisdictions, tax abatements may also be
property or other event which endangers
granted as an inducement for development
the security of the loan. See: Alienation
or to attract or retain job-providing
Clause.
industries.
Accrual Accounting Accounting method
Above Market Rent Rent in excess of
in which income and expenses are charged
that which a property most probably would
to the periods for which they are
command if offered in the current market.
applicable, rather than when actual
Above market rent may result from
payment is received or made.
existing leases which were negotiated at an
earlier time when market rents were
Acquisition Cost The total cost of
higher or may be the result of additional
acquiring an investment property,
benefits having been provided or being
consisting of the purchase price plus other
provided by the landlord as an inducement
costs of acquisition such as closing costs,
to the tenant to pay a higher rent. See:
legal fees, title insurance, acquisition fees
Contract Rent; Effective Rent.
and due diligence costs. Acquisition cost
includes only direct costs related to a
Above Standard Tenant Improvements
specific property acquisition and does not
Additional tenant improvements, such as
include costs of running an acquisition
cabinet work, wall coverings or luxury-
program such as general and
grade carpet, in excess of that provided in
administrative costs, costs incurred in
typical space being rented at typical
analyzing proposals that are rejected, joint-
market rent.
venture organization costs, et cetera.
Absorption Rate 1) The rate at which
Acre A measure, usually of land, equal to
vacant space is either rented or sold to
160 square rods (43,560 sq. ft.) in any
users in the market place. Absorption rate
shape.
is usually expressed in square feet per year.
(e.g., since 1991, the Springfield suburban
Acre Foot A volume of water, sand, coal,
office market has absorbed less than
etc. equal to an area of one acre with a
150,000 square feet per year.) 2) The rate
depth of one foot (43,560 cubic ft.) If a
at which a developer sells or expects to
liquid, 325,850 gallons.
develop or sell vacant land.
Actuarial Assumptions Statistical
Abstract of Title A compilation of the
assumptions made to determine the cost of
recorded documents relating to a parcel of
funding a pension plan, including expected
land, from which an attorney may give an
rate of return, mortality of plan
-1-
participants, employee turnover, salary
scale, and inflation.
Ad Valorem Tax From the Latin,
meaning "according to value." In the
United States, local property taxes are Ad
Valorem taxes, being assessed in accord
with property value.
Additional Rent Because the law in most
states provides landlords with a legal
mechanism for collecting rent which is
easier to apply than civil actions to collect
other debts, commercial leases explicitly
deem all financial obligations of the tenant
to the landlord to be Additional Rent so
that they may be collected as rent.
Additional Rent may include such items as
retail percentage rent, expense pass-
throughs, escalations, charges to amortize
above standard tenant improvements,
interest on past due amounts, late fees, and
penalties.
Add-On Factor In a multi tenant
building, a factor, expressed as a per cent,
by which the net usable square foot area
within a demised tenant suite is increased
to allocate common areas such as lobbies,
corridors and rest rooms. Rental rates are
then applied to the resulting gross area.
Also called Load Factor.
Adjusted Funds Available for
Distribution (AFFO) A measure of REIT
performance used by many analysts with
concerns about quality of earnings as
measured by FFO. Calculated differently
by different analysts, and sometimes called
cash available for distribution (CAD) or
funds available for distribution (FAD). The
most common adjustment to FFO is an
estimate of certain recurring capital
expenditures needed to keep the property
portfolio competitive in its marketplace.
For this reason, some analysts also
consider AFFO a measure of a REIT's
ability to pay its shareholder dividend
distribution.
-2-
Adjusted Fund From Operation (AFFO)
See Funds Available for Distribution
(FAD).
Adjusted Net operating Income Total
income less operating expenses less
interest expense on debt. Ground lease
payments may also be deducted if the
remaining lease term is of long enough
duration to justify such treatment as an
expense. Principal repayments of debt are
considered capital expenditures and are not
included in the computation of Adjusted
Net Operating Income.
Administrative Fee Also referred to as an
annual fee, asset charge, trust,
administration fee, account charge, or
custodial fee. Usually stated as a
percentage of assets under management or
as a fixed annual dollar amount.
Advances Payments made by the servicer
when the borrower fails to make a
payment.
Advisor A broker, consultant or
investment banker who represents an
owner in a transaction. Advisors may be
paid a retainer and/or a performance fee
paid at the close of a financing or sales
transaction.
Advisory Account A separate, non-
commingled account established for a
specific client. Also called separate
account, individually managed account, or
direct investment account. See:
Commingled Account; Discretionary
Account; Non Discretionary Account.
After Tax Yield For taxable investors,
the yields, expressed as an annual percent,
computed by dividing the Net After Tax
Cash Flow by the total Equity Investment
in a property. The After Tax Yield is
computed for a specific period such as the
first full year of ownership or the
anticipated holding period.
Agent One who is authorized to act on
behalf of another. In an agency
relationship, the agent is empowered to
execute contracts on behalf of the principal,
which are binding upon the principal. The
agent also has certain fiduciary
responsibilities to the principal. A from fire, explosion, windstorm, and other
brokerage agreement may or may not
establish the broker as an agent of the
property owner.
Aggregate Rent The arithmetic sum of
all base rent payments, but not expense
pass-throughs or escalations, to be paid by
the tenant over the entire term of the lease.
Aggregation Risk Risk associated with
warehousing mortgages during pooling
process for future securitization.
Mortgage holder faces risk of value of
loans declining due to adverse interest rate
movements and/or credit losses before
securitization can be arranged.
Aggressive Leasing The use of highly
competitive marketing strategies to lease
vacant space or to obtain above market
rents.
Alienation Clause A type of acceleration
clause, calling for a debt under a mortgage
or deed of trust to be due in its entirety
upon transfer of ownership of the secured
property. Also called a “due-on-sale”
clause.
Alternative or "Specialty" Investments
Property Types that are not considered
conventional institutional-grade real estate
investments. Examples include congregate
care facilities, self-storage facilities, mobile
home parks, vacant land, timber land, farm
land and parking garages, dockominiums
(condos for boats), single-family residences
and special-use properties like medical
-3-
office buildings, hospitals, resorts and
other recreational facilities.
Allocation Percentage The percentage of
an investment which is allocated to an
investor or investment account.
All Risk Insurance A general term for
standard property insurance covering loss
perils. "All Risk" is a misnomer as most All
Risk policies exclude specific risks such as
pollution, flood and earthquake. Coverage
for these risks frequently may be obtained
by purchasing riders to the basic property
insurance policy. See: Named Perils;
Difference in Conditions.
Alpha Most commonly used with mutual
funds, alpha describes the difference
between a fund’s actual return and it’s
expected return, given the level of risk it
takes, as measured by beta. A fund with a
positive alpha has done better than
expected, while a fund with a negative
alpha had underperformed.
ALTA The American Land Title
Association. An organization composed of
title insurance companies, which has
adopted certain insurance policy from to
standardize coverage on a national basis.
See: Survey.
American Institute of Real Estate
Appraisers A professional institute to
promote the quality of the appraisal
industry through education of its members.
The Institute is associated with the
National Association of Realtors. See also:
MAI.
Amortization The liquidation of a
financial debt through regular periodic
installment payments; for tax purposes, the
periodic deduction of capitalized expenses
such as organization costs.
Anchor Tenant Large national or
regional retailer that serves as primary
draw for a shopping center. At regional
malls, anchor tenants are typically
department stores; at community and
power centers, they are food/drug stores,
discount department stores, etc.
Annual Management Fee This fee also is
referred to as an account management fee,
investment management fee, or asset
management fee. Typically stated as a
percent of gross or net asset value based on
annual or other appraisals, either net or
including cash reserves. May be stated as a
percentage of total capital contributions,
cost of real estate assets (net or gross of
mortgage indebtedness), or some
combination of the above. Declining fee
schedules (lower percentages for higher
total assets under management) commonly
are used for individually managed
accounts.
Annualized Return Expressing the
return on an investment for a period other
than one year as an equivalent return on an
annual basis. Because Annualized Return
is computed on a time value basis, it is not
the same as an arithmetic average. Under
some circumstances, such as when the total
amount invested varies over the period,
Annualized Return may provide a
misleading or meaningless number.
Apartment House Applied facetiously to
any office building with a large number of
small, non-credit tenants. The appellation
stems from such buildings typically having
a high turnover among tenants and the
need for considerable day-to-day
management involvement.
Appraised Value An opinion of value
formally expressed in writing by an
independent appraiser based upon one or
more of the three traditional analytic
approaches: the cost approach, the market
approach, the income approach.
-4-
Appraisal Date The date for which the
appraised value is determined. This date
need not be the date on which the appraisal
report is prepared but may be a prior date
or a date slightly in the future. Also called
the "as of date."
Appreciation An increase in value of an
asset. Appreciation may be attributable to
improvement in the financial performance
of the asset or changes in the market for
the asset. Appreciation should not be
confused with an increase in nominal value
due solely to inflation.
Appreciation Return The portion of the
total return due to appreciation rather than
current income, inflation, or (in the case of
taxable entities) tax benefits.
Arbitrage Buying an asset in one market
and then selling it at the same time in
another market to make a profit on the
price discrepancy.
Architectural & Engineering Services
Technical services provided by architects,
civil engineers, structural engineers,
mechanical engineers, electrical engineers,
and other design and construction
professionals related to the design,
construction, maintenance and repair of the
physical real estate asset. While some
investment firms provide some or all of
these services with in-house staff, most
firms contract with outside providers.
Area Economic Analysis An analysis of
the area immediately surrounding a
property for the purpose of assessing the
economic effect on the property of the local
physical, locational, demographic,
economic and regulatory environment.
"As of Date" The date upon which as
event or transaction is to be effective. In
the case of a real estate closing, it is the
date upon which prorations are made.
Assessed Valuation The value placed
upon a property by the local taxing
authority for the purpose of assessing ad
valorem property taxes. In most
jurisdictions, the assessed valuation need
not be the fair market value of the
property. See: Assessment Ratio; Fair
Market Value.
Assessment Ratio In many taxing
jurisdictions where the Assessed Valuation
is not required to be the Fair Market Value
of a property, a mathematical formula,,
commonly called the Assessment Ratio, is
applied by the local assessor in accord with
statute or policy. This formula may be for
the purpose of providing an equitable
allocation of the local tax burden, to
provide differing tax costs for residential
or commercial property, to make urban and
rural communities more comparable within
a state, or for a number of other public
policy purposes. See Assessed Valuation;
Fair Market Value.
Asset Allocation The allocation of
investment capital among various classes
of assets in order to optimize return.
Investment managers may use various
models to determine what portion of their
assets are invested in stocks, corporate
bonds, government bonds, real estate, and
other asset classes, changing the mix of
assets as market conditions change.
Asset Class A term used to describe
categories of investments such as stocks,
corporate bonds, government bonds, real
estate, et cetera.
Asset Management The various
disciplines involved with managing real
property assets from the time of
investment through the time of disposition.
The process essentially is tactical in
nature. Asset managers oversee and
coordinate all of the following activities:
property acquisition; property
management; leasing; operational and
-5-
financial reporting (including operating
budgets); appraisals; audits; market review;
accounting and reporting procedures, as
well as refinancing and asset disposition
plans.
Asset Management Fee (also
Investment Management Fee) A fee
charged to the investors based on the
amount invested into real estate assets for
the fund or account. Typically stated as a
percentage either of gross (after debt
financing) or net (before debt financing) of
total dollars invested.
Assets under Contract See: Assets under
Management.
Assets under Management Used by
investment managers and advisors to
define the size of their firms’ activities and
commonly expressed as the total fair
market value of all assets under the control
of the manager, regardless of encumbering
debt or other financing structure. See:
Capital under Management.
Assignee Name The individual or entity
to which the obligations of a lease,
mortgage or other contract have been
transferred.
Assignment The transfer of title, right or
interest in a contract, lease or other
tangible or intangible item of value.
Assignment may involve the complete
transfer of all rights or the transfer of only
some rights. The act of assignment does
not necessarily relieve the assignor of his
obligations under a lease or contract. See:
Assumption.
Assumption The act of assuming the
obligations of another person or entity in a
contract or lease.
Attornment The act of a tenant formally
agreeing to become the tenant of a
successor landlord. Commercial leases
generally include an attornment provision
so that any future buyer of a property is
assured of a legal right to collect rent and
otherwise enforce existing leases.
Mortgage lenders insist on such language
in leases so that, in the event of a
foreclosure, the tenant is obligated to pay
rent to the foreclosing lender. The
attornment language is generally
referenced in notices informing tenants of a
change in ownership.

Available The term applied to a unit ,

suite or property which is available for
lease or sublease. Some owners also
consider as available those units which are
currently leased but where the existing
tenant has either declined to extend or is
under notice of termination.

Average Annual Yield Due to the effect

of compounding, Average Annual Yield is
not the arithmetic average of the individual
annual yields over a period but is instead
be computed by the following formula:
where X is the average total return over a
period of n years and Y1 through Yn are
the annual returns for each year in that
period.

Average Downtime Expressed in

months, the typical amount of time
expected between the expiration of a lease
and the commencement of a replacement
lease under current market conditions.

Average Free Rent Expressed in months,

the typical rent abatement concession
expected to be granted to a tenant as part
of a lease incentive under current market
conditions.
Average Occupancy The average of the
Current Occupancy of each of the
preceding 12 months.

-6-
 considered unsecured claims and will be
paid in the proportion of the total assets of
-B- the bankrupt to the total claims of all
unsecured creditors to whom the bankrupt
Backup Offer A secondary offer to buy
is indebted, frequently pennies on the
property, used in case the first (primary)
dollar.
offer fails. A backup offer is especially
useful when the primary offer contains
Base Building The base building provided
difficult contingencies.
to tenants before tenant improvements.
Typically, building consists of structural
Balloon or "Bullet" Loan A loan with a
elements, building envelope, and all
maturity that is shorter than the
mechanical and electrical systems up to the
amortization period.
tenant space. In some markets, base
building may include ceiling grid, lighting,
Balloon Risk The risk that a borrower
HVAC distribution and other elements
will not be able to make a balloon (lump
commonly considered tenant
sum) payment at maturity due to a lack of
improvements. Therefore, it is important
funding.
to understand what is considered typical
for the base building in any given market.
Bankruptcy A condition of financial
insolvency where a business is unable to
Base Principal Balance The original
pay its current debts and either: 1) under
mortgage amount adjusted for subsequent
Chapter 11 of the federal bankruptcy laws,
fundings and principal payments, without
seeks protection from creditors while
regard to accrued interest or other unpaid
attempting to restructure its activities
items.
while its creditors are prohibited from
taking action to collect; or 2) under
Base Rate The rental rate quoted for
Chapter 7 of the federal bankruptcy laws,
tenant space with building standard
elects or is forced by its creditors to
improvements. The cost of any additional
liquidate its assets to satisfy debts.
improvements is then amortized to arrive
at a quoted rate for a specific tenant.
While landlords are prohibited from
evicting a tenant or taking action to collect
Base Rent 1) In retail properties, the Base
rent once a tenant files for bankruptcy
Rent is the minimum rent due before
protection, the bankruptcy laws do allow a
percentage rent and any common area
landlord to petition the bankruptcy court
charges, 2) In office and industrial
to recapture possession of a leased space.
properties, the Base Rent is the rent due
The tenant is required to either affirm or
before any escalations or pass-throughs.
reject the lease within a reasonable period
of time. In general, rent owned by a tenant
Base Stop Base Stop is the maximum
for the period from the date of bankruptcy
amount of building operating expenses
to the date upon which a lease is rejected is
which will be borne by the landlord prior
a priority claim which the court will force
to passing additional amounts through to
to be paid in full ahead of most other
the tenant. The Base Stop is expressed as
creditors, provided there are sufficient
an absolute dollar amount or dollar per
assets available. Back rent owed for the
square foot amount. In multi-tenant
period prior to date of the bankruptcy and
properties, each tenant may have a
any damages or accelerated rent for the
differing base stop with pass-throughs
period following rejection of a lease are

-7-
being pro rated in proportion to floor area.
See: Base Year; Proportionate Share.
Base Year Similar to Base Stop, except
that rather than being specified as an
absolute amount, the landlord's expenses
are limited to the amount incurred in a
specified calendar or fiscal year, usually
(but not always) the calendar year in which
the lease commences. In multi-tenant
properties, each tenant may have a
differing base year with pass-throughs
being pro rated in proportion to floor area.
See: Base
Stop; Proportionate Share.
Basis Point 1/100 of one percent.
Bearing Wall An architectural term
meaning any wall which supports a floor or
a roof. Bearing walls may be exterior or
interior walls (load-bearing partitions) and
are difficult to move without extensive
structural modifications to the building,
Contrast with Curtain Walls and Non-
load-bearing Partitions.
Beneficiary 1) The person or persons for
whose benefit the assets of a trust are held;
2) The participants in a pension plan who
will receive benefits upon retirement.
Beta The volatility of a security to that of
the market as a whole. If an investment
moved exactly as the market moved, it
would have a beta of 1.0.
Betterment An improvement to real
property, such as a sidewalk or a road, that
enhances the value of a property. The term
is frequently applied to public
improvements, although in appraisal
terminology it is equally applicable to any
fixed improvement which enhances value.
Bid An offer, stated as a price or spread to
buy whole loans or securities, e.g., "our bid
is 99% of par."
-8-
Binder A agreement by an insurance
agent which supposedly binds an insurance
company to provide coverage. Frequently,
tenants will not have time to obtain formal
documentation of insurance coverage
required under a new lease prior to
occupancy and will submit a binder,
usually in letter form, from an insurance
agent stating that coverage has been bound
and that the actual policy and. certificate of
insurance is in the process of being issued.
Blind Pool A pool of capital raised by an
investment manager or advisor for the
purpose of acquiring assets which have yet
to be specifically identified.
Bond 1) A promissory note which
generally accompanies a contract,
mortgage, manufacturer's warranty or
other obligation such that the issuer of the
bond will make payment if the contractual
obligation being bonded is not performed.
Types of bonds include fidelity bonds, bid
bonds, performance bonds, materialmen’s
bonds, and roof warranty bonds. 2) An
interest bearing certificate issued by a
government agency or private corporation
as a means of financing. Types of bonds
include private debt such as corporate
bonds, public debt such as municipal bonds,
Treasury bonds, and general obligation
bonds, and quasi-public debt such as
revenue bonds, facilities bonds, and
industrial development bonds. See:
Promissory Note.
Board of Trustees Typically, the
governing body of a pension fund,
foundation or endowment. Trustees act in
a fiduciary capacity and hold title to the
assets of a trust on behalf of the
beneficiaries.
BOMA Building Owners and Managers
Association, a national
organization. BOMA,
through the Building Owners and
Managers Institute, conducts educational
programs leading to the Real Property
Administrator (RPA) certification.
Book Cost The historic cost plus any
additional capital invested in an asset. The
book cost is not reduced by depreciation.
For simplicity, book cost is frequently used
as a proxy for "total equity dollars
invested" in the computation of cash-on-
cash returns.
Book Value Generally, the historic cost of
a property including its capitalized
acquisition costs plus additional capital
improvements and less depreciation. It is
typically equivalent to the investors
depreciated basis in an investment. The
components of Book Value vary depending
upon the accounting method used: joint
ventures commonly employ net equity
accounting; separate accounts employ
current value accounting in the creation of
some financial statements and reports; and,
bank and insurance company wholly-
owned and fore-closed properties employ
historical cost accounting.
Box/Big Box An industrial distribution
warehouse. Larger warehouses of over
250,000 square feet with higher clear
heights are also called “Big Boxes.”
Bread & Butter Property An investment
property that provides a stable yield within
a portfolio but little opportunity for any
dramatic improvement in value through
active management.
Break-Even Point 1) The gross income
necessary to cover the net operating
expenses plus debt service of a property; 2)
The percentage occupancy level at which
the gross income covers the operating
expenses plus debt service.
Breakpoint In a retail lease, the point,
specified in absolute sales dollars or sales
dollars per square foot, at which a tenant's
rent computed as a percentage of gross
-9-
sales equals the base rent under the terms
of the lease. See: base rent; percentage rent.
Bridge Financing A form of interim loan,
generally made between a short term loan
and permanent (long term) loan, when the
borrower needs to have more time before
taking the long term financing.
Broker One who acts as an intermediary
between parties to a transaction. A broker
may or may not be acting as an Agent of
one or more of the parties. In most states,
real estate brokers, mortgage brokers and
insurance brokers must be licensed by the
appropriate state regulatory agency and
are subject to restrictions and obligations
imposed by the state. Securities brokers are
generally regulated by the Securities and
Exchange Commission, a federal agency,
and may also be regulated by state
agencies in certain states.
Brokerage Agreement A contract
engaging a licensed broker to sell or lease
certain real estate. Such agreement to
include fee arrangements, duration, etc.
Broom Clean A term used to describe the
condition of a building, delivered to a
buyer or tenant. As the term indicates, the
floors are swept and free of debris.
Buildable Acres The area of land that is
available to be built on after subtracting
for roads, setbacks, anticipated open spaces
and areas unsuitable for construction.
Build-to-Suit A project which has been
wholly pre-leased or significantly leased by
one tenant prior to the beginning of the
construction process. Generally, the
project will be constructed in accord with
the specifications of the tenant.
Building Standard Allowance In office
building leasing, a dollar allowance usually
expressed in dollars per square foot which
will be expended by the landlord to
prepare a space for a new tenant at the
typically quoted rental rate. Additional
tenant improvements are deemed to be
"above standard" and may be reflected in a
higher rental rate or be borne by the
landlord as an inducement for the tenant to
lease. See: Building Standard Tenant
Improvements.
Builders' Risk Insurance An insurance
policy carried by a contractor which
insures the value of construction in place
and materials on-site against typical
property perils such as fire and other risks.
It differs from common property insurance
policies insofar as the premium is
determined based upon the fact that the
value of the construction in place increases
over the term. The premium cost of
Builders' Risk Insurance is commonly
borne by the owner as part of the
construction contract price.
Building Code A statute or ordinance
adopted by a state, county or municipality
which governs the quality of construction
for purposes of health, life safety or public
policy. Typically, most jurisdictions use
one of two basic building codes: the
Uniform Building Code (UBC) or the
Building Officials and Code
Administrators' code (BOCA). The UBC is
prevalent in the western United States and
the BOCA code is prevalent in the east.
Most municipalities also adopt specific
modifications to the codes which reflect
local concerns and conditions. Other codes
and ordinances range from energy
conservation laws in many states to
requirements for handicapped access under
the federal Americans with Disabilities
Act. See: Zoning Ordinance.
for their conformance to local building
codes and zoning ordinances.
Building Standard Tenant
Improvements Those improvements
provided for a tenant by the landlord as
part of a typical lease at the quoted offering
rental rate. Additional improvements for
the specific tenant are deemed Above
Standard Tenant Improvements and their
amortized cost is either added to the rental
rate or borne by the landlord as an
inducement for the tenant to lease. See:
Building Standard Tenant Allowance;
Work letter.
Bumps Periodic adjustments to the rental
rate in a lease, usually as a fixed percentage
but possibly CPI adjustments.
Bundle of Rights The legal concept that
property ownership is comprised of a
bundle of separate rights, In the purchase
of real estate, the buyer acquires only those
rights held by the seller and not otherwise
reserved in the sale. Examples of separate
rights include the ownership of the land,
the ownership of the improvements,
mineral rights, water rights, access
easements, et cetera.

Building Permit A permit granted by a

local code enforcement agency, usually at
the municipal or county level, for the
construction of new structures or the
renovation of existing structures. In
granting such a permit, the agency reviews
the architectural plans and specifications
-10-
 are not absolutely necessary in the short
term.
-C-
Capital Expenditure, Non-Critical Any
Call Date Periodic or continuous rights
non-leasing capital expenditure which is
given to the lender to cause payment of the
desirable but not deemed absolutely
Total Principal Balance prior to the
necessary for the ongoing operation and
Maturity Date.
leasing of the property and which can be
deferred in the short-term, Compare with
CAM Charge A retail tenant’s pro rata
Critical Capital Expenditure.
share of “common area maintenance” for
the upkeep of the common areas for a mall
Capital Gain The amount by which the
or other shopping center. See; Common
net proceeds from resale of a capital item
Area Maintenance.
exceed the book value of the asset.
Capital Appreciation The change in
Capital Improvements Expenditures that
market value of a property or portfolio
remedy a property’s deterioration,
over the period of analysis, adjusted for
appreciably prolong a property's useful life,
capital improvements and partial sales for
or add to the value of the property. By
the period.
comparison, repairs merely maintain
Capital Expenditure Investment of cash property in an efficient operating
or the creation of a liability to acquire or condition.
improve an asset, e.g., land, buildings,
building additions, site improvements, Capital Markets Public and/or private
machinery, equipment; as distinguished markets where businesses or
from cash outflows for expense items that individuals can raise or borrow capital.
are normally considered part of the current
Capital Reserve A funded or non-funded
period’s operations. See: Operating
account, usually computed as a percentage
Expense.
of Gross Income, for the purpose of
anticipated but nonspecific future capital
Capital, Excess Contributions Capital
expenditures.
contributions above those, which would be
in accordance with a joint venture,
Capital Under Management Used by
partner’s ownership percentage. Joint
investment managers and advisors to
Venture agreements generally provide for
express the total dollar amount of
Excess Capital Contributions to be repaid
investment capital, before leverage, under
to the partner making such contribution
the control of the manager. See: Assets
through a Preference Arrangement which
under Management.
requires such contributions be repaid prior
to normal distributions being made to the
Capitalization In real estate, a
partners.
methodology used in valuation to convert a
single year's net operating income into an
Capital Expenditure, Critical Any non-
expression of a property’s value by
leasing capital expenditure deemed
dividing the net operating income by a
absolutely necessary for the ongoing
factor, the Capitalization Rate, which
operation and leasing of the property.
represents the market yield which an
Compare with Non Critical Capital
investor would expect from the property.
Expenditures, which may be deferred and

-11-
Capitalization Rate In real estate, the
yield of a property computed by dividing
the net operating income by the property
value and commonly expressed as percent.
For those more familiar with financial
equities, the Capitalization Rate may be
thought of as a measure of yield, analogous
to the inverse of "earnings per share" as
applied to a share of stock.
Cap Rate Commonly used as the
colloquial equivalent of Capitalization
Rate.
Cap Rate, Going-In 1) In a multi-year
cash flow analysis, the cap rate applied in
the first year as a function of first year Net
operating Income and acquisition cost; 2)
The cap rate at which a property is
acquired.
Cap Rate, Stabilized The cap rate
obtained by dividing the NOI of a
property, in a representative year with no
unusual impairment of income or atypical
expense, by the undiscounted value of the
property in that year.
Cap Rate, Terminal In a multi-year cash
flow analysis, the cap rate applied in the
final year of the analysis to estimate the
value of the property at disposition.
Typically, the terminal cap rate is applied
to the NOI for the year following the
terminal year. This is analogous to a
purchaser of a property basing value
prospectively on the NOI in the first year
of ownership.
Carrying Costs Expenses such as taxes,
interest and insurance which must be
absorbed by ownership during
development or on idle property.
Cash Accounting An accounting method
calling for income and expenses to be
recognized when payment is received or
made.
-12-
Cash (or Funds) Available for
Distribution (CAD) Cash (or funds)
available for distribution (CAD or FAD).
See definition of FAD.
Cash Distributed Resulting From
Financing and Investing Activities
Cash distributed to investors resulting
from a sale or partial sale of property, or a
change in the capital structure, e.g.,
additional borrowing or the admission of
additional investors.
Cash Flow The cash remaining after
various expenses and expenditures are
deducted from income. Cash Flow can be
defined in varying ways depending upon
which expenses and expenditure are
deducted. In general, the unqualified term
usually means Net Cash Flow. See: Cash
Flow from Operations; Cash Flow before
Tax.
Cash Flow from Operations The cash
remaining from net operating income after
deduction of debt service and ground lease
payments but not capital expenditures or
income taxes.
Cash Flow, before Tax Before Tax Cash
Flow is cash remaining after deduction of
all expenses and expenditures with the
exception of income taxes.
Cash Flow, Net The cash remaining from
net operating income after deduction of all
expenses and expenditures.
Cash-on-Cash Return An expression of
cash return on equity, frequently used to
express first year cash return of a potential
investment, but also may be applied to any
year or other period of ownership.
Cash-on-Cash Yield The relationship,
expressed as a percentage, between the net
cash flow of a property (less leasing
commissions, capital expenditures and debt
service) and the average amount of
invested capital during an operating year.
Cash Reserves All cash and cash
equivalents held in short term accounts.
Cash reserves may be held to cover timing
differences between the receipt of rent and
the due date of debt service payments, for
anticipated future capital or operating
expenditures, or in anticipation of
distribution to investors. Capital Reserves
need not be funded as Cash Reserves; Cash
Reserves may or may not relate to future
capital expenditures.
Central Business District (CBD) The
downtown area of a city, usually the
location of a concentration of high-rise
office buildings and commercial activity.
Chattel Personal property.
Chattel Mortgage A lien on personal
property. Also called a security interest or
financing statement.
Chattel Real All estates in real property
less than fee estates, such as a lease.
Class A A real estate rating which
generally is assigned to those properties in
a market that will generate the highest
rents per square foot due to their high-
quality and/or superior location.
Class B Good assets that most tenants
would find desirable, but buildings lack
attributes that would permit owners to
charge top dollar.
Class C Buildings that offer few amenities
but are otherwise in physically acceptable
condition and provide cost-effective space
to tenants who are not particularly image
conscious.
Clear Height The interior height of a
warehouse building beneath the beams and
structure of the roof. Clear height is
-13-
important to warehousers because it
determines the height to which goods can
be stacked. Typical modern warehouses
have clear heights in the range of 24 to 28
feet with some much higher. While clear
height should be measured at the lowest
point, some developers and owners take
the liberty of using the typical height in
the building even though the structure
many be lower at a few places due to the
drainage slope of the roof.
Closed-end Fund A commingled fund
whereby entry and withdrawal are closed
to investors. All participants are treated
pro-rata and discretion usually resides with
the sponsor or advisor. Such funds are
finite with a typical life of 5 to 10 years.
Closing In real estate sales, the final
procedure in which documents are
executed and/or recorded, and the sale (or
loan) is completed.
Closing Costs Expenses incidental to a
sale of real estate, such as loan fees, title
fees, appraisal fees, etc.
Closing Statement The statement that
lists the financial settlement between buyer
and seller, and also the costs each must
pay. A separate statement for buyer and
seller is sometimes prepared.
Cloud On Title An invalid encumbrance
on real property, which, if valid, would
affect the rights of the owner. For
example: A sells lot 1, tract 1, to B. The
deed is mistakenly drawn to read lot 2,
tract 1. A cloud is created on lot 2 by the
recording of the erroneous deed. The
cloud may be removed by quitclaim deed,
or, if necessary, by court action.
Co-Investment Co-investment occurs
when two or more pension funds or groups
of funds share ownership of a real estate
investment. There are several ways that
co-investment can occur: a) a commingled
fund investing with a single investor, a
group of investors, an individual fund or
group of funds; or b) operating companies
(such as qualified REIT or limited
partnership) investing with commingled
funds, individual funds or other operating
companies. In co-investment vehicles,
relative ownership is always based on the
amount of capital contributed.
A co-investment structure generally
relates to a single large property
investment or a series or related properties
(common ownership). Each participant
(i.e., investor or investment group) enters
into an individual separate account
agreement with the advisor, agreeing to
co-invest with either a specified or
unspecified group of institutional investors.
Investors in a co-investment vehicle may
choose to retain individual investment
discretion, they may delegate full
investment authority to the advisor. They
may adopt a standard fee agreement, or
each may negotiate separate fee
arrangements.
When compared to commingled fund
investment structures, co-investment
vehicles give an investor a much greater
degree of flexibility in a number of key
investment and management decision
areas. But there may also be additional
complexities in the event one or more co-
investors wishes to withdraw their
investment from the co-investment
arrangement.
Also refers to an arrangement in which an
investment manager or advisor co-invests
its own capital alongside the investor,
either on an equal (pari passu) or
subordinated basis. ERISA prohibits
fiduciaries from co-investing with pension
funds; consequently, when investment
managers co-invest, they may structure
their relationships with their clients to
avoid positioning themselves as managers
-14-
of plan assets and therefore, ERISA
fiduciaries.
Co-Investment Program An investment
partnership or insurance company separate
account that can be organized either by the
investors or by a consultant or investment
manager, that enables two or more pension
funds to co-invest their capital in a single
property or portfolio of properties.
Compared with traditional commingled
funds, co-investment programs typically
provide investors with a larger role in
decision-making, and may even allow
investors to negotiate separate agreements
with the program manager, rather than
being forced to rely upon one standard set
of documents developed by the manager.
The provisions governing the removal and
replacement of the investment manager in
a co-investment program typically are
more favorable to the investors in the fund,
than they have been in traditional
commingled fund programs. The primary
appeal for investors is to achieve greater
diversification or invest in larger
properties typically outside the reach of
small to mid-sized tax-exempt funds, with
a greater measure of control than is
afforded in typical commingled fund
offerings.
Collateral Asset(s) pledged to the lender
to secure repayment of the loan in case of
default.
Collateralized Mortgage Obligations
(CMOs) Debt obligations issued by a
special purpose entity that are
collateralized and payments linked to a
pool of mortgages (whole loans or MBS).
The special purpose entity is set up by the
holder of the loans (i.e., a bank or thrift).
The new entity purchases a group of
mortgages using the proceeds of an
offering of securities collateralized by the
mortgages (CMOs). The trust uses the
underlying cash flow of the collateral to
fund the debt service on the CMOs. The
CMOs are priced based on their own
maturity and rate of return rather than
that of the underlying mortgages.
Commercial Mortgage-Backed
Securities (CMBS) Securities
collateralized by loans on commercial real
estate. Yield on the mortgages is passed
through to the investors, less a service
charge by the issuing organization.
Commingled Account An investment
vehicle in which several investor pool
funds together for purposes of acquiring
real estate investments.
Commingled Fund A pooled fund vehicle,
usually structured as a Group Trust or
Insurance Company Separate Account, that
enables qualified employee benefit plans to
commingle their capital for the purpose of
achieving professional management,
greater diversification, or investment
positions in larger properties. Managers
or commingled funds are, by definition,
managing plan assets, and therefore, are
deemed to be fiduciaries under the
provisions of ERISA.
Other tax-exempt investors, like
endowment and foundation funds, may not
commingle their funds with ERISA funds,
without subjecting all funds in the
program to Unrelated Business Taxable
Income. Consequently, endowments and
foundations typically do not invest in
commingled funds. Some fund managers
resolve this issue by creating parallel
structures – Group Trusts or Insurance
Company Separate Accounts for ERISA
funds coupled with Limited Partnerships
for Endowments and Foundations that co-
invest their capital in a diversified portfolio
of properties.
While often referred to as “commingled
funds,” Limited Partnerships, Private
REITs, and related entities that qualify as
real estate operating companies (REOCs)
-15-
technically are not commingled funds.
Investors in these funds are not
“commingling” their funds, but rather, are
purchasing security interests in an
operating company, and therefore, the
managers of these funds generally are not
deemed to be managing plan assets, and
therefore, are not deemed to be operating
as ERISA fiduciaries.
Commission Money due a broker for the
sale or leasing of a property, Usually, the
commission is expressed as a percent of the
sales price or of the aggregate rent over
the term of a lease. In larger transactions,
the commission may be a negotiated
amount.
Common Area Those portions of a
building and its site which are for the
nonexclusive benefit of all of the residents
or tenants. For example: lobbies, corridors,
parking areas, etc.
Common Area Maintenance (CAM) The
operational expenses associated with the
common areas. CAM (pronounced as the
word, "cam" and not as initials) charges are
typically passed through to retail shopping
center tenants proportionately to their
leased areas. While common areas also
exist in office buildings, it is more common
for their costs to be included in the tenants
rent by means of a Load Factor.
Community Shopping Center An
intermediate size shopping center. May
contain a small department store and
coordinated small shops. Larger than a
neighborhood center and smaller than a
regional center.
Comparable Used as a noun by appraisers
to denote examples of recent sales or leases
which are similar to a subject property
being analyzed.
Concessions Items of economic value
such as above standard tenant
improvement allowances, moving expense
allowances, and rent abatements which are
granted to a tenant by the landlord as an
inducement to enter into or extend a lease.
Concessions may also be used by a landlord
to induce a tenant to pay a higher rental
rate than would otherwise be obtainable.
Conduit An alliance between mortgage
originators and an unaffiliated
organization that agrees, in advance, to act
as a funding source by regularly
purchasing the loans, normally with a view
toward pooling and securitizing them.
Construction Loan Short-term financing,
usually at a floating rate of interest, for the
purpose of constructing or renovating a
property. The construction loan is
generally replaced by fixed-rate, long-term
permanent financing once a project is
completed and leased. See: Take-Out
Financing.
Contingent Interest Interest which may
be added to a loan's base interest rate
which is contingent upon the borrower's
realizing gross income from the secured
property over a specified level. For
example, a payment of 15% of gross
income over $1,000,000 per year.
Contract Rent Minimum rent stipulated
in a lease. Usually excludes percentage
rent, CAM or any other rental payments
which are not specifically quantified in the
lease.
Condemnation The act of a government
unit exercising its power of eminent
domain to acquire a property. Amounts
received by a taxable property owner as a
condemnation payment may be reinvested
in other real property without being
subject to federal income tax.
Convertible Mortgage A loan secured by
real property, typically written at a rate
below current market interest rates, in
-16-
exchange for the privilege to convert the
loan to an equity interest in the property at
a specified future time. See: Participating
Mortgage; Hybrid Debt.
Convertible Preferred Stock Preferred
stock that is convertible to common stock
under certain formulas and conditions
specified by the issuer of the stock.
Core Factor The portion of an office
building which is not rentable area, such as
elevators, mechanical rooms and
restrooms, expressed as a percentage of the
total area of the building.
Core Properties The major property
types, specifically office, retail, industrial
and multifamily.
Cost Approach In appraisal, one of the
Three Approaches to Value. The cost
approach considers what it would cost to
reconstruct the subject property as of the
appraisal date, See: Income Approach;
Market Approach.
Cost Approach Land Value The
estimated value of the fee simple interest in
the land as if vacant and available for
development to it’s highest and best use.
Cost Basis The original amount invested
in a property including transaction costs
plus any additional capital expenditures
such as tenant improvements, leasing
commissions and capital improvements.
Cost of Sale In a multi-year cash flow
analysis, the Cost of Sale is applied in the
terminal year to represent brokerage
commissions and other expenses necessary
to market and sell the property. Typically,
this is computed as a percentage of the
Terminal Value.
Coupon The nominal interest rate
charged the borrower on a promissory note
or mortgage.

Coverage Ratio The ratio of available net
operating income to the debt service
payment, See: Debt Service Coverage.
CPI Consumer Price Index Percentage
increase in the cost of living as calculated
by the U.S. Department of Commerce.
Usually considered a gauge for the rate of
price inflation for the prior period.
Computed on a national and local basis
each month.
CPI Increase Under a lease or other
contact, an adjustment made to the rent or
other contract fee, at specified future dates,
in proportion to changes in the Consumer
Price Index.
CPI Index Several indices published
regularly by the United Stated Department
of Labor, Bureau of Labor Statistics (BLS),
the broadest of which is called the “CPI-U”
and is published monthly aggregating all
urban consumers in all parts of the
country. BLS publishes several other
national CPI indices monthly, as well as
CPI indices for specific metropolitan areas
on a bimonthly basis. In specifying a CPI
index for purposes of rental adjustments, it
is important to clearly identify which index
is being used.
C.P.M. (Certified Property Manager) A
designation conferred by the Institute of
Real Property Management upon one who
has completed certain required courses and
has been active in property management.
Credit Enhancement The credit support
needed in addition to the mortgage
collateral to achieve a desired credit rating
on mortgage-backed securities. The forms
of credit enhancement most often
employed are subordination, over-
collateralization, reserve funds, corporate
guarantees and letters of credit.
-17-
Credit Loss A portion of income which is
allocated to expected bad debt due default
or tenant bankruptcies.
Credit Loss Factor A percentage factor
applied to gross income to provide an
allowance for Credit Loss.
Credit Tenant Commonly used to denote
a tenant who is financially strong and
whose lease obligation to pay rent may be
viewed by a lender as sufficient security
with less regard for the intrinsic value of a
property. Some investors and lenders use
S&P or Moody's corporate bond ratings as
a minimum standard for defining a credit
tenant; others may use a much broader and
subjective definition of financial stability.
Cross-collateralization A grouping of
mortgages or properties that serves to
jointly secure one debt obligation. Any
deficiency in income or loss on the sale of
one property, can be made up by the
income, or sale of another property.
Cross-defaulting This feature allows the
trustee to call all loans in a group into
default when any single loan is in default.
Cumulative Preferred Return In a
partnership agreement, the return to a
class of investors which continues to
accumulate if there is insufficient cash
available to pay a required preferred
return. When and if cash becomes
available, the Cumulative Preferred Return
is paid prior to the payment of other
distributions.
Current Occupancy The current leased
portion of a building or property expressed
as a percentage of its total area or units.
Current Yield For Commercial
Mortgage-Backed Securities (CMBS), the
coupon divided by the price.
Current Value Accounting Typically
used by institutional investment managers
for purposes of client reporting. Current
Value Accounting uses appraised values of
real property assets rather than historic
cost as is used in conventional accounting.

Curtain Wall An exterior wall which is

attached to the structure of a building as a
skin. Virtually all high-rise buildings
utilize curtain wall systems which may
consist of masonry panels, metal and glass
systems, or other materials.

Custodian A bank or other fiduciary

entity entrusted with holding securities,
receiving distributions, and keeping
records for institutional clients.

-18-
 in the event of the satisfactory discharge of
the note.
-D-
Default The failure to fulfill a duty or to
Deal Killer Any unresolved element of a
discharge an obligation, such as the failure
negotiation which is of enough significance
of a borrower to make timely payments on
to cause one or both of the parties to
a loan or a tenant to pay rent and abide by
decline the transaction.
the terms of its lease.
Deal Structure With regard to the
Deferred Maintenance Account An
financing of an acquisition, deals can be
account that the borrower is required to
unleveraged, leveraged, traditional debt,
fund that provides for maintenance of a
participating debt,
property.
participating/convertible debt or joint
ventures.
Deficit An insufficiency of funds; the
amount by which the total cash inflow of
Debt Service Interest payments on debt
an investment falls short of its total cash
and principal payments to retire debt. For
outflow.
accounting purposes, interest payments are
considered to be expenses while principal
Deficit Funding Capital required to cover
payments are treated as capital
deficit positions.
expenditures.
Deficit Funding, Excess The funding of
Debt Service Coverage Ratio (DSC
a deficit by an excess contribution from an
ratio) The annual net operating income
investor above that which would be
(NOI) from a property divided by annual
proportionate to that investor's ownership
cost of debt service, including principal
percentage. Such excess contributions are
payments. A DSCR below 1.0 means that
typically repaid as a preferred return. See:
there is insufficient cash flow generated by
Cumulative Preferred Return; Excess
the property to cover debt payments. See:
Contribution.
Coverage Ratio.
Defined Benefit Plan The employee’s
Deed in Lieu of Foreclosure A voluntary
benefits at retirement are determined by
transfer of a property from borrower to
the amount contributed by the employer
lender, usually in complete satisfaction of
and/or the employee during his or her
all obligations owed by the borrower to
employment tenure, and by the actual
lender which are secured by the property.
investment earnings on those
Typically, a Deed in Lieu of Foreclosure is
contributions over the life of the fund.
given when the value of the property is less
Examples: 401(k) (deferred compensation
than the outstanding secured debt.
plans), thrift plans, defined contribution
pension plans, and profit sharing plans.
Deed of Trust A mortgage instrument
commonly used in the western United
Defined Contribution Plan The
States whereby a trustee holds nominal
employee's benefits at retirement are
title to a secured property under a trust
determined by the amount contributed by
agreement which instructs the trustee to
the employer and/or the employee during
convey title to the lender in the event of
his or her employment tenure, and by the
default under the note or to the borrower
actual investment earnings on those
contributions over the life of the fund.
-19-
Examples: 401-K (deferred compensation
plans), thrift plans, defined contribution
pension plans, and profit sharing plans.
Demising Wall A wall separating two
tenancies or ownerships within a building
or condominium.
Depreciation A decrease or loss in
property value due to wear, age or other
cause. In accounting, depreciation is a
periodic allowance made for this real or
implied loss.
Derivative Securities Securities that are
created artificially, i.e., derived from other
financial instruments. In the context of
CMBS, the most common derivative
security is the interest-only strip.
Design Development Commonly, the
phase of the architectural design process
and resultant drawings following the
initial preliminary or conceptual design
phase. Design Development drawings are
usually adequate for rough cost estimating
but are not sufficiently detailed for actual
construction. See: Working Drawings.
Determination Letter An advance
determination issued by the Internal
Revenue Service as to the qualified status
of a tax-exempt pension plan or investment
vehicle.
Developable Land Land which is
available for improvement (i.e., free from
environmental and other restrictions and
for which zoning is in place or achievable).
Developed Land Land served by
infrastructure, such a streets and utilities,
on which buildings and other
improvements have been located. See:
Improved Land; Raw Land.
Developer's Fee The payment made by
the owner of a project to the individual or
-20-
entity which guides the design, approval
and construction process.
Developer’s Profit The spread between
the cost to develop a project and its market
value upon completion to be realized as
profit by a developer/owner.
Development Constraints Specific legal
and physical constraints affecting the
development of a project, such as zoning,
density limitations, height restrictions,
setback requirements, parking
requirements, soil conditions, topography
and the availability of utilities.
Difference in Conditions Insurance rider
which covers loss due to events such as
vandalism, earthquake, flood, etc.
Discounted Cash Flow Analysis (Income
approach to valuation) Valuation method
which estimates the present value of future
cash flows projected to be generated by a
given asset.
Discretion The authority of an
investment manager to make investment
decisions. A commingled fund is an
example of a discretionary account in that
an investment manager can buy, finance,
manage and sell assets without investor
approval. Separate advisory accounts may
be discretionary, non-discretionary, or
involve varying degrees of discretion.
Discretionary Account A managed
portfolio whereby the advisor has
discretion over investment decisions
usually reserved for the owner - such as
buy and sell decisions.
Discretionary Funds Defined as capital
which the advisor or manager has with the
client’s consent and approval to invest and
manage as deemed appropriate and prudent
by the advisor.
Discount Rate The rate of return used to
convert expected future cash flows into
present dollar value equivalent.
Distributions Payments of cash flow
made to the equity owners of a partnership
or other co-investment vehicle in accord
with the terms of the investment
agreement.
Diversification The investment concept
that risk within a portfolio can be reduced
by increasing the number of individual
investments within that portfolio.
Geography, property type, property size,
property age, length of lease terms, or
other variables may diversify a real estate
portfolio.
Dividend Yield The annual dividend rate
for a security expressed as a percent of its
market price. (annual dividend/price =
yield).
DOL The United State Department of
Labor, the regulating private pension
plans. See: ERISA.
Down and Dirty An adjective applied to
any bare-bones property, possibly poorly
maintained, but leased to a tenant who is
satisfied with its basic function.
DOWNREIT A side-benefit of the
UPREIT structure is that operating
partnership units can be used as "currency"
to acquire properties from owners who
would like to defer taxes that would come
due if the property(ies) were sold or
swapped for stock. In response to this
advantage of the UPREIT structure, a
number of non-UPREIT’s have created so-
called DOWNREITs. This makes it
possible for them to buy properties using
DOWNREITs partnership units. The
effect is the same, however, the
DOWNREITs is subordinate to the REIT
itself, hence the name.
-21-
Downtime A term used both in leasing
activities and in appraisal analyses to
denote the anticipated period of vacancy or
impairment of income between tenant lease
terms.
Due Diligence Activities carried out by a
prospective purchaser or mortgagee of real
property to confirm that the property is as
represented by the seller and is not subject
to environmental or other problems. In the
case of an IPO registration statement, due
diligence is a reasonable investigation by
the parties involved to confirm that all the
statements within the document are true
and that no material facts are omitted.
Due-on-Sale A covenant that makes a
mortgage due if the property is sold.
Duration A measure of a security’s
“length” that takes into account the
periodic coupon payments. Specifically, it
is the weighted average maturity of all
payments of a security, coupons plus
principal, where the weights are the
discounted present values of the payments.
As such, the duration is shorter than the
stated term to maturity on all securities
except for zero coupon bonds, for which
they are equal because the zero coupon
bond is a single-payment security.
 landlord's return to the capital investment
in the property.
-E-
Effective Rent The rental income
Earn-Up / Earn Out An additional
generated by a lease computed over the life
payment to the seller of a property
of the lease and expressed as an annual
predicated upon the satisfactory
dollar amount or annual dollar amount per
achievement of specified leasing objectives
square foot. This figure is typically
or the fulfillment other performance
computed as the aggregate rent to be paid
criteria. It is usually computed in accord
under the lease net of any abated rent and
with a negotiated predetermined formula.
allowances, divided by the term of the
lease. However, there has been a trend
Easement A partial interest in a property
toward computing Effective Rent more
allowing the holder of that interest certain
realistically by using a time value-of-
limited rights to the use or enjoyment of
money calculation. In this latter approach,
that property. See: Bundle of Rights;
sometimes called the Equivalent Level
Merger of Interests.
Rent calculation, a market discount rate is
applied to all cash flows from the lease to
Economic Constraint Any exogenous
obtain a present value which is then
constraint which limits the development of
reduced by the cost of any concessions or
a property such as an oversupply of
inducements paid to put the lease in place.
competing vacant space, failure of the
The resultant net value is then converted
market to support a rental rate sufficient to
to the equivalent level payment stream,
justify construction costs, or lack of
which would produce an equivalent net
available financing. See: Development
present value at that discount rate. See:
Constraint.
Effective Net Rent; Equivalent Level Rent.
Effective Gross Income (EGI) Gross
Egress A term concerning a right to go
income of a property less an allowance for
out or go across the land (public or private)
vacancy. See: Vacancy Allowance.
of another. Usually part of the term
ingress.
Effective Gross Rent (EGR) The net
rent generated, after adjusting for tenant
Eminent Domain The right of a
improvements and other capital costs, and
governmental entity to acquire property
for lease commissions and other sales
for public purpose by the exercise of
expenses.
condemnation powers. Under the
Constitution, property may not be so
Effective Net Rent Because many leases
acquired without the payment of
require the landlord to pay all or a portion
appropriate compensation to the owner.
of operating expenses which may vary
from lease to lease and from building to
Employee Benefit Plan Any plan
building, for purposes of comparability,
established for the benefit of a group of
Effective Net Rent is computed in the same
employees. Examples: certain types of
manner as Effective Rent but with the
pension plans, deferred compensation
rental amount first reduced by any
plans, profit sharing plans, thrift plans,
operating expenses included in the quoted
health and welfare plans.
lease rental rate. While Effective Rent is
representative of the tenant's actual cost,
Encumbrance, Incumbrance A claim,
Effective Net Rent is representative of the
lien charge, or liability attached to and
-22-
binding real property. Any right to, or
interest in, land which may exist in one
other than the owner, but which will not
prevent the transfer of fee title.
Ending Market Value The aggregate
value of a portfolio as reported at the end
of each reporting period based upon the
most current appraised value of the
properties and debt instruments in that
portfolio.
Ending Unit Value The value at the end
of an accounting or reporting period of a
single unit in a commingled fund,
computed by dividing the fund’s total net
assets by the total units outstanding.
Entitlement Under a local zoning
ordinance, those uses, densities, heights,
setbacks, and other development rights
which are allowable without further
govern-mental action or conditional
approval. While such entitlements comply
with zoning regulations, they do not
constitute a building permit, which still
must be obtained in accord with local
statutes operations and ordinances.
Environmental Impact Report A report
of the probable effect of a development on
the surrounding area (environment). The
report is prepared by an independent
company to federal, state, or local guide
lines.
Equilibrium, Property A property is
considered to be in equilibrium when it is
substantially leased at market lease rates
without excessive leasing concessions.
Equilibrium, Market A market is said to
be in equilibrium when demand for space
and supply of space (net of a small amount
of space necessary for the fractional
vacancy which occurs from normal tenant
expansions, contractions, relocations,
between properties) are equal.
Traditionally, when a market is in
-23-
equilibrium, it is considered by developers,
lenders and investors to justify new
construction to accommodate anticipated
growth.
Equity Investment Investment in the
form of a fee interest in a real asset.
Equity-Oriented Debt An investment in
a real estate asset that is comprised of a
guaranteed coupon rate of return (secured
by a mortgage or other contract) and some
form of additional participation in the
income and/or appreciation of a property;
includes mortgages with an equity
conversion option, land sale/leaseback
leasehold mortgages, and participating
mortgages (also see "Hybrid Debt").
Equity Real Estate Real estate
investments which generate returns from
income generated by property operations
and appreciation in value, rather than from
a fixed or variable interest rate coupon.
Examples of equity real estate are direct
ownership whether leveraged or
unleveraged joint venture ownership, and
hybrid instruments such as participating
debt and convertible debt.
Equity REIT A REIT which owns, or has
an “equity interest” in, income-producing
rental real estate (as distinct from
mortgage REITs that make loans secured
by real estate collateral).
Equity Joint Venture A partnership or
other vehicle involving two or more
entities which provide the non-debt
portion of the capital used to acquire or
develop a property.
Equity Value The value of the ownership
interest in a property, after deducting
outstanding mortgage balances, adjusting
for mortgage premium/discount, and
deducting costs associated with retiring or
transferring the existing mortgage debt.
Equivalent Level Rent The flat rent per
square foot that, if paid each year in
nominal dollars, would equal the same
total present value as a lease's variable cash
flows. This annual level rent, which is
beginning to be accepted as a more
accurate representation than traditionally
calculated Effective Rent, is calculated by
applying a market discount rate to all cash
flows from a lease to obtain a present
value. That value is then reduced by the
cost of any concessions or inducements
paid to put the lease in place, and the result
is then converted to the equivalent level
payment stream which would produce the
same net present value at the same
discount rate. See: Effective Rent; Effective
Net Rent.
ERISA Employees’ Retirement Income
Security Act, passed in 1974 and
administered by the Department of Labor,
to protect pensions of corporate employees.
Public pensions funds are not governed by
ERISA, but some funds chose to abide by
its legislative and regulatory standards,
such as the Prudent Man rule.
Escalations Rent that is paid by a tenant
in addition to the base rent. The most
common forms of escalations found in
commercial leases are: fixed increases
which provide for a specified dollar
adjustments at particular points such as
anniversary dates; and CPI adjustments
where rent increases are computed in
proportion to a specified government
index. Pass-throughs are sometimes
considered a form of escalation but
technically are recoveries of expenses and
do not represent increases in the landlord's
available cash flow.
Escrow Delivery of a deed by a grantor to
a third party for delivery to the grantee
upon the occurrence of a contingent event.
In some states, all instruments necessary
to the sale (including funds) are delivered
-24-
to a third (neutral) party, with instructions
as to their use.
Estoppel Certificate A document
executed by a tenant wherein the tenant
reaffirms that the existing lease is in full
force and effect and that no defaults exist
unless so noted on the certificate. Usually
required by a buyer of a property or a
lender to assure that the income stream
called out in the lease is in place and that
the lease is a binding document as
represented.
Excess Contribution Used in a
partnership to define capital contributions
over and above the initial equity
requirement. Usually entitled to a higher
rate of return.
Exclusive Listing A contract between
owner and broker giving the broker the
right to be the only broker representing
the owner's specific property for sale or for
lease. Exclusive listing agreements
generally provide that the listing broker
will share his or her commission with any
other broker who procures a buyer or
tenant. Exclusive listing agreements may
take the form of either an exclusive right to
lease/exclusive right to sell agreement,
where the broker is entitled to a
commission regardless of his or her
involvement in a transaction, or the less
common exclusive agency agreement
where the broker is guaranteed that no
other broker will represent the owner in a
transaction involving the property. See:
Open Listing.
Exit Cap Rate In a multi-year cash flow
analysis, the exit cap rate is applied in the
final year of the analysis to estimate the
value of the property at disposition. See:
Cap Rate, Terminal.
Expense Stop An expense stop is the
maximum amount of building operating
expenses which will be borne by the
landlord prior to passing additional
amounts through to the tenant. The
expense stop may be expressed as an
absolute dollar amount or dollar per square
foot amount, or, in the case of a base year
expense stop, may refer to actual expenses
incurred in a fiscal or calendar year. In
multi-tenant properties, each tenant may
have a differing expense stop with pass-
throughs being pro rated in proportion to
floor area. See: Base Stop; Base Year;
Proportionate Share.

Exit Strategy Strategy available to

investors when they desire to liquidate all
or part of their investment.

-25-

-F-
Face Rent The nominal rental rate quoted
in the lease. The face rate, plus any
escalations and passthroughs, determines
the amount on the check which the tenant
writes each month; it may or may not be
the effective rent after concessions and
allowances.
Facility Space In hospitality properties,
the floor area dedicated to operating
departments such as restaurants, health
clubs, and gift shops, that service guests or
the public on an interactive basis not
directly related to room occupancy.
FAD Multiple Share price of a REIT
divided by its funds available for
distribution.
Fair Market Value A key appraisal
concept, commonly defined in the words of
a 1909 California Supreme Court decision
“The highest price in terms of money
which a property will bring in a
competitive and open market under all
conditions requisite to a fair sale, the buyer
and seller each acting prudently,
knowledge-ably, and assuming the price is
not affected by undue stimulus.” An
additional criterion often added is that the
property must be exposed on the open
market for a reasonable period of time.
Fannie Mae Federal National Mortgage
Association (FNMA) -A quasi-
governmental corporation authorized to
sell debentures in order to supplement
private mortgage funds by buying and
selling FHA and VA loans at market
prices.
Fee 1) Fee Simple Interest in real
property. One who holds Fee Simple
Interest is said “to hold the Feel” in a
-26-
property. See: Bundle of Rights. 2)
Compensation paid to a manager for
services provided. See: Investment
Management Fee.
Fee Simple Interest In real property,
that ownership interest being the
maximum interest which one can possess if
one holds 100% of all ownership rights,
See: Bundle of Rights; Fee.
FFO Multiple Share price of a REIT
divided by its funds from operations.
Fiduciary One who is a responsible
caretaker of another's property or
investments. ERISA defines a fiduciary as
any person who: (i) exercises any
discretionary authority or control over a
plan’s management or disposition of its
assets; (ii) renders investment advice for a
fee or other compensation with respect to
plan assets; or (iii) has any discretionary
authority or responsibility in a plan’s
administration. Fiduciaries may include
staff, trustees, investment board members,
administrators, consultants, actuaries and
investment managers. ERISA permits civil
action to be brought by a participant or
beneficiary against any fiduciary who has
breached its fiduciary duty. Fiduciaries can
be held personally liable for any losses to a
plan resulting from such breach. In such
cases, fiduciary responsibility can be
delegated and/or allocated in a manner so
that a fiduciary (such as a trustee) can
minimize his liability for acts of a co-
fiduciary.
First-Loss Position The position in a
security that will suffer the first economic
loss if the underlying asset(s) lose value or
are foreclosed on. The first-loss position
carries a higher risk and thus a higher
yield.
Fixed Increase Used in connection with
leases whereby base rent is increased in
accordance with a fixed, contractual
schedule.
Fixed Rate A loan interest rate that
remains constant over the term of the loan.
Flex Space A generic term for light
industrial space which is demised into
small units, typically of 25,000 SF or less,
and which contains a high proportion of
office or showroom build-out. Typical flex
space is accessible by drive up or drive in
doors at the rear and by glass store front,
at the front. Also called Office/Showroom
space.
Floor Area Ratio (FAR) The ratio of the
floor area of a building to the area of the
lot on which it is sited. Used in Zoning
Ordinances to regulate density.
Forbearance of Debt The agreement of a
lender to forego the collection of all or a
portion of the scheduled debt service.
Forbearance usually is the result of
workout negotiations on a problem
property. Forbearance arrangements may
involve deferral of interest, abatement of
interest, or even elimination of interest due
over some period of time until a property
can generate sufficient income to cover
debt service.
Foreclosure The process by which the
trustee or servicer takes over a property
from a borrower on behalf of the lender.
Forgiveness of Debt The reduction or
elimination of outstanding debt by a
lender, usually as part of a negotiated
work-out of a problem property where the
property is no longer valued in excess of
the loan which it secures. For taxable
investors, debt forgiveness may be
considered a taxable event, giving rise to
phantom income on which federal taxes are
assessed although no cash is received by
the taxpayer.
-27-
Forty Act Refers to 2 laws passed in 1940
which 1) regulates investment advisors;
and 2) regulates mutual funds.
Forward Commitment The contractual
obligation to acquire an asset, provide a
loan, or deliver title to an asset at a future
date or under specified future
circumstances.
Four Quadrants (of the Real Estate
Capital Markets) Public equity (REITs
and other publicly traded real estate
operating companies); Public debt
(Commercial mortgage-backed securities
and other securitized forms of residential
and commercial whole loan mortgage
interests); Private equity (direct leveraged
or unleveraged real estate investments
acquired privately); and Private debt
(whole loan mortgages).
Freddie Mac (FHLMC) Federal Home
Loan Mortgage Corporation. A
corporation established by the Federal
Home Loan Bank to issue mortgage-
backed securities.
Free and Clear Real property against
which there are no liens, especially
voluntary liens (mortgages).
Free Rent A concession granted by a
landlord to a tenant whereby the tenant is
permitted for a portion of the lease term to
occupy its space without payment of base
rent, and sometimes without payment of
any rental charges.
Free Rent Receivable An accounting
convention wherein free rent is amortized
over the life of the lease to more accurately
reflect the economics of the lease. The free
rent receivable represents the difference
between the accrued rent, net of free rent,
and the cash rent received.
Freehold Interest An ownership interest
in real property without a fixed
termination date. Fee Simple is a freehold
interest. A lease, which by definition has a
measured term, is not a freehold interest; it
is a leasehold interest.

Free Standing Building A building

containing one business, rather than a row
of stores or businesses with a common roof
and side walls.

Friable Asbestos Asbestos containing

material which is easily broken or
crumbled, thus creating particles which
may become airborne and inhaled into the
lungs. Non-friable asbestos may be
contained in rigid materials such as floor
tile or exterior siding.

Full Service Lease An office lease under

which the landlord provides all services to
the tenant including janitorial services
within the tenant's suite.

Funds Available for Distribution (FAD)

Funds from Operations less deductions for
cash expenditures for leasing commissions
and tenant improvement costs.

Funds from Operations (FFO) The most

commonly accepted and reported measure
of REIT operating performance. A ratio
intended to highlight the amount of cash
generated by a company's real estate
portfolio relative to its total operating cash
flow. FFO is equal to net income,
excluding gains (or losses) from debt
restructuring and sales of property, plus
depreciation and amortization.

-28-
 Gross occupied Area The actual area
occupied by a tenant or tenants.
-G-
Gross Value The value of an asset
Going-in Capitalization Rate The
without deduction for debt. When there is
capitalization rate computed by dividing
no debt, gross value and net value are
the projected first year's net operating
equal.
income by the value of the property.
Gross Potential Rental Income The
Green Shoe An option in a firm-
income which a property would produce if
commitment underwriting agreement that
all spaces were leased at market rent.
allows the underwriters to purchase
additional shares of stock from the issuer
Gross Lease A lease where the landlord
to cover over allotments.
pays operating expenses of the building.
See: gross lease with escalations; industrial
Gross Asset Value The value of an asset
gross lease; net lease.
or portfolio without taking into account
any encumbering debt.
Gross Lease with Escalations A lease
where the landlord pays operating
Gross Building Area The total
expenses during an initial period but passes
constructed area of a building including all
through increases in such expenses
common areas.
thereafter.
Gross Effective Rent Effective Rent with
Gross Rate The interest rate stated in
no deduction for expense borne by the
loan documents and used in the
landlord. Compare with Net Effective
computation of debt service. To the extent
Rent.
origination fees were paid by the borrower,
the gross interest rate is lower than the
Gross Fair Market Value Fair Market
effective yield to the lender.
Value with no deduction for transactions
costs which might be incurred in actually
Gross Real Estate Assets The total assets
realizing such value through a sale.
of a portfolio, less cash and cash
equivalents, but without deduction for
Gross Income Total income without
debt.
deduction for vacancy allowance or
expenses.
Gross Rentable Area A term not
commonly used but equivalent to Gross
Gross Leasable Area 1) The total of all
Leasable Area.
rentable areas plus all common areas of a
building. 2) A nominal measurement of the
Gross Square Feet An alternate way to
area of a tenant suite representing the net
express the fact that a stated measurement
rentable area of that suite plus a
is of the gross area of a building.
proportional share of all common areas of
the building. 3) In retail shopping centers,
Gross-Up Clause When a base year
the total of all tenant suites. 4) In retail
expense stop is applied in a building which
strip shopping center, the nominal
is not fully leased or occupied, the expenses
measurement of each tenant suite from the
during the base year may not be
outside face of each exterior wall to the
representative of those which will be
centerline of each demising wall.
incurred in a fully leased building.
-29-
Typically, a gross-up clause is included in business corporation. Similarly, parent
commercial leases to adjust the base year companies may be required to guarantee
expenses to an amount equal to that which the lease obligations of subsidiaries.
would have been incurred had the property
been at 90% to 100% occupancy. Because Guaranteed Return A minimum rate of
this adjustment is somewhat subjective, return to be received from a seller for some
care should be used in negotiating such period of time as part of a negotiated
gross-up clauses to avoid future tenant purchase agreement. Typically, this type of
disputes. arrangement is used for properties during
lease-up so that the seller can achieve a
Gross Sales The total retail sales sales price more reflective of the value of
achieved by a tenant, usually expressed in the fully leased property.
dollars per square foot per year or per
month. Gross sales provide the basis for
the computation of percentage rent. It is
especially important that retail percentage
rent provisions be based on gross sales
rather than net sales in properties held as
ERISA plan assets. This is because
claiming a portion of net sales is
tantamount to become a partner in the
retail business which gives rise to
Unrelated Business Income for pension
plans under the federal tax laws.

Group Trust An entity used for certain

institutional commingled funds which
allows tax-exempt investors indirectly to
own real estate as units of a trust. An
investment manager is hired and trustees
appointed to handle the trust's business;
trust directors are typically employees of
the investment manager or an affiliate.

Growth Rate A percentage rate by which

income, operating expenses and capital
expenditures increase or decrease over
time. In the financial modeling of real
estate, growth rates may be predicated
upon an assumed CPI rate of change or on
other reasonable assumptions.

Guarantee The agreement of a person or

entity to perform the contractual or lease
obligations of another, should that other
fail to do so. Frequently prudent landlords
require personal guarantees from the
individual owners of small businesses
where the tenant under the lease is a small
-30-
 and disposition of an asset, usually selected
to assure comparability with other assets.
-H- Because the final year of the holding period
may not be a year of stabilized revenue and
Hard Money Mortgage A mortgage
expenses, the holding period may be
given in return for cash, rather than to
lengthened or shortened to assure a fair
secure a portion of the purchase price, as
representation of the economics of the
with a purchase money mortgage.
asset.
Hedge 1) A technique of making
Hybrid Debt Debt having some of the
offsetting commitments to minimize the
characteristics of an equity investment.
impact of contrary movements; 2) a fixed
Hybrid debt, by definition, has a fixed or
commitment in a futures market which
indexed coupon like conventional debt, but
serves as a temporary substitute for an
also participates in the performance of the
intended purchase or sale of a financial
asset through various means. Examples of
instrument for delivery and payment at a
hybrid debt are participating debt and
later date at the then current market price.
convertible debt.
High and Dry A description of basic
Hybrid Mortgage An instrument used to
functional warehouse property with a
secure hybrid debt. Typically a mortgage
water-tight roof and above flood level.
with an interest rate below current market
Such properties tend to be leased to price-
rate which also provides for a meaningful
sensitive tenants such as public
participation (usually 50% or more) in both
warehousers who are concerned only with
net cash flow and gain on sale or refinance
basic functionality.
of the secured asset. Some hybrid
mortgages have an option to convert to
Highest and Best Use The reasonably
equity investments in the future; others
probable and legal use of vacant land or an
retain their participation in the operating
improved property, which is physically
performance of the property and also
possible, appropriately supported,
participate in the proceeds from sale or
financially feasible, and which results in the
refinance.
highest value.

Historical Cost The original cost of an

asset plus capital additions and less
accumulated depreciation.

Hold Vs. Sell Recommendation A

recommendation made periodically based
upon an analysis of the benefits of near-
term sale of an asset compared with
continued longer term hold, such analysis
must take into account the objectives of the
investor client as well as alternative
investments available at that time in the
market.

Holding Period In financial analysis, the

anticipated time period between acquisition

-31-
 net operating income of a property to
estimate its value. See: Cost Approach;
-I- Market Approach.
ICSC International Council of Shopping
Income Property Real estate owned or
Centers, a national trade organization of
operated to produce revenue.
property owners, tenants and professionals
involved in the operation of retail
Income Return The portion of the total
properties.
return that is generated by the income
from operations of a property, a fund or
Impaired Asset Any property with an
account. The income return may be stated
unrealized capital loss such that current
as a percentage (either before or after
equity value is less than book value.
management fees) of the net asset value
Impairment can be either temporary, such
(dollar weighted for inter-period
as that due to short term changes in
contributions and distributions) of the fund
market conditions, or permanent if such
or account at the beginning of the current
value decline is considered irreversible
quarter.
over the holding period.
Indemnification An agreement to defend
Impairment of Value A diminution in
another person or entity and to provide
value from the value which a comparable
financial compensation for any losses
asset would enjoy were it not for
suffered by that person or entity.
circumstances unique to the specific asset
or specific market.
Independent Appraisal An appraisal
performed by a disinterested party who has
Implied Cap Rate Net operating income
no stake in the outcome of the valuation
(NOI) divided by a REIT's total market
process. The code of ethics of the Appraisal
capitalization (that is, the sum of its equity
Institute prohibits appraisers from basing
market capitalization and its total
their compensation on results of their
outstanding debt).
appraisal.
Improvements Buildings or other
Individual Account Management
permanent construction, such as paving
Accounts established for individual plan
and lighting, on or attached to the land.
sponsors or other investors for investment
in real estate, where a firm acts as an
Improved Land Developed land with
advisor in acquiring and/or managing a
added infrastructure such as streets,
direct real estate portfolio (see "Separate
utilities and drainage. See: Developable
Account" and "Co-investment").
Land; Raw Land.
Industrial Gross Lease A gross lease on
Incentive Fee (see "Performance-based
industrial property wherein the landlord
Fee"). Applies to fee structures where the
pays for taxes, insurance, and operating
amount of the fee that is charged is
expenses (except for separately metered
determined by the performance of the real
utilities). Typical industrial gross leases
estate assets under management.
provide for the pass-through of any
increases in these expenses after the first
Income Approach One of the three
year of the lease term.
standard appraisal approaches, the income
approach applies a capitalization rate to the

-32-
Industrial Building A reasonably generic
building used for manufacturing or
distribution, usually with a minimum
amount of office build-out. Specialized
industrial facilities, such as refineries and
heavy manufacturing plants, are not
considered to be industrial buildings for
investment purposes.
Industrial Park A subdivision in the
pattern of residential subdivisions, except
catering to the needs of industry. Off-site
improvements may have stronger roads,
heavy plumbing and wiring, wider streets
for trucks, rail spurs, and other necessities
for industry.
Industrial Property Any real property on
which or in which a manufacturing or
distribution use may be conducted in
conformity with zoning regulations.
Inflation The economic phenomenon by
which all nominal prices tend to rise over
time. In modeling the economics of a
property, inflation affects the growth rates
of all income, expense and capital items.
See: CPI Adjustment; CPI Index.
Inflation Adjustment 1) An escalation
provision in a lease which provides for
periodic adjustment of the base rent in
proportion to changes in the consumer
price index. 2) An adjustment made to
sums expressed in nominal dollars for
purposes of analytical comparability over
time. See: CPI; CPI Index; Inflation.
Inflation Hedge An investment that
tends to increase in value at a rate greater
than inflation and, hence, helps contribute
to the preservation of the purchasing
power of a portfolio.
Infrastructure Basic public improvements
such as roads, sewers, water, drainage, and
other utilities which are necessary to
prepare raw land for buildings and future
development.
-33-
Ingress and Egress The right to enter
and pass though land.
In-Line Stores (also Shop Space) At a
shopping center, non-anchor retail tenants.
Initial Public Offering (IPO) An IPO
refers to the first time a private or public
company offers a new class of securities for
sale to the public. (Also see "Secondary
Offering" and "Private Placement")
Institutional-Grade Property The
various types of real estate properties
generally owned or financed by tax-exempt
institutional investors. For some
institutions, the following definitions may
be further constrained by property age,
geographic location and construction
quality, and other factors. Current
definitions typically include: office (high
rise, mid-rise, low rise); office parks; retail
(shopping centers) including super regional
malls, regional malls, hypercenters,
community centers, neighborhood centers,
power centers and certain other types of
specialty retail centers (but not strip
centers); industrial (light manufacturing,
warehouse, self-storage and various office
uses combined with one or more of the
above, research and development,
incubator space and office use combined
with one or more of the above); and
residential (apartments, but not
condominiums or single-family homes).
Specialty investments also include hotel,
motel and resort properties, congregate
care facilities, land beneath existing
improvements, vacant land, mixed-use
properties (i.e., a property containing at
least two of the foregoing property types
where the value of the combined uses is
greater than the sum of the individual
uses), and mobile home parks.
Institutional Investor A term commonly
applied to tax exempt entities such as
corporate pension and profit sharing plans,
endowments, foundations, union-sponsored
benefit plans, and state and municipal
employee retirement plans.
Insurable Interest Any economic interest
which can be protected by insurance.
There can be no insurable interest without
an economic interest
Insurable Loss Any loss which can be
compensated by insurance. See: insurable
risk.
Insurable Risk A risk of loss or damage
which may be covered by insurance. Some
risks are not insurable because there are no
insurance markets available in which such
risks can be insured or because such risks
are general in nature such as the risk of
rents declining after a natural disaster.
Insurable Value The value for which a
property may be insured. Insurable value
may be defined in the insurance policy as
full replacement cost, reproduction cost,
depreciated value or some other
measurement. Insurable value is not the
same as economic value or fair market
value: a vacant building will cost as much
to replace as an identical fully-leased
building. It is important to note that while
most lenders will request that insurance be
carried in an amount not less than that of
the outstanding debt, an insurer will not
pay a claim for an amount greater than the
cost to reconstruct a property in spite of
the fact that the debt may exceed the
replacement cost.
Insurance Certificate A certificate issued
by an insurance carrier indicating that
specific insurance coverage is in place and
outlining the terms and beneficiaries of
that coverage. Typically, commercial
property owners require tenants to carry
liability insurance protecting both landlord
and tenant; the tenant is required to
provide the landlord with an insurance
certificate as evidence of that coverage.
-34-
Insurance Company Separate Account
A real estate investment vehicle that may
only be offered by life insurance companies.
It takes the form of a variable annuity
contract where the contract holder (i.e., the
insurance company) agrees to pay a
variable sum or series of payments (i.e.,
investment returns) in exchange for a set
contribution (i.e., the investment) or series
of contributions. The ownership of the real
estate assets actually remains in the hands
of the insurance company, and the variable
annuity contracts are written against those
assets or series of assets. This ownership
arrangement enables an ERISA-governed
fund to avoid the creation of unrelated
business taxable income (UBTI) for certain
types of property investments and
investment structures (see "UBTI").
Insurance Company General Account
That pool of capital invested by an
insurance company from which to pay
claims of its policyholders and dividends to
its stockholders.
Insurance, Liability Insurance which
compensates a third-party who may be
damaged by the action of the person or
entity insured. When a liability insurance
policy is carried by a tenant to protect both
the tenant and the landlord from third-
party claims, the tenant is the named
insured and the landlord is an additional
insured.
Insurance, Property Insurance coverage
which compensates a property owner
and/or lender should the property be
damaged by fire, windstorm or other peril.
The beneficiary of such a policy is know as
the loss payee.
Interest The price paid for the use of
capital, further divided into: 1) Stated
Rate: The full return or yield rate on the
outstanding principal balance, expressed as
a percentage per year. Also known as "face
rate" or "coupon rate." A loan may have
one or more stated interest rates. 2) Pay
Rate: The return or yield rate used to
determine current mortgage payments,
typically lower than the stated rate and
used when cash flow of the property is not
sufficient to make payments at the Stated
Rate. 3) Accrual Rate: The unpaid interest
resulting form the difference between the
Stated Rate and Pay Rate. The Accrual
Rate interest is typically added to the Base
Principal Balance; interest is then
calculated on both the Base Principal
Balance and the Accrual Rate interest
Interest Only Mortgage A mortgage
under which the principal amount
borrowed is repaid in one payment.
Periodic interest payments are made.
Interest Only Strip A derivative security
consisting of all or part of the interest
portion of the underlying loan or security.
Exchange Commission, which is
authorized by this statute to supervise
investment advisors. The Act covers all
individuals or organizations who for
compensation engage in the business of
advising others, either directly or through
writings, as to the value of securities or the
advisability of investing in, buying, or
selling securities, or who for compensation
and as part of a regular business
disseminate analyses or reports concerning
securities. It covers securities services as
well as investment counsel, but exempts
publications such as newspapers and
magazines of general and regular
circulation; brokers and dealers who give
advice incidentally and gratuitously; banks;
certain bank holding company affiliates;
those who confine their advice solely to
United States government obligations; and
attorneys, accountants, engineers, and
teachers, whose advice is purely incidental.

Internal Rate of Return (IRR) The

annualized rate of return on capital that is
generated or capable of being generated
within an investment or portfolio over a
period of time, assuming all cash flows can
be reinvested at the same rate.
Mathematically, the IRR of an investment
is the discount rate applied to that
investment such that the net present value
of the investment is zero. IRR is
commonly used to measure profitability by
applying the calculation to the after tax
cash flows to arrive at an after-tax equity
yield rate.

Investment Advisor An organization

which, by contractual agreement, provides
acquisition, asset management, and
disposition services on a nondiscretionary
basis where the client retains authority to
approve investments and major asset
management policy.

Investment Advisors Act of 1940 This

Act was based on a report by the Securities
-35-
Investment Consultant (Consultant)
Any company or individual that provides
the following services to institutional
investors: l) definition of real estate
investment policy; 2) advisor/manager
recommendations; 3) analysis of existing
real estate portfolios; 4) monitoring of, and
reporting on property asset, commingled
fund and portfolio performance; 5) review
of specified property and portfolio
investment opportunities. Consultants are
distinguished from investment advisors or
investment managers in that a consultant
does not source or execute transactions,
and does not directly manage assets. Most
plans require that its consultants be
registered under the Investment Advisors
Act of 1940.
Investment-Grade CMBS Securities with
ratings of AAA, AA, A or BBB.
Investment Manager An organization or
entity which, by a contractual agreement,
has discretion for acquiring, managing, and
selling individual real estate investments
or commingled fund assets. A pension
plan’s investment manager will generally
be a fiduciary under ERISA and be held to
the fiduciary standards of conduct.
management or cash distributions, this
fee is paid to the investment manager
as annual compensation for the
management of the assets.
4. Contribution Fee - This is a
subscription fee, placement fee, or
start-up fee, charged against the
investor's contributions to the fund and
usually paid prior to any asset
acquisitions, as distinguished from the
acquisition fee.
5. Disposition Fee - This is a one-time fee
charged to the investors, usually a
percentage of net sales proceeds.
6. Incentive Fee - Any fee paid by the
investor to the manager based upon
performance of the real estate assets,
usually in excess of a target or
benchmark. Also called a Performance
Fee.

Investment Management Fees Fees paid

by the investor for the services of the
investment manager or advisor. Typically,
these fees consist of one or more of the
following:

1. Acquisition Fee - Usually a percentage

of the amount invested, this is paid as a
one-time fee on each property or asset
acquired.

2. Administrative Fee - Also referred to

as a contract fee, asset charge, trust
administration fee, account charge, or
custodian fee.

3. Asset Management Fee - Usually a

percentage of assets under
-36-
Investment Policy A document that
formalizes an institution's guidelines for
investment and asset management. An
investment policy statement typically will
contain the following or similar sections:
Goals and Objectives (risk management,
diversification, yield and return guidelines);
Core Portfolio and Specialty Investment
Strategies (funding objectives and
definitions for core and specialty assets);
Specific Real Estate Investment Criteria
(property size, type, phase, tenant mix);
Investment Methodology (geographic
location, investment structure, due
diligence process, engineering, physical
and environmental review process, ERISA
review process, investor review and
approval process, closing process); Asset
Management Guidelines (budgeting
requirements, contracting requirements,
leasing guidelines, financial reporting
requirements, investor review
requirements, appraisal process, sale/hold
analysis guidelines); Investment Advisory
Contracting and Fee Guidelines;
Guidelines for Utilization of Consultants
and Other Outside Professionals; Schedule
of Fees for Consultants and Other Outside
Professionals.
Investor Status In reporting to clients
and consultants, all investors are divided
into two categories: taxable and tax-
exempt. The tax-exempt category includes
all qualified pension and retirement
accounts. The taxable category includes all
other accounts under management,
including off-shore capital.
IREM Institute of Real Estate
Management, a national organization for
professional property managers and
property management companies. IREM
is part of the National Association of
Realtors and grants the professional
credentials of Certified Property Manager
(CPM), accredited Residential Manager
(ARM), and Accredited Management
Organization (AMO).
Isohyetal Line A line on a map
connecting areas which have
approximately the same rainfall or
thunderstorm activities.

Investment Strategy The investment

parameters used by the manager in
structuring the portfolio and selecting the
real estate assets for a fund or account.
This includes a description of the types,
locations, and sizes of properties to be
considered, the ownership positions that
will be used, and the stages of the
investment lifecycle.

Investment Value The most current

appraised fair market value of a property or
appraised value of an investor's position in
a debt or hybrid debt instrument. In
aggregate, this is the amount shown on
each quarterly report as the Ending
Market Value.

-37-
 debt need to be concerned about junior
debt because any modification to the
-J- obligations of a debtor's senior debt that
affects the available security for the junior
Joint and Several Liability Enforceable
debt without the consent of the holders of
against either or both parties, For example,
the junior debt, may be deemed invalid. As
joint and several liability frequently is
a general rule, the foreclosure of senior
specified in lease guarantees to allow
debt extinguishes junior debt but the
enforcement of the lease obligation in its
foreclosure of junior debt has no effect on
entirety against either the guarantor, the
senior debt.
tenant or both without releasing either of
the parties.

Joint Tenancy A form of ownership of

real estate by two or more individuals with
right of survivorship. In a joint tenancy,
the death of one of the owners does not
change the ownership unit other than to
reduce the number of persons who jointly
own the property. The last survivor in a
joint tenancy takes title in “severalty”
which is fully inheritable by his or her
heirs upon death.

Joint Venture The joining of two or more

individuals or entities in a specific business
enterprise such as the development of a
project or the acquisition of an investment.

Judgment The formal decision of a court

upon the respective claims of the Parties in
an action or a suit. A judgment, once
entered, may be recorded with the local
registry of deeds and then becomes a lien
upon the property of the defendant.

Judgment-Proof Used as an adjective to

describe a person or entity which has no
assets to satisfy a judgment if one were to
be obtained.

Judicial Foreclosure A method by which

a secured lender may foreclose on a
property by means of a court ordered sale.
See: Deed in Lieu.

Junior Debt Any secured debt which is

subordinate in right to a superior, or
senior, debt obligation. Holders of senior

-38-
-K-
Kick the Dirt To make a field inspection
or site visit.

Kicker A term borrowed from the bond

industry signifying some form of equity
participation attached to a debt obligation,
See: participating debt; convertible debt.

Kick-Out Provision The provision in a

lease which allows a landlord to terminate
the lease upon the occurrence of some
specified event. An example of a Kick-Out
Provision would be the termination of a
retail lease if certain sales figures are not
achieved by the tenant or the termination
of an office lease to make room for the
expansion of a preferred tenant.

Kick Wall In a metal industrial building,

a reinforced concrete or masonry perimeter
wall extending for several feet above the
floor which is better able to absorb damage
from fork lift trucks than the metal wall
would be if it were exposed at floor level.
Sometimes called a "kicker wall."

Kiosk A small structure located in the

common area of a retail mall or strip center
for the sale of specialty merchandise such
as film processing, jewelry, magazines and
newspapers, perfume, et cetera. Rent on
kiosk space is usually quoted in dollars per
month rather than dollars per square foot
due to the small number of square feet
occupied.

-39-
 appears at the top of the offering's
tombstone advertisement.
-L-
Lease An agreement, usually in written
Land Absorption 1) In land development,
form, transferring the right to the
the rate at which vacant land is utilized,
exclusive possession and use of real estate
either through build-out or though sale. 2)
for a defined period of time.
In market analysis, the rate at which land
is converted to developed building sites.
Leaseback A financing technique used by
a commercial property owner occupant by
Land Residual Technique An appraisal
which the property is sold to an investor
technique wherein the value of the land is
and the seller becomes a tenant. In
determined by subtracting the cost to
exchange for the cash generated by the
develop the improvements, including
purchase transaction, the seller
developers' profit, from the total value of
relinquishes title to the property and
the property.
agrees to pay rent to the buyer for a finite
period into the future. The leaseback is a
Landlord Concessions Incentives, such as
technique to free capital which a company
free rent, above standard tenant
might have tied up in its real estate assets.
allowances, moving allowances or other
Under the tax laws, a sale-leaseback
items of value, which are provided to a
transaction can give rise to Unrelated
tenant as an inducement to enter into a
Business Income for ERISA qualified
lease at a specified face rent.
pension plans who act as buyers.
Late Charge A charge assessed against a
Lease Buyout 1) A lump sum payment,
tenant for failure to make timely payment
usually equal to some percentage of the
of rent when due. Late charges are
present value of the rental payments
frequently described as liquidated damages.
remaining for the balance of the term of a
This is in contrast to interest which may
lease, which is made to a landlord by a
be charged on a past due balance to
tenant in exchange for the landlord
compensate the landlord for lack of use of
releasing the tenant from future
the unpaid money for the period from the
obligations under the lease. 2) A lump sum
due date to the date actually paid. Leases
payment made to a tenant by a landlord in
may contain either or both late charges and
exchange for either the termination of a
interest on past due rent.
lease and the recapture of the leased space
or for the termination of a below market
Latent Defect A hidden or concealed
rent lease and its replacement with a
defect. One which could not be discovered
market rent lease with the same tenant.
by inspection, using reasonable care. In
legal descriptions, a latent defect may be
Lease Expiration Exposure Schedule A
corrected. See: Patent Defect.
tabulation listing the total square footage
of all current leases that expire in each of
Lead Manager The investment banking
the next five years, without regard to
firm, generally with the largest position in
renewal options.
the underwriting of a new issue of
securities, which handles the principal
Leased (Area) The square footage of a
responsibilities for coordinating the
building which is leased or committed to be
issuance. The name of the lead manager
leased. The leased area is not always the
same as the occupied area because tenants
-40-
may vacate prior to the end of their lease
terms. Because such tenants are very
unlikely to exercise renewal options, it is
important to know both the leased area
and occupied area of a property. Compare
with Occupied.
Lease, Guarantee of The promise of an
individual or entity to fulfill the monetary
and possibly the non-monetary obligations
of a tenant under a lease should the tenant
fail to do so. Lease guarantees are
commonly sought from the owners of small
businesses when the business has
insufficient creditworthiness to sustain the
lease without the business owner being
willing to make lease payments personally.
Lease guarantees may also come from a
more creditworthy parent company for a
lease running to a subsidiary.
Lease Holdover A tenant who remains in
possession and occupancy of a space
beyond the expiration of the lease term.
Frequently, commercial leases specify
penalty rents of 150% or more of the
ending lease rent in order to pressure a
holdover tenant to negotiate and enter into
a new lease. See: tenant at sufferance.
Lease Option Usually an agreement
within a lease which gives the tenant the
right to purchase the property at a
specified or formula price at a future date.
Lease options may also provide the tenant
with the right to lease additional space in a
property or to extend the current lease
term.
Leasehold Interest 1) An interest in a
piece of real property for a finite period of
time. 2) The value of a leasehold interest.
Leasehold Improvement An
improvement to a property made by a
tenant for its own use and purposes during
the term of its lease. The tenant owns the
leasehold improvement during the term of
the lease.
-41-
Lease-Up The period during the initial
development or renovation of a property
during which the space is being marketed
and the building is being brought to full or
stabilized occupancy.
Legal Description A verbal and/or
cartographic description of a piece of
property that is sufficiently complete that a
surveyor could locate that property and its
boundaries.
Lessee The tenant under a lease.
Lessor The landlord under a lease.
Letter of Credit An agreement of a bank
on behalf of its customer that the bank will
honor drafts or other demands of payment
from third parties upon compliance with
conditions specified in the letter of credit.
Letters of Credit have become an
alternative form of partial lease guarantee
whereby the bank issuing the Letter of
Credit agrees to pay the landlord a
specified sum of money if the tenant should
default on its payments under the lease.
Letter of Intent A document expressing
an intent to invest, develop or purchase
without creating any firm legal obligation
to do so. Letters of Intent are frequently
used to negotiate the business points of a
transaction before preparing a formal
binding contract.
Leverage The use of credit to finance a
portion of the costs of purchasing or
developing a real estate investment.
Positive leverage occurs when the loan
constant (interest rate of principal
amortization) than the capitalization rate
(or lower than the projected IRR).
Liability, Contingent 1) A liability or
obligation which exists only under certain
specified circumstances. For example, a
lease guarantee is a contingent liability of
the guarantor because it becomes an
obligation only when and if the tenant
defaults. 2) A type of liability insurance
which protects an owner of a property
from third party claims which would
otherwise be defended by a tenants
insurance policy in the event that the
tenant’s insurance policy should lapse or
otherwise fail to respond to such a claim.
License Permission or authority to do a
particular act upon the land of another,
usually on a non-exclusive basis. Unlike a
lease, a license is a personal, revocable and
non-assignable right.
Lien A claim which one person has upon
the property of another as security for a
debt or obligation.
Lien, Tax A lien placed on a piece of
property by a taxing authority for the
nonpayment of taxes assessed. Liens do not
transfer title to a property until
foreclosure.
Like-Kind Exchange A provision in the
federal income tax law which allows an
individual to trade a piece of real property
for another without incurring immediate
tax obligations due to any increase in
market value of the new property above
the historic cost basis of the old. Typical
like kind exchanges involve the seller
identifying to the buyer the property which
the seller would like in trade, the buyer
then taking title to that property and
immediately trading it to the seller.
Life Cycle 1) The stages of real estate
development: raw land; pre-development;
development; leasing; operations and
redevelopment. 2) An approach facilities
managers take to evaluating the cost of an
improvement which takes into account
both initial cost and the cost to operate
over time.
-42-
Limited Partnership An entity consisting
of one or more general partners and one or
more limited partners. The general partner
manages the partnership's business and has
liability for its actions; the limited partners
have limited approval rights and limited
liability. In real estate, limited
partnerships almost always have a finite
life, at the end of which any unsold
investments are liquidated and the
proceeds are distributed to the investors.
Liquidity The availability of cash and
short-term assets to satisfy short-term
obligations. Also, the ease to which assets
can be converted to cash without loss of
value.
Liquidated Damages An amount
predetermined in a lease or contract that
will be paid as compensation to the injured
party should the other party breach a
specified part of the lease or contract.
Liquidated damage provisions are
commonly used to avoid disputes over the
actual dollar value of damages which are
caused by a breach.
Lis Pendens A legal notice recorded to
show pending litigation relating to real
property, and giving notice that anyone
acquiring an interest in said property
subsequent to the date of the notice may be
bound by the outcome of the litigation.
Listing A written employment agreement
between a property owner and a real estate
broker authorizing the broker to find a
tenant or buyer for the property and
agreeing to pay the broker a specified sum
should the property be leased or sold.
Common forms of listings are open listings
and exclusive listings.
Load Factor A factor applied to the
usable area of a tenant suite to allocate a
share of common areas and other non-
usable areas of a building.
Loan Commitment A letter of intent
issued by a lender setting forth the terms
and conditions under which the lender will
agree to make a specific loan. Loan
commitment letters, like letters of intent,
are typically non-binding.

Loan Re-Margining The partial paydown

of an existing loan obligation by the debtor
in order to achieve compliance with the
lender's loan underwriting criteria.

Loan-to-Value Ratio The ratio of debt to

total value of a property. Loan-to-Value
Ratio and Coverage Ratio are the two most
significant loan underwriting criteria.

Lock-box Structure A structure whereby

the rental or debt-service payments are
sent directly from the tenants or
mortgagors to the trustee.

Lock Out Period during which a loan may

not be prepaid. For example, a 10-year loan
that may not be repaid during the first five
years is said to have a five-year lock-out.

London Interbank Offered Rate

(LIBOR) The interest rate offered on
Eurodollar deposits traded between banks.
There is a different LIBOR rate for each
deposit maturity.

Loss Severity The percentage of principal

lost when a loan is foreclosed.

Loss Factor. Factor applied to the gross

area of a building to arrive at the usable
area. See: Load Factor.

Lot and Block 1) A form of legal

description of a property which references
the lot number and block number shown
on maps and plats of a recorded
subdivision. 2) A system of reference
commonly used by local taxing authorities
to identify each specific parcel within the
taxing authority's jurisdiction.

-43-
 Mark-to-Market The practice of valuing
-M- each investment based upon current
market value rather than book value or
Magic Page Included in the offering
historic cost.
prospectus, the "magic page" is a projected
growth story, describing how a new REIT
Market Approach In appraisal practice,
will accomplish its future expectations for
one of the three approaches to value
funds from operations from funds available
wherein comparable property transactions
for distribution.
are analyzed and adjusted for differences in
timing, location, circumstance and other
MAI Member of the Appraisal Institute, a
parameters to arrive at an indication of
professional designation granted to
value of a subject property. See: Cost
appraisers by the American Institute of
Approach; Income Approach.
Real Estate Appraisers. The designation is
earned through experience, education and
Market Capitalization and Implied
examination.
Market Cap Primary market cap is the
market value of all outstanding common
Management Agreement A contract
shares of a company. Implied market cap
between a property owner and property
adds the value of all UPREIT operating
manager for the provision of property
partnership units as if they were converted
management services for a fee, usually
into the REIT’s stock. Fully diluted
calculated as a percentage of gross
market cap includes convertible preferred
collected rents.
stock, convertible debentures, warrants,
options and other securities with equity
Map, Subdivision A surveyed plat
conversion features.
showing each lot in a subdivision in
sufficient detail that a surveyor can locate
Market Comparable An example of a
each lot and that such lots can be shown to
recent sale or lease of a property which is
conform to subdivision regulations
similar to the subject property being
concerning such things as minimum size
analyzed.
and access.
Market Lease Rate The rental rate being
Margin 1) An adjustment, expressed in
achieved for typical leases being entered
basis points, which is added to or
into in the market at the current time.
subtracted from a reference interest rate
(e.g., six month LIBOR) to establish the
Market Lease Term The length of term
coupon of a floating rate or short-term
of a typical lease being entered into in the
money market security; 2) a measure of
market at the current time.
return on floating rate notes calculated
with reference to some interest rate such as
Market Rent The typical amount of rent
LIBOR; 3) cash deposits required for each
being paid under new leases at properties
futures contract to serve as a good faith
of comparable size, location and quality.
deposit guaranteeing that both parties to
the agreement will perform the transaction
Market Value See: Fair Market Value.
some time in the future.
Master Lease A lease under which the
Margin Call A call for cash in a margin
leasehold is further subleased by the tenant
position.
to one or more subtenants.
-44-

Master Servicer The institution that acts
on behalf of the trustee for the benefit of
security holders in collecting funds from
the borrower, advancing funds in the event
of delinquencies, and, in the event of
default, taking the property through the
foreclosure process.
Materialman The supplier of materials or
equipment to a contractor. Just as a
subcontractor, a materialman commonly
has the right to place a lien for payment
upon a property to which goods or services
are provided.
Maturity 1) The length of the term of a
loan. 2) When a leaseback provides for
repurchase, the length of the leaseback
term.
Maturity Date The end of a loan or
leaseback term.
Meeting Space In hospitality properties,
space made available for rent to the public
for meeting, conference, or banquet uses;
e.g., ballrooms, conference rooms, meeting
rooms.
Memorandum of Lease A brief summary
statement giving the description of the
area leased and the dates of commencement
and expiration of the term which may be
recorded as a public record to give notice
that the lease exists. This is done by the
tenant to formally cause the lease to be
superior in time to any mortgage or
obligation subsequently placed on the
property. While a copy of the lease itself
could be recorded, the memorandum of
lease is used instead in order to keep the
economic terms of the lease confidential.
See: Attornment; Non-disturbance; Quiet
Enjoyment.
Merger The combination of two interests
into a single interest. For example, when
the owner of the fee interest in a piece of
real property acquires the easement rights
-45-
of another across that property, the
easement ceases to exist by reason of
merger.
Metes and Bounds Description of land by
boundary lines, with their terminal points
and angles. Originally, metes referred to
distance and bounds to directions;
modernly, the words have no individual
meaning of practical significance.
Mezzanine Financing Somewhere
between equity and debt. Mezzanine
capital is that piece of the capital structure
that has senior debt (or a first mortgage)
above it (up to about 50 or 60 percent of
value) and equity below it (about 15 to 30
percent). Usually it's has a LTV ratio of 70
to 85 percent. There is both equity and
debt mezzanine financing, and it can be
done at the asset level, entity or company
level, or it could be unrated tranches of
CMBS. Returns are generally in the mid-
to high-teens. Cycle considerations are
very key (if values drop, the mezzanine
position can be wiped out), as is real estate
due diligence.
Mezzanine Space An intermediary floor,
usually in a portion of a high bay industrial
warehouse, constructed to provide
additional office space or storage space
above an office space.
Mil Rate Used by local taxing authorities
to express the rate of local property tax
assessment in mils (1/10 of 1 cent) per
dollar of assessed value. The mil rate may
be thought of as dollars of tax per one
thousand dollars of assessed valuation.
Minimal Rental A fixed rental in a lease
which contains some formula for a possibly
higher rental, such as a percentage lease,
overrides, etc.
Modern Portfolio Theory (MPT) An
approach to quantifying risk and return in
a portfolio of assets. It emphasizes the
portfolio rather than individual assets, and
in particular, how assets perform (or affect
risk) in relation to each other. Developed in
1959 by Harry Markowitz, MPT is the
foundation for present-day principles of
investment diversification. Based on the
assumption that, when assets' returns do
not move in lock step with one another,
investors can benefit from diversification.
MPT exploits this phenomenon in
rigorous fashion. Technically, MPT refers
to a set of mathematical models and
techniques that are used to construct
efficient portfolios. A portfolio is "efficient"
when it offers the highest expected future
return for a selected level of risk, or
equivalently the lowest risk for a given
return. For particular sets of assets, there
are multiple efficient portfolios. The
efficient portfolio an investor chooses
depends on the investor's willingness to
increase portfolio risk (volatility) in
exchange for a higher expected return.
Constraints can be used to enforce
guidelines and policies. Example:
constraints could be imposed so that, at
most, 20% of the portfolio could be
allocated to any one geographic region or
asset class.
Modified Accrual Accounting method
commonly used in real estate. Modified
Accrual accounting recognizes income
when received (as opposed to when due)
and expenses when incurred (as opposed to
when paid).
Modified Duration A measure of the
sensitivity of a bond’s price to changes in
yield.
Mom and Pop A smaller, non-credit
independent retail tenant often found in a
neighborhood shopping center.
Month-to-Month Tenant A tenant who
occupies real property with the consent of
the owner under a written or non-written
agreement whereby the tenancy may be
-46-
terminated by either party upon one
month’s advance notice to the other. See:
Tenant at Sufferance; Tenant at Will.
Mortgage A document used to secure the
performance of a debt obligation whereby
real property is pledged as security for that
debt. See: Mortgagee; Mortgagor; Deed of
Trust.
Mortgage-Backed Security An interest
in a pools of mortgages which are
purchased from lending institutions and
packaged for resale to investors. The
Federal National Mortgage Association
(Fannie Mae) and the Government
National Mortgage Association (Ginnie
Mae) are among the major packagers of
these products.
Mortgage Balance Amount The current
or projected outstanding principal balance
of a mortgage at a given point in time,
excluding any accrued interest.
Mortgage Banker A company providing
mortgage financing with its own funds
rather than simply bringing together
lender and borrower, as does a mortgage
broker. Although the mortgage banker
uses its own funds, these funds are
generally borrowed and the financing is
either short term or, if long term, the
mortgages are sold to investors (many
times insurance companies) within a short
time.
Mortgage Broker One who, for a fee,
brings together a borrower and lender, and
handles the necessary applications for the
borrower to obtain a loan against real
property by giving a mortgage or deed of
trust as security. Also called a loan broker.
Mortgage Constant The ratio of an
amortizing mortgage payment to the
outstanding mortgage balance.
Mortgage Discount In valuing a whose leased areas are separated by
property encumbered by non-prepayable demising walls.
mortgage debt bearing a rate of interest
higher than that available in the current
market, a Mortgage Discount adjustment
is made by the appraiser to recognize the
present value of the outstanding mortgage
debt. This is a negative adjustment equal
to the difference between the existing
mortgage principal balance and the present
value of all remaining future debt
payments discounted to present value at
the current market rate of debt. See:
Mortgage Premium.

Mortgage Premium In valuing a

property encumbered by mortgage debt
bearing a rate of interest lower than that
available in the current market, a
Mortgage Premium adjustment is made by
the appraiser to recognize the present
value of the outstanding mortgage debt.
This is a positive adjustment equal to the
difference between the existing mortgage
principal balance and the present value all
remaining future debt payments
discounted to present value at the current
market rate of debt. See: Mortgage
Discount.

Mortgage, Subordinate See: Junior Debt.

Mortgagee The lender pursuant to a

mortgage document.

Mortgagor The borrower pursuant to a

mortgage document.

Multi-Family Residential Rental

properties containing more than four
residential units. Characteristically, the
units have common walls, entrances and
amenities. The most common forms of
multi-family residential property are
apartment buildings, apartment complexes,
and townhouse developments.

Multi-Tenant Building Any building

which is leased to two or more tenants
-47-
 Negative Amortization The accrual
-N- feature found in numerous participating
debt structures, allowing an investor to
NACORE The National Association of
pay, for an initial period of time, an interest
Corporate Real Estate Executives, a trade
rate below the contract rate stated in loan
association of real estate professionals who
documents. Such a feature usually
manage the real estate assets of
addresses the inability of a property to
corporations, retailers, and other
generate sufficient income to pay debt
commercial users.
service at the contract interest rate and
assumes that increases in a property's
NAIOP National Association of Industrial
income stream over the near term will be
and Office Parks, a trade association of
sufficient to cover higher debt service
companies and individuals engaged in the
payments, including amounts needed to
development and management of planned
cover interest on additional principal
suburban business parks.
derived from the accrual feature.
Named Perils Specified conditions of
Negative Cash Flow Used to describe the
exposure to the risk of insurable loss as
situation where cash income to a property
generally reflected in the "damage and
is insufficient to cover current operating
destruction" clauses of real estate contract.
expenses, debt service, and cash needs for
critical capital replacements.
NAREIM National Association of Real
Estate Investment Managers, a trade
Negative Leverage Negative leverage
association of organizations involved in the
occurs when the current return on equity is
management of real estate for institutional
diminished by the employment of debt.
investors.
Net After Tax Cash Flow NBTCF: Net
NAREIT National Association of Real
Before Tax Cash Flow (minus) taxable
Estate Investment Trusts, a trade
income (times) tax rate tax income (equals)
association representing publicly traded
Net Operating Income (minus) interest
and privately placed real estate investment
expense (minus) owner's deposit.
trusts (REITs).
Net Asset Value Current real estate value
NCREIF National Council of Real Estate
or equity, net of debt. In common practice,
Investment Fiduciaries. An association of
current real estate value is considered to be
real estate professionals who serve on
the most recent appraised value, or if prior
working committees, sponsor research
to the initial appraisal following
articles, seminars and symposiums, and
acquisition, the asset's acquisition cost
produce the NCREIF Property Index.
adjusted for capital expenditures and
additional contributions or distributions.
NCREIF Property Index The index
reports quarterly and annual returns
Net Asset Value (NAV) Per Share
consisting of income and appreciation
Current value of a REIT's assets, including
components. The index is based on data
its real estate, less debt, divided by shares
collected from the voting members of
outstanding. The value of an individual
NCREIF. Specific property-type indices
asset or portfolio of real estate properties
include apartment, office, retail,
net of leveraging or joint venture interests.
R&D/Office and Warehouse.

-48-
Net Capital The net capital balance of an
investment account is the capital balance
after all possible deductions, where offsets
and allowances have been made from the
gross amount and the balance has been
brought to its lowest possible term.
Net Cash Flow For a specified accounting
period, total income less all operating
expenses, debt service, ground lease
payments, and capital expenditures.
Net Effective Rent Effective Rent less
any base year or other expense stop . Net
Effective Rent is the effective rent less
those operating expenses borne by the
landlord, it represents the economic return
on the real estate asset. See: Effective
Rent.
Net Fair Market Value (Net FMV) Also
called Portfolio Equity Value. Net FMV is
the gross fair market value less all debt on
the property and any adjustments to value
attributed to the interests of other joint
venture partners in the asset.
Net Investment The original investment
in an asset plus capital additions and
tenant improvements, less added debt.
Net Leased l) As an expression of the
number of units in a property or portfolio,
"Net Leased" equals the number of units
actually leased less the number of units
subject to notices to vacate, i.e., the inverse
of "Available". 2) A property which is
subject to a lease whereby the tenant pays
all of the taxes, insurance and operating
expenses is said to be a net leased property.
Net Operating Income (NOI) Effective
gross income less all operating expenses,
but before debt service and capital
expenditures.
Net Operating Income, Stabilized The
net operating income produced by a
property at its stabilized occupancy,
-49-
market rates, and ordinary operating
expenses.
Net Present Value (NPV) The sum of
the total present value of incremental
future cash flows plus the present value of
estimated proceeds from sale (i.e., the net
present value of the "terminal value"). Cash
flows and assumed terminal values are
discounted by an assumed interest rate to
arrive at the net present value of the
investment. Whenever the net present
value is greater than zero, an investment
opportunity generally is considered to have
investment merit. Net present value
usually is employed to evaluate the relative
merits of two or more investment
alternatives.
Net Real Estate Investment Value The
market value of all real estate less
property-level debt.
Net Rentable Area The area
measurement of a building or tenant suite
upon which rent is calculated. Although
there is a BOMA standard in common use
which has been published by the American
National Standards Institute (ANSI), the
method of net rentable area calculation
varies widely from city to city in the
United States and may even vary
depending upon the practices of the
property developer or owner.
Net Returns Returns to investors net of
fees to advisors or managers.
Net Sales Proceeds Proceeds from the
sale of an asset less brokerage
commissions, closing costs, and marketing
expenses.
Net Usable Area The actual number of
square feet contained within a tenant’s
demised space. Compare with rentable
area which includes an allocated portion of
common area space not within the usable
area of the tenant demise.
Nominal Return The rate of return
expressed in nominal dollars unadjusted
for inflation, fees or risk. See: Real Rate of
Return.
Nonconforming Use A property which
does not conform to the zoning of the area.
Usually, the property was built in
conformity and then the zoning was
changed.
Non-Competitive Provision A provision
sometimes found in retail leases
prohibiting a tenant from operating an
identical or competing business within a
certain radius of the property. The
provision is intended to prevent a tenant
from siphoning off sales to another location
which otherwise would be counted in the
calculation of percentage rent paid to the
landlord.
Non-Discretionary Account A mix of
investment properties or investment
monies combined in a common fund. The
fund trustee generally has no authority to
buy or sell any assets of the fund without
formal approval of the investor(s).
Non-Discretionary Funds Funds
allocated to an investment manager that
require the investor's approval on each
transaction.
Non-Disturbance Provision The
provision in a lease which gives the tenant
the right to occupy the space undisturbed
regardless of change of ownership of the
property, whether voluntary or by
foreclosure, provided that the tenant fulfills
its obligations under the lease. Also
known as Quiet Enjoyment.
-50-
Non-Investment Grade CMBS Securities
rated BB or B. Also referred to as "high
yield" CMBS.
Non-Load-Bearing Partition Any wall
or partition which does not support the
structure of the building. Such partitions
are relatively easy to remove to
accommodate specific tenant layout
requirements.
Non-Performing Loan A loan that is
presently unable to meet its contractual
principal and interest payments.
Non-Qualified Plan A pension plan
which does not qualify under IRS
regulations for the benefits available to
qualified plans. Contributions by the
company to a non-qualified plan are not
deductible by the employer unless reported
as part of the plan participant’s income.
Non-Recourse Debt A loan that, in the
event of a default by the borrower, limits
the lender's remedies to a foreclosure of the
mortgage, realization on its assignment of
leases and rents, and acquisition of the real
estate. Thus, the lender waives any
personal liability by the borrower. Most
commercial real estate in the United States
is financed long term by non-recourse debt.
Most real estate in other parts of the world
is financed with full or partial recourse to
the borrower.
Non-Recourse Loan A secured loan
wherein the lender may look only to the
value of the security and not to the
borrower.
Notice Information which may be
required to be given by the parties to a
contract to one another in accordance with
property of its type (economic a specific
procedure in order obsolescence), to
enforce or perform the terms of the
contract.
Notice of Completion A notice, recorded
to show that a construction job is finished.
The length of time in which mechanic’s
liens may be filed depends upon when and
if a notice of completion is recorded.

Notice of Non-Responsibility A form of

notice which is recorded at the local
registry of deeds and posted at the
property, giving contractors retained by a
tenant notice that they must look to the
tenant for satisfaction of any sums due
under contract and may not seek to recover
by placing a lien against the landlord’s
property.

Notice to Quit A notice delivered to a

tenant under the terms of a lease
demanding that the tenant vacant the
leased premises and return their possession
to the landlord.

Number of Spaces The number of

parking spaces at a property, expressed as
the Number of Spaces in Garage, being
those spaces under cover, and the Number
of Spaces on Site, being the number of
spaces in outdoor parking areas. See:
Parking Ratio.

-51-
 render the property unfinancable because a
-O- lender could not be assured of rent
payments being made to service the debt.
Obsolescence An appraisal concept of the
See: Self–Help 2) The right of a lender to
decline in value of a property due to
use other assets of borrower under the
outmoded design or condition (functional
control of a lender to satisfy a borrowers
obsolescence) or external changes such as
obligation.
surrounding land use patterns or market
demand for a property of its type
One Hour Wall A fire resistant wall; one
(economic obsolescence).
which will hold back a fire for a minimum
of one hour.
Occupancy The act of a tenant taking
possession of a space and commencing to
Open-End Fund A commingled fund that
use or having the right to use that space.
does not have a finite-life and that
continually (usually at the end of each
Occupancy Rate In market analysis, the
calendar quarter) accepts new investor
total occupied area in a market divided by
capital and continually consummates new
the total supply of both occupied and
property investments. Individual
vacant space in that market, expressed as a
properties typically are sold from time to
percent. (i.e., the 100% less vacancy rate).
time by managers of open-end funds.
Typically, investors in open-end funds may
Occupied Possessed and occupied by a
liquidate their units over a certain
tenant. Not all leased space is considered
prescribed time frame, assuming the fund
occupied. For example, space unoccupied
sponsor is able to meet liquidation requests
and being offered for sub-lease.
through cash flow or property sales.
Offer and Acceptance The two
Open Listing A listing arrangement
components of a valid contract; when an
under which any broker may bring a
offer is made, it creates the power of
tenant or buyer to the owner of a property
acceptance in the party to whom it is made.
and be compensated directly if a lease or
Acceptance then creates a contract.
sale results. See: Exclusive Listing.
Office/Showroom Flex office/warehouse
Opportunistic A phrase generally used by
structure usually featuring a high-finish
advisors and managers to describe
warehouse component for use for the retail
investments in under-performing and/or
showcasing of a new product or business
under-managed assets, based on the
system to a mass client audience, such as,
expectation of near-term increases in cash
GE's Factory of the Future in Erie,
flow and value. Total return objectives for
Pennsylvania or A&P’s Supermarket of the
opportunistic strategies tend to be in the
Future in Montvale, New Jersey,
15% to 20% range, or higher.
Offset 1) The act of a tenant deducting
Operating Expenses Non-capital
from rent an amount equal to costs
expenditures that are necessary or required
incurred by the tenant in performing an
to maintain real property and to continue
obligation of the landlord under the lease,
the production of income.
most commercial leases unequivocally
prohibit the tenant from having a right to
Opinion of Title An opinion by a person
offset. Such right would relinquish control
competent in examining titles, usually a
of the property to the tenant and could
title attorney, as to the status of title to a
-52-
property. It should be noted that an and returns generated by the real estate
opinion of title is not a guarantee of good asset.
and marketable title but merely a
statement that the title examiner has used
diligence in examining the title. See: Title
Insurance.

Organization Costs Costs such as legal

fees, corporate filing fees and registration
fees incurred to set up a commingled fund,
joint venture or advisory account.

Original Loan Amount The original

funding amount of a loan on a property.

Origination Fee A fee charged by a

mortgage lender for negotiating and
making a loan.

Option An agreement to keep open, over a

set period, an offer to sell, purchase or lease
a property under certain circumstances or
conditions.

Originator A company that sources and

underwrites commercial and/or
multifamily mortgage loans.

Overage Rent Another term for

percentage rent used in retail leases.

Overallotment A practice in which

underwriters offer and sell more shares
than they have agreed to buy from the
issuer.

Ownership Position The economic

position of an owner of real estate as
determined by the business structure of the
ownership entity. An investor may be a
traditional lender in a traditional loan, an
equity-oriented lender in a convertible debt
instrument, a joint-venture partner, a
leveraged equity owner, an unleveraged
equity owner, a shareholder or owner of a
unit participation, or some combination
thereof. The ownership position and entity
structure determines the allocation of risks

-53-
 would be the release of one building within
a complex so that it can be sold.
-P-
Participating Broker A broker other that
Pad 1) An individual parcel of land,
the listing broker who procures a tenant or
subdivided and prepared for building,
buyer and shares in the commission paid to
which is usually sold to an individual user
the listing broker.
within a development complex. 2) A site
for a freestanding building or the building
Participating Debt Debt which, in
itself, such as a fast-food restaurant or
addition to a fixed or floating rate coupon,
bank within a shopping center complex.
pays to the lender a percentage of net
operating income in exchange for a below
Pari passu By an equal progress:
market coupon rate.
equably; ratably; without preference. Used
especially of equity participants who, in the
Participating Loan A loan structured as
disbursement of funds, are entitled to
participating debt.
receive out of the same fund without any
precedence over each other.
Participating Mortgage A mortgage,
typically with an interest rate below
Parking Ratio At commercial properties,
current rates, which carries instead the
the number of parking spaces per thousand
lender right to a meaningful participation,
square feet of rentable area; at residential
usually 50% or more, in both net cash flow
properties, the number of parking spaces
and gain on sale or refinancing. Some
per residential unit.
hybrid mortgages have an option to
convert to equity investments in the future;
Partial Sales The sale of an interest in
others retain their participation in the
real estate that is less than the whole
operating performance and sale or
property. This may include, for example, a
refinancing value of the property.
sale of easement rights, parcel of land or
Participating mortgages are frequently
retail pad, or a single building of a multi-
written at loan-to-value ratios much higher
building investment. Preferential Returns,
than conventional mortgage loans.
Participations, Conversion Rights
Additional rights and benefits given to a
Partition A wall separating two spaces.
mortgage lender.
Partitions, as compared with bearing walls,
carry only their own weight and do not
Participant The employee covered by an
support other parts of the building
employee benefits plan also referred to as
structure. Hence, partitions usually can be
the "beneficiary" of the plan.
readily relocated as may be required to
accommodate tenant needs.
Partial Reconveyance The reconveyance
of a portion of a property held under a deed
Partner's Equity The value of a joint-
of trust, usually occurring upon partial
venture partner's interest in the
retirement of the debt.
investment entity.
Partial Release The release of some of the
Party-In-Interest Under ERISA, any
assets securing a mortgage loan, usually
person or entity who holds an economic
occurring upon the partial retirement of
interest in a plan asset or the income
the loan. An example of a partial release
therefrom. Party in Interest regulations
place severe penalties on any person or
-54-
entity which fails to remove itself from a
conflict of interest situation.
Party Wall A shared demising wall
between ownerships usually with the lot
line or ownership line lying upon the
centerline of the wall.
Pass-Through Certificate The vehicle
or form of ownership with regard to a
pass-through security (CMBS). Payments
of principal and interest from the
underlying pool of mortgages are passed
through to the holders of the certificates.
Analogous to a share of stock with regard
to equity ownership in a corporation or
REIT.
Passive Investor An investor, such as a
limited partner, who does not take part in
the day-to-day decision making or
management of the investment assets.
Passive Loss Rules A provision of the
1986 tax act which, among other things,
severely restricted the ability of passive
real estate investors to deduct losses from
property operations against other earned
income.
Pass-through An expense incurred by the
landlord which is reimbursed by the
tenant, usually as additional rent.
Patent Defect A defect plainly visible or
as would be discovered by the exercise of
ordinary care. A patent defect as a legal
description, is one that cannot be corrected
on its face and a new description must be
used. See: Latent Defect.
Payout Period The period, expressed in
months, over which a loan investment is
amortized.
Pension Consultant An entity providing
institutional investors, through contractual
agreement, services such as definition of
investment goals and objectives, assistance
in selecting commingled funds and
-55-
investment managers and advisors, and
monitoring of portfolio performance.
Consultants are usually compensated on a
flat retainer fee basis.
Pension Liability The total amount of
capital required to fund vested pension
fund benefits. Remains a financial liability
of the sponsor until actually paid out to the
participant.
Pension Plan A plan or program
maintained by an employer and/or
employee organization that provides
retirement income to employees; or results
in a deferral of income by employees for
periods generally extending to the end of
employment or beyond.
Percent Leased The ratio of the net
rentable area leased, net of any tenants in
default and a vacancy loss adjustment,
divided by the total net rentable area of a
property.
Percent Occupied The ratio of the net
rentable area leased, net of any tenants in
default and any tenants who have vacated
their space although their leases remain in
full force and effect and a vacancy loss
adjustment, divided by the total net
rentable area of a property.
Performance The quarterly changes in
fund or account values attributable to
investment income, realized or unrealized
appreciation, and the total gross return to
the investors both before and after
investment management fees. Formulas for
calculating performance information are
varied, and differ from manager to
manager, from consultant to consultant,
and from plan sponsor to plan sponsor,
making comparisons difficult.
Performance Option A right, obtained
for consideration, to purchase or lease a
property upon specified terms within a
specified time. If the right is not exercised,
the option hold is not subject to liability
for damages, and if exercised, the grantor
of the option must perform. See: option.
Percentage Rent Rent, computed as a
percentage of retail sales above a
breakpoint, paid by tenants under typical
retail leases. Usually paid instead of, or in
addition to, a specified minimum base rent.
Percentage Rent Recapture The right of
a tenant under certain retail leases to
reduce the amount of percentage rent paid
to the landlord by some predetermined
amount, frequently equal to the costs
incurred by the tenant in fixturizing and
setting up its space. Once the tenant has
recaptured this amount, percentage rent is
paid to the landlord.
Percolation (Perk) Test The test to
determine the capability of the soil to
absorb liquid, both for construction and
septic systems.
Perimeter Wall 1) The exterior wall of a
structure. 2) A fence or wall built along the
boundary lines of a parcel of land or
complex.
Permanent Financing A long-term loan
used to finance the purchase and operation
of a completed structure; as distinguished
from temporary loans, e.g., land and
construction loans.
Permanent Loan A long-term loan,
typically of five to ten years, financing real
estate following the completion of
construction and lease-up. See:
Construction Loan.
Phantom Income Under the Internal
Revenue Code, income that is deemed to
have been received upon the forgiveness of
debt. This income, although not resulting
in the receipt of cash, is taxable to the
borrower and requires a cash payment of
taxes to the IRS.
-56-
Personal Property Any property which is
not Real Property; things which are
tangible and moveable; also called
personalty or chattel.
Personalty Personal Property as
compared with Realty, the latter being
Real Property.
Plan Administrator A person specifically
designated by a pension plan to be
responsible for the administration of the
plan.
Plan Assets The investment assets held
by a pension plan and subject to the
restrictions and limitations of ERISA. In
the case of an investment managed by a
Registered Investment Advisor under the
Investment Advisors Act of 1940, such as a
Commingled Fund, the plan's assets are
deemed to include its investment in the
fund but not the underlying real estate
assets of the fund.
Plan Sponsor The entity which
establishes, contributes to, and is
responsible for administration of pension
and other employee benefit plans. The
term is often used loosely to mean the
pension plan’s staff, trustees, or board
members.
Planned Unit Development (PUD) A
real estate project, usually of a certain
minimum land area and consisting of more
than one structure, which is designed in
accord with a site plan specifically
approved by the local public regulatory
body under the provisions of a local zoning
ordinance. The Planned Unit
Development concept provides a
mechanism for a developer to create a
comprehensive project plan which might
not otherwise fit within the limits defined
elsewhere in the zoning ordinances.
Plat (Plat Map) A map dividing a parcel
of land into lots, as in a subdivision.
Point l) A loan fee of one percent of the
loan principal amount. 2) One percent.
See: Basis Point.
Porter Wage Rate Published minimum
standard weekly rates of pay, with and
without fringe benefits, for building service
employees, including handy persons,
starters, guards, et cetera, established
annually by local labor relations boards by
different classes of commercial buildings.
Portfolio A collection of assets held by a
single investor or group of investors. See:
Diversification.
Portfolio Funded Investment The
current balance of a fund's capital
contributed to its investments or to a
single investment.
Portfolio Management The management
of a portfolio of assets involving the
selection and management of the individual
assets to control the interaction of their
aggregate risks and returns for the
overa11 benefit of the investors in the
portfolio.
Positive Leverage A situation that exists
when the simple return on a real estate
investment is higher with the use of debt
financing than it would be on a free and
clear basis. This occurs when the loan
constant is lower than the capitalization
rate (or lower than the project's estimated
IRR).
Poststressed Concrete Placing cables, in
metal casing, in wet concrete. When the
concrete dries, the cables are stretched, and
the casing filled with grout. When the
grout dries, the cables are released,
transmitting the stress to the concrete.
-57-
Potential Build-Out The maximum
building area that could be built on a piece
of land based upon what is allowed under
the Floor Area Ratio specified in the local
zoning ordinance and the physical
constraints of the site.
Preferential Returns, Participations,
Conversion Rights Additional rights and
benefits given to a mortgage lender.
Preferred Equity A senior equity
position that is entitled to a stated amount
or percentage of cash flow, after all bond
holders, mortgage holders and other debt
holders entitlements have been paid, but
before junior or subordinated equity
interest holders are entitled to be paid.
Preferred Return A type of return paid
to equity investors in real estate. Investors
entitled to a preferred return have a first
call on cash flow from the property and
receive their return on a preferential or
priority basis.
Preferred Shares Stocks that have prior
claim on distributions (and/or assets in the
event of dissolution) up to a definite
amount before the shares of beneficial
interest are entitled to anything. As a form
of ownership, preferred shares fall behind
senior, subordinated and secured debt
holders in dissolution, as well as all other
creditors.
Preference Arrangement An assessment
system in which farmland is taxed at the
value of its productive capacity rather than
its market value; the land must meet
certain conditions to get reduced taxes,
e.g., it must be in agricultural use for a
specified number of years; also called
preference assessment.
Preliminary Title Report A title report,
usually prepared by a Title Insurance
Company, which is made before Title
Insurance is issued. This report provides
information on issues affecting current
title, as compared with an Abstract of
Title, which summarizes all instruments
affecting title over the history of the
property from its original grant.
Premises The specific property, such as
the property which is deeded or leased.
Prepaid Expense In accrual accounting, a
balance sheet entry representing the value
of an operating expense which has been
prepaid for a period extending beyond the
current accounting period. An example of
a prepaid expense is a two-year insurance
policy, the premium for which is paid at the
inception of the policy. At acquisition of a
property, the seller is usually credited for
prepaid expenses which transfer to the
buyer and is charged for prepaid income,
such as rent paid for a period extending
beyond the date of the transaction.
Prepayment Provision The provision in a
loan document which governs the
borrowers right to prepay the outstanding
balance of the loan prior to its maturity. A
loan is said to be "closed" to prepayment
during those portions of the loan term
when prepayment is prohibited, and "open"
to prepayment during those periods when
prepayment is allowed, whether or not
such prepayment requires the borrower to
pay an additional fee or penalty for the
privilege of discharging the loan prior to
its maturity. See: Yield Maintenance.
Prescripted Easement The granting of
an easement by a court, based on the
presumption that a written easement was
given (although none existed), after a
period of open and continuous use of land.
Present Value The value of a stream of
payments, discounted at some discount
rate, to their cumulative value as of a
certain date. See: Net Present Value.
-58-
Prestressed Concrete Stretching wire or
other reinforcement in wet concrete, then
releasing if after the concrete has dried,
causing the tension (stress) toward
compaction of the concrete.
PREA The Pension Real Estate
Association, a national association of
pension plan sponsors having an interest in
real estate investments.
Prime Tenant A tenant who is the single
largest occupant of a property, usually an
office building. If the property is named
for the tenant (e.g., "The John Tenant
Company Building”), the tenant is
sometimes called a "monument tenant."
See: Anchor Tenant.
Principal 1) The main party to a
transaction acting for its own benefit
rather than as an agent for another. 2) The
balance of a loan upon which interest is
assessed.
Private Offering Under the securities act,
an investment offered to a limited number
of investors which is not required to be
registered as a Public Offering with the
securities and Exchange commission.
Sometimes called a "Private Placement."
Private Placement A sale of a security in
a manner that is exempt from the
registration rules and requirements of the
Securities and Exchange Commission. An
example would be a REIT directly placing
an issue of stock with a pension fund.
Private REIT An infinite life or finite life
real estate investment company structured
as a real estate investment trust. Shares are
placed and held privately rather than sold
and traded publicly.
Pro Forma Literally, "according to form,"
this term is given to those hypothetical
financial analyses such as balance sheets or
cash flows which are used to state
investment alternatives in comparable
form to one another or to present an
investment in a form familiar to the
prospective investor.
Procuring Cause An essential concept in
the law of real estate brokerage,
recognizing that a broker must have
brought about a transaction through his or
her efforts in order to be entitled to
commission payment. As this may be open
to dispute, brokers generally prefer listing
agreements granting an exclusive right to
sell which specify that the listing broker
will be paid commission regardless of how
the transaction comes about.
Progress Payment A partial payment
made to a contractor as construction
progresses.
Prohibited Transaction ERISA defines
the following transactions as prohibited:
The sale, exchange or leasing of any
property between a pension plan and a
party-in-interest; a loan or other extension
of credit between a pension plan and party-
in-interest; the furnishing of goods or
services between a pension plan and party-
in-interest; the transfer of plan assets to a
party-in-interest or use of plan assets by a
party-in-interest; the acquisition of
employer real property in excess of limits
set by ERISA, which identifies property
qualified to be so acquired within the
context of acquisitions by a plan from a
plan sponsor or its affiliate.
Prohibited Transaction Exemption
(PTE) An exemption issued by the
Department of Labor to allow the
consummation of a "prohibited
transaction," as defined by ERISA. There
are several statutory exemptions available,
as well as certain private letter rulings that
may be granted upon individual application
to the DOL.
-59-
Promissory Note An unconditional
written promise of one person or entity to
pay a specified sum of money to another at
a future date. Promissory notes may be
assigned to another party or entity who
becomes a "holder in course" and who then
has the right to collect any sums due under
the promissory note. See: Uniform
Commercial Code.
Property Lifecycle Stage The
description of a property's age and
operating cycle within the various
categories: pre-development,
developmental, leasing, operating
(typically equating to full completion of
construction and at least 60% occupancy)
and redevelopment (or rehab).
Property Management The day-to-day
management, often on-site, of the
operations of a property including rent
collection, tenant services, care of the
physical plant, security and adherence to
regulatory requirements. Some property
management arrangements also include
lease renewal negotiations and even the
leasing and marketing of the property to
outside prospects. See: Management
Agreement.
Property Tax A tax assessed against real
property, usually by a county or municipal
taxing authority but sometimes also by
special purpose districts and agencies, in
proportion to the assessed value of the
property. See: Ad Valorem Tax; Mil Rate;
Tax Lien.
Prorate To allocate in proportion to some
base. Rent payments may be prorated for a
partial month of a lease; tenants may pay
their prorated share of common area
expenses.
Prudent Man Rule The standard to
which a fiduciary is held accountable
under ERISA. A fiduciary is required to
“act with the care, skill, prudence, and
diligence under the circumstances then
prevailing that a prudent man, acting in a
like capacity and familiar with such
matters, would use in the conduct of an
enterprise of a like character and with like
aims.”
Preferred Rate of Return The rate of
return paid to a class of investor or partner
under an investment agreement, usually
calculated as a fixed percentage, which is to
be paid on a priority call basis prior to the
payment other classes of investors or
partners. See: Preferred Return.
Preferred Return Similar to Preferred
Rate of Return but specified as a dollar
amount rather than a percentage.
Punch List A list of specific items to be
done by a contractor following substantial
completion to fully complete the work
under the contract.
Purchase and Sale Agreement An
agreement between a buyer and seller of
real property, setting forth the price and
terms of the sale.
Purchase Money Mortgage A mortgage
or note secured by a deed of trust held by
the seller of a property and secured by the
property which is accepted by the seller as
partial payment of the purchase price.

Procurement Costs The expenditures

which are made to obtain a tenant, not
including concessions. Typical
procurement costs may include
commissions, tenant improvements,
moving allowances, the cost of satisfying a
tenant's remaining lease obligations at the
property from which he or she is
relocating, and marketing expenses.

Proportionate Share The allocated share

of operating expenses and common area
expenses or expense increases to be
charged to a specific tenant, usually based
upon the area of the tenant's demise
divided by the total area in the building or
complex. In properties where some
tenants provide certain services for
themselves, such as air conditioning and
refrigeration maintenance by a
supermarket within a shopping center,
other tenants may then have differing
proportionate shares of individual expense
items depending upon whether those items
are provided to all tenants or only to a
subset of tenants.

Public Offering Securities that have been

registered at the Securities and Exchange
Commission.

-60-
-Q-
Qualified Plan A pension plan that is
qualified as tax-exempt by the IRS. The
plan must meet numerous statutory and
regulatory requirements including the
placement of its assets in trust for the sole
benefit of the employees covered by the
plan. Contributions by an employer are
deductible for purposes of the company's
corporate income taxes and are also non-
taxable to the employees at the time they
are made. See: Non-qualified plan.

Qualified Professional Asset Manager

(QPAM) A bank, insurance company or
investment manager meeting specific
requirements of the Department of Labor.
Pension plans may transact certain types of
otherwise prohibited business with parties-
in-interest as long as the transaction is
managed by a QPAM.

Quiet Enjoyment See: Non-disturbance.

Quiet Title Action A legal action

whereby a court of competent jurisdiction
rules on any claims against or uncertainty
in title to a real estate asset thus
conclusively resolving such title problems
and providing a firm basis for title going
forward.

Quitclaim Deed A form of deed whereby

the grantor relinquishes any claim which
the grantor may hold in the property.
Typically, the grantor makes no
representations or warranties about claims
which may be held by others. See:
Warranty Deed.

-61-

-R-
Radius Restriction See: Non-competitive
Provision.
Rate of Return The income and realized
or unrealized gain on an investment
expressed as a percentage of the
investment. Rate of return may be further
segregated by source or character into
specific return measurements such as:
ƒ Income Return: That portion of
total return produced by income
from operations.
ƒ Appreciation Return: That portion
of total return produced by a
change in the value of the asset
during the holding period. This
change may consist of appreciation
or depreciation, whether realized or
unrealized.
ƒ Total Return: The total of income
return plus appreciation return.
ƒ Real Return: A rate of return
adjusted for inflation and calculated
in “real dollars” rather than
“nominal dollars.”
ƒ Cash-on-Cash Return: Cash income
as a percent of cash invested.
ƒ Internal Rate of Return: A
calculated implicit rate of return
equal to the discount rate at which
the present value of the future cash
flows of an investment equals the
cost of the investment.
Rate of Return Calculation Commonly
used to refer to all rate of return
calculations made to compute various
measures of return on equity.
Rating Agencies Independent firms
engaged to rate the creditworthiness of
securities for the benefit of investors. The
-62-
major rating agencies are Duff & Phelps
Credit Rating Co., Fitch's Investors
Services Inc., Standard & Poor's Ratings
Group and Moody's Investors Services,
Inc.
Raw Land Undeveloped land without
zoning and planning approvals, subdivision
into useful parcels, infrastructure, or other
improvements.
Real Estate Fundamentals The factors
driving the value of real property (i.e., the
supply, demand and pricing for land
and/or developed space in a given
geographic or economic region or market).
Real Estate Investment Trust (REIT) A
corporation of trust formed for the
ownership of real estate which is owned in
share units by investors. These shares may
be traded either publicly, if registered with
the SEC, or privately. A typical REIT has
a board of directors and may have
employees or may hire an investment
manager to conduct its business. Unlike
an ordinary corporation, a REIT is not
taxed on the income which it distributes to
its shareholders.
Real Estate Mortgage Investment
Conduit (REMIC) A product of the Tax
Reform Act of 1986, REMICs are intended
to hold a pool of mortgages for the
exclusive purpose of issuing multiple
classes of mortgage-backed securities in a
way that avoids a corporate double tax.
Most CMBS transactions are structured as
REMICs.
Real Estate Operating company (REOC)
Defined under the Internal Revenue Code,
as an entity having at least fifty percent of
its assets invested in real estate, engaged in
the ownership and operation of real estate
in the ordinary course of its business, and
participating in the active management of
that real estate.
Real Estate Owned (REO) Real estate
owned by a savings institution as a result
of default by borrowers and subsequent
foreclosure by the institution.
Realized Gain or Loss Gain or loss
resulting from the disposition of an
investment, calculated by subtracting the
investments cost basis from the net sales
proceeds.
Real Property Includes the interests,
benefits and rights inherent in the
ownership of physical real estate including
land, and generally whatever is erected
upon or affixed to land but usually does not
include personal property (movable items).
Reconciliation Billing Under those
leases where the landlord may bill the
tenant for its prorata share of operating
expenses, expense increases and/or
common area expenses, and where the
monthly amount of that billing may be
based on a budget estimate for the current
year, a reconciliation billing is prepared
shortly after the end of the accounting year
to refund any surplus paid or collect any
amount due representing the difference
between the budgeted amounts billed to
the tenant and the actual amounts
expended.
Reconciliation of Value The process
through which the three approaches to
value used by an appraiser are reconciled
with each other to arrive at a single
opinion of value. See: Cost Approach;
Income Approach; Market Approach.
Recourse Note A secured note under
which the lender may look to other assets
of the borrower to make up any deficiency
which might occur in the event of a
foreclosure wherein the value of the
secured asset were to be less than the
outstanding principal balance of the note.
See: Non-recourse.
-63-
Recoverable Expense Reflects an
additional rental charge to tenants of real
property for a portion or all of the
increases (periodic expenditures necessary
to maintain real property and to continue
the production of the effective gross
income) or the exercise of a specific
escalation formula as provided in existing
leases.
Red Herring The preliminary prospectus
for an initial public offering. Before the
registration statement becomes effective,
underwriters may use the preliminary
prospectus to market the offering. The
preliminary prospectus, however, must
bear a legend printed in red ink stating
that the offering has been filed but is not
yet effective.
Redemption Provision A provision
allowing a commingled fund investor,
usually after consultation with or approval
by the fund's investment manager, to sell
units of the fund to the other participants
in the fund or to another investor.
Refinancing Obtaining a new loan on a
property, usually with new terms.
Sometimes used to describe the
replacement of a construction loan with
permanent financing.
Registration Statement Forms filed with
the Securities and Exchange Commission
(or the appropriate state regulatory
agency) by a company in connection with a
proposed offering of new securities or the
listing of outstanding securities on a
national exchange.
Rental Growth Rate The expected trend
in Market Rental Rates over the period of
analysis, expressed as an annual percentage
increase.
Reimbursable Expenses Property
operating expenses which may be passed
through to the tenants.

Reinvestment of Capital Alternative
investments available to an investor.
Frequently, the yield on an investment
which has been written down to a reduced
value may be higher than the yield on
reinvestment alternatives available to the
investor were the written down asset to be
sold.
Renewal Probability The average
percentage of tenants in a building that are
expected to renew at Market Rental Rates
upon the expiration of their current lease.
This percentage and the corresponding
non-renewal percentage are used to
estimate leasing-related costs and
downtime.
Repurchase Agreement (RP or Repo)
1) Two simultaneous transactions: the
purchase of securities (the collateral) by an
investor from a bank or dealer and the
commitment by the bank or dealer to
repurchase the securities at the same price
at an agreed future date and rate; 2) a
method of borrowing by using a security as
collateral for a loan. The interest rate and
term of the loan are agreed upon in
advance, and upon repayment of the loan
the security is returned to the owner. The
borrower retains any possession of the
security and continues to receive any
interest payments during the term of the
agreement; 3) in reference to Federal
Reserve actions; a means of temporarily
adding to reserves. The Fed buys
securities under a contract to sell them
back at an agreed price and date.
(Generally, repos mature within one to
seven days, the maximum term being
fifteen days.) Dealers may repurchase prior
to the maturity of the repo if they wish.
Request For Proposal (RFP) A formal
request, issued by a plan sponsor or its
consultant, inviting investment managers
to submit information on the firm,
investment strategy, historical investment
-64-
performance, current investment
opportunities, investment management
fees, other pension fund client
relationships, etc. A committee comprised
of board members, staff members and their
consultant (if one is retained) then reviews
the information submitted by the
investment advisory firms. Those firms
who qualify under criteria established by
the committee are then requested to make
a formal presentation to the Board of
Trustees and senior staff members. The
finalist firm(s) is then chosen at the
completion of this process and the contract
negotiation begins.
Related Party An entity, partially or fully
controlling, controlled by or under
common control of another.
Relocation Provision The provision
found in some office and retail leases
allowing the landlord to relocate the
tenant to alternate space in the property in
order to accommodate the expansion needs
of another tenant.
Rental Concessions See: Concessions.
Rental Terms Generally, the size and
location of the leased space, the rental rate,
and the length of term. May also include
any economic or non-economic provisions
of value to the tenant such as expansion
options, rights to signage, above standard
improvements, etc.
Rentable Space The area of a property or
suite, measured in square feet, upon which
rent can be collected. See: Net Rentable
Area; Usable Area.
Renewal Option An option contained in a
lease granting the tenant the right to
extend the term of the lease at a pre-agreed
rental rate, either specified or to be
determined by formula. Typically, the
tenant must exercise options by giving
written notice to the landlord during some
specified period prior to the expiration of
the current term of the lease.
Rent Payment made by a tenant to a
landlord in consideration of the right to
use and occupy a specified unit of real
property. Because the collection of rent due
under a lease is treated differently in law
than sums due under a promissory note,
most leases carefully define all payments to
be made by the tenant to the landlord as
"rent" or "additional rent." Such additional
rent payments may include pass-throughs,
escalations, reimbursable expenses, late
charges and interest on past due amounts.
Replacement Cost The cost to construct
a building or improvement of equal
economic utility, including both the cost of
construction and related costs such as
architectural fees, permits and interest
during construction. Contrast with
Reproduction Cost.
Replacement Reserve A funded or non-
funded account for anticipated future
capital expenditures such as roof
replacement.
Reproduction Cost The cost to construct
an identical building or improvement.
Reproduction Cost, rather than
Replacement Cost, is used in valuing
historic buildings for insurance purposes
where costly and unique elements of design
may be more significant than the economic
utility of the structure. For example, the
Reproduction Cost of the White House
would be much higher than the cost of
constructing a modern residential building
of equivalent size and utility on the site.
Reserves Reserves may be funded or non-
funded accounts set up at either the
property or portfolio level in anticipation
of periodic or non-periodic capital
expenditures or cash needs.
-65-
Resolution Trust Corporation (RTC)
The RTC was established by Congress in
1989 to contain, manage and sell failed
savings institutions and recover taxpayer
funds through the management and sale of
the institutions' assets.
Retail That class of property designed to
be occupied primarily by mercantile
tenants engaged in retail trade to the
public. Because a portion of retail rent is
usually based upon gross sales, and because
retail sales track both general economic
trends and inflation, the return of
investment in retail properties is thought
to provide a mechanism participation in
growth and protection from inflation.
Re-tenanting The process of changing the
mix of tenants within a building or project,
generally either to reposition the property
in a specific market, to upgrade the average
operational or credit quality of the tenant,
or to improve the economic performance of
the property.
Return of Capital See: Return of
Investment.
Return of Investment The recovery of
invested capital. Frequently joint ventures
are structured to provide for available cash
to be used for the return of investment to
partners who have made cash contributions
to the partnership prior to any other
distributions being made. For taxable
investors, return of investment is a non-
taxable event.
Return on Investment The profit or
return paid on invested capital, usually
expressed as a percentage and calculated
by dividing earnings before interest, taxes
and dividend by total invested capital.
Return Net of Fees In a managed
portfolio, whether separate account or
commingled fund, the return net of fees is
the return on investment reduced by all
management and investment fees.
Return Since Inception Average annual
return computed for the period from
acquisition, or in the case of a development
project, from substantial completion and
initial tenant move-in at a property.
Reversion Value The terminal value used
by an appraiser in a discounted cash flow
analysis.
Right of First Offer A form of option
agreement by a landlord to offer a property
for sale or for lease to a specific purchaser
or tenant prior to offering that property on
the open market. The purchaser or tenant
is motivated to make its highest offer in the
hope of the landlord's acceptance rather
than risk the property being exposed to
competing offers. From the landlord's
perspective, the right of first offer is
preferable to the right of first refusal
because if the purchaser or tenant does not
make an acceptable offer, the landlord is
then free to offer the property on the
market without limitation or restriction.
Right of First Refusal A form of option
agreement by a landlord to allow a tenant
or purchaser the opportunity to match or
exceed an offer to lease or purchase a
property received on the open market. The
right of first refusal seriously encumbers a
property because it must be disclosed in
offering a property on the market and
potential tenants and purchasers are
reluctant to go to the effort to negotiate a
transaction with the landlord only to have
to wait while the holder of the right of first
refusal is given the opportunity to match
the negotiated transaction terms and to
snatch the deal away.
Right of Redemption The common law
right which allows the owner of a
foreclosed property to redeem the property
-66-
from the foreclosing lender upon
satisfaction of the debt.
Risk-Adjusted Rate of Return The risk-
adjusted rate of return is defined as the
expected rate of return of a given asset,
less the expected return for T-bills, divided
by the expected standard deviation of the
returns for the assets. Used to identify
investment alternatives that can be
expected to deliver a positive premium
over the so-called "risk free" investment,
after taking into consideration the
expected volatility (or risk).
Risk Management A systematic approach
to identifying and separating insurable
risks from non-insurable risks, evaluating
the availability and costs of purchasing
third-party insurance, the art of developing
preventative measures to reduce the
probability of occurrence and contingency
plans to minimize the negative
consequences of specific events that
otherwise could severely damage
investment performance.
Road Show A tour by a going-public
company's executives where they travel to
various cities to meet with underwriters
and analysts and make presentations
regarding their company and IPO. The
road show takes place during the
marketing period before the registration
statement becomes effective.
Rollover A term used to describe the
normal expiration of leases at a property
where tenants may or may not elect to
renew or extend and where the landlord
may be faced with periods of vacancy of
individual spaces and the procurement
costs for obtaining new tenants for those
spaces. See: Downtime.
Rollover Risk The risk that a tenant's
lease will not be renewed.
R-Squared Measures the degree to which
an investment’s returns rise and fall at the
same time as the benchmark it is being
compared with. An R-square of O means
an investment’s returns have no
correlation with the benchmark’s
fluctuations. A 100 reading indicates that
they are perfectly matched.

Run with the Land Used to describe any

covenant, restriction or other provision
which transfers to the new ownership upon
transfer of title to a piece of real property.

-67-
 and oversees the issuance and exchange of
public securities.
-S-
Security Interest That interest in real or
Sales Comparable See: Comparable.
personal property created by a lease,
mortgage or promissory note, under which
Sales Comparable Approach See: Market
a landlord or lender may take ownership to
Approach.
such personal or real property in the event
that the tenant or borrower fails to fulfill
Sale-Leaseback See: Leaseback.
its obligations under the lease, mortgage
or promissory note.
Sales per Square Foot The measurement
of retail sales of a shopping center tenant
Securitization The process of converting
upon which the calculation of percentage
an illiquid asset, such as a mortgage loan,
rent is based.
into a tradable form, such as mortgage-
backed securities.
Schematics Conceptual drawings and
diagrams prepared by an architect at the
See-Through An office building, usually a
beginning of the design process to
suburban office building, which has never
organize the various uses and functional
been leased since completion. The lack of
areas to be included in a building.
interior partitions and tenant
improvements allow one to see through the
Seasoned Having an operating history;
building windows and out the opposite
stabilized.
side.
Secondary Financing (Second
Self-Administered REIT A REIT in
Mortgage) A loan on real property
which the management are employees of
secured by a lien junior to an existing first
the company or an entity having
mortgage loan. In the case of default, the
essentially the same economic ownership
second mortgage lender may foreclose but,
as the company.
in doing so, must only take title subject to
the first's mortgage loan. The second loan
Self-help 1) A provision in a lease which
holder must perform on the first mortgage
grants the tenant the right to perform an
obligation in order to keep the first
obligation of the landlord if the landlord
mortgagee from foreclosing and wiping
fails to perform that obligation as agreed
out the secondary lender's interest.
and for the tenant to deduct the cost of
performing that obligation from the rent
Secondary Offering Also known as a
due. This right of self-help is frowned upon
"follow-on," a secondary offering is a stock
by landlords and may render a property
offering by an existing public company (the
unfinancable because a lender cannot be
issue "follows" the initial offering).
assured of an uninterrupted income stream
from the lease. See: offset. 2) In a few
Secondary Market A market for the re-
states, landlords are granted the right of
sale of a security or interest in a property
self-help under state law to enter into and
or portfolio.
recapture a space occupied by a defaulting
tenant who has failed to pay rent. These
Securities and Exchange Commission
states are the exception and, even there,
(SEC) The federal agency that supervises
landlord self-help must be used with

-68-
extreme caution to avoid significant claims
for damages from the defaulting tenant.
Self-Managed REIT A REIT whose
employees are responsible for performing
property management functions.
Semi-Net Rent Rent pursuant to a lease
where the tenant pays most, but not all, of
the expenses related to operation of the
leased property. For example, it is not
uncommon for a "net lease" on an
industrial property to require the tenant to
pay all taxes, insurance, operating
expenses, maintenance and repairs with the
exception of roof repair and replacement.
Senior Class(es) With regard to securities,
describes the classes with the highest
priority to receive the payments from the
underlying mortgage loans.
Separate Account 1) See: Separately
Managed Account. 2) See: Insurance
Company Separate Account.
Separately Managed Account A non-
commingled account under the control of
an investment manager for the purpose of
acquiring, owning, managing and
disposing of assets for the benefit of a
single client. See: Individually managed
account.
Servicer An organization that acts on
behalf of the trustee for the benefit of
security holders. The servicer typically
collects debt service from the borrowers
and deposits them into a distribution
account administered by a trustee. The
servicer also provides regular delinquency
and collateral reports to the trustee for
distribution to bondholders.
Social Investing Investments driven in
whole or in part by social or political (non
real estate) objectives. Certain public
pension plans, for example, have placed
preferred investment emphasis on
-69-
investments located within the state in
which the plan is located. Certain Taft-
Hartley (labor union) plans also have
placed preferred investment emphasis on
investments that create union employment,
such as new development projects
constructed exclusively or predominantly
by union contractors. Under ERISA, social
investing is economically justified only if
proper real estate fundamentals are
considered first.
Special Servicer A firm that is employed
to negotiate/work-out mortgages that are
either delinquent or in default.
Shallow Market A market where there
are a limited number of tenants or buyers
such that a comparable transaction may
not be indicative that similar price and
terms could be obtained in a similar
subsequent transaction.
Shared Appreciation Mortgage (SAM)
A financing arrangement under which the
lender offers a lower interest rate in return
for a percentage of the appreciation (profit)
when the property is sold.
Sharpe Ratio Provides a return-per-unit-
of-risk measure. Calculate by taking an
investment’s return minus the “risk-free”
rate, divided by the investment’s standard
deviation.
Shopping Center An integrated complex
of retail shops designed to accommodate
certain shopping and service needs of a
specific market area. Shopping centers are
generally classed:
ƒ Regional Centers: These are the
largest shopping centers, providing
a complete range of shopping
including most retail uses found in
a central business district. Regional
centers are typified by an enclosed
mall area and several anchor
tenants, usually department stores.

ƒ Community Centers: Midsized
shopping centers featuring
convenience goods including the
retail uses commonly found in
neighborhood shopping centers but
also larger retail stores such as
"super store" retail food stores of
approximately 35,000 square feet or
more, sporting goods, home
improvements, fabric stores, etc.
ƒ Neighborhood Centers: The
smallest shopping center type,
serving a limited trade area of
about two miles radius, and
containing retailers who provide
goods and services used daily such
as dry cleaners, hair salons, branch
banks, card shops, and usually
anchored by a conventional
supermarket or discount drug store.
ƒ Discount Center: A shopping center
that specialized in discount and off
price retail uses.
ƒ Power Center: A shopping center
anchored by "big box" credit
tenants oriented toward volume
sales and with only a limited
number of smaller shop spaces.
ƒ Category Killers: Usually large
freestanding stores operated by
national retailer specializing in a
particular merchandise class and
designed to dominate that
merchandise class in the trade area.
The classic example of a category
killer is Toys ‘R’ Us.
Short Sale The sale of securities with the
expectation of their repurchase at lower
prices. They are not in the seller’s
possession, but are usually borrowed for
delivery to the buyer.
-70-
Single-Family Residential Buildings
designed to house one family; with the
exception of condominiums and
townhouses, the individual units are
detached from one another and are each
sited on its own lot. Units may share
neighborhood amenities and are frequently
developed under a master plan.
Single-Tenant Building A building with
one tenant occupying all of the available
space. Some single-tenant buildings are
designed for later conversion to multi-
tenant use; others may require extensive
modification, if such conversion is possible
at all.
Single Use Property A building or
complex designed for a specific single use,
such as a car wash or a chemical refinery.
Typically, single use buildings are owner
occupied and not investment real estate.
Soft Market A market in which land
values and rental rates are experiencing no
growth or are in decline due to over supply
or lack of demand. Rising vacancy rates
and increased rental concessions are
characteristics of soft markets.
Space Plan A plan prepared by an
architect or space planner showing how a
tenants’ specific uses, typically office uses,
can fit into a building. The space plan will
determine the furniture layout and location
of partitions and other tenant
improvements. The space plan is
commonly paid for by the landlord as part
of the process of marketing a space to a
particular tenant.
Specific Performance A legal action
brought to compel a party to carry out the
terms of a contract. A person or entity
damaged by failure of a contracting party
may sue for specific performance, for
monetary damages, or for both.
Specifications The detailed written
requirements prepared to define the
materials, processes and procedures to be
used in the construction of a building.
Together with the working drawings and
contract forms, they comprise the
construction documents.
Speculative Development Development
that is undertaken without any significant
pre-leasing. The end product should be of
generic design, easily subdividable, highly
adaptable and able to serve the needs of a
wide range of tenants in the targeted
market.
Spread The difference between the bid
and the offered price or yield in the
quotation of a security.
Stabilized Capitalization Rate The
market capitalization rate which would be
applied to a property with stabilized
income and occupancy, and, by extension,
the projected capitalization rate to be
applied to a project in a future stabilized
year to determine its projected market
value.
Stabilized Net Operating Income The
net operating income produced by a
property at its stabilized occupancy,
market rates, and ordinary operating
expenses. See: Net Operating Income.
Stabilized Occupancy The optimum
range of long-term occupancy that an
income producing real estate project is
expected to achieve under competent
management after exposure for leasing in
the open market for a reasonable period of
time at terms and conditions comparable to
competitive offerings.
Standard Deviation A statistical measure
of the range an investment’s return
fluctuates over time compared with its
average return. If two investments have
the same average return, investors should
-71-
prefer the one with the lower standard
deviation. To calculate it, average the
investments monthly returns over the past
36 months or longer. Then subtract this
average from each of the individual
monthly return figures. This result shows
how the investment had deviated from its
average return. Then, square each figure
and sum the results. The square root of
this final number is the standard deviation.
Statute of Frauds State laws, requiring
certain contracts to be in writing. All
contracts for the sale of real property must
be in writing. Leases (personal property)
for more than one year must be in writing.
Straight Lining Under generally accepted
accounting principles, property owners are
required to account for a tenant’s rent
payments over the life of the lease on a
straight line average basis, even though
cash received may differ from year to year.
Many analysts look instead at actual cash
received.
Strong Market A market in which land
values and rental rates are experiencing
substantial growth due to high demand or
constricted supply. Low vacancy rates and
the absence of concessions are
characteristics of strong markets.
Sub-market Analysis A micro-market
analysis of the specific buildings with
which a property competes.
Subordinate Loan See: Junior Debt.
Subordinated Classes With regard to
securities, describes those classes with the
lowest priority to receive payments from
the underlying mortgage loans.
Subordinated Ground Lease A ground
lease which is subordinate in position to a
mortgage loan or loans on the
improvements. Under a subordinated
ground lease, the owner of the land must
cure any loan default by the owner of the
improvements because the lender has
foreclosure rights on both the secured
improvements and the underlying land.
Contrast this with an unsubordinated
ground lease, much less common, where
the foreclosing lender would have to satisfy
the ground lease payments or risk loss of
the improvements through the termination
of the ground lease by the land owner.

Subordination The process of sharing the

risk of credit losses disproportionately
among two or more classes or "tranches"
of securities.

Subordinated Class(es) With regard to

securities, describes those classes with the
lowest priority to receive payments from
the underlying mortgage loans.

Subrogation The legal process, after

paying a loss, by which an insurance
company seeks to recover the amount of
the loss from another whom is legally
liable for it.

Survey The process of measuring land

area and determining boundaries,
Professional engineers and registered land
surveyors abide by standards which have
been accepted by the Title Insurance
Companies for the issuance of title
insurance covering the boundaries and
improvements shown by a survey done to
such standards. A survey complying with
these standards is called an "ALTA
survey," the initials being those of the
American Land Title Association.

-72-
 Tenant Partition 1) A wall dividing
tenant premises within a building; a
-T- demising wall. 2) A legal agreement to
divide property that is held in joint
Taft-Hartley Plan A pension plan for a
tenancy.
labor union. Taft-Hartley plans are not
regulated by ERISA.
Tenant at Sufferance A tenant who holds
over at the end of its lease without the
Take-Out Financing The permanent
landlords consent or approval.
financing used to retire a construction
loan.
Tenant at Will A tenant who is in
possession of real estate with the consent
Tax Lien A lien of a municipality or
of the owner but for an unspecified or
county which attaches to real property for
uncertain term. Such a tenancy may be
non-payment of property taxes.
terminated by either landlord or tenant at
will. See: Month-to-Month Tenant.
Tenant Allowance A dollar allowance for
capital expenditures to be made by the
Tenant Work Tenant Improvements
landlord to customize a space for a
made for or by the tenant at the tenant's
particular tenant. See: Building Standard
expense.
Improvements.
Term The lifetime of a loan.
Tenant Base A description of a property's
tenant profiles setting forth typical tenant
Terminal Value A lump sum benefit that
financial condition, rent paying ability,
an investor receives or expects to receive at
type of business, etc. Used to judge the
the termination or liquidation of an
overall quality of the property and the
investment; also called a reversionary
likelihood of its rental income stream
benefit.
continuing and, hopefully, increasing.
Termination Penalty A fee that is paid
Tenant Extra Work See: Above Standard
by a tenant to the landlord, or by a
Tenant Improvements.
landlord to the tenant in some instances,
for early cancellation of a lease. See: Kick
Tenant Improvements Constructed
Out.
improvements to the base building, such as
interior partitions, drop ceilings and other
Third Party Debt Either a permanent
finishes which prepare a space of occupancy
loan or a construction loan, issued through
and use by a tenant.
a third party lender, unrelated to buyer or
seller, and usually an insurance company
Tenant Mix A phrase used to describe the
or bank.
quality of a property's income stream. In
multi-tenanted properties, institutional
Tilt-Up Construction A method of
investors typically prefer a mixture of
concrete construction, commonly used for
national credit tenants, regional credit
industrial buildings, consisting of exterior
tenants, and local non-credit tenants,
walls which are cast flat upon the building
which promotes stable income and creates
floor slab and then raised upright into
a reasonable expectation for increases in
place by a crane.
income.

-73-
Time is of the Essence An expression
used in leases and contracts to indicate that
timely performance of the requirements of
the contract is an essential component of
the contract. If either party to the contract
fails to punctually perform, that party is in
default of the contract.
Time-Weighted Average Annual Rate
of Return The constant annual return
over a series of years that would compound
to the same return as compounding the
actual annual returns for each year in the
series.
Title The right to ownership of real
property. See: Bundle of Rights.
Title Insurance An indemnity contract
under which a title insurance company
agrees to compensate an owner of real
property for any losses which that owner
may incur due to defects in the title to that
property, including liens and
encumbrances. Unlike other forms of
insurance which protect the policy holder
from some future occurrence, title
insurance protects from something which
has already happened but has not been
discovered in the examination of the title.
Title Insurance Company A company
which issues a policy of insurance which
indemnifies the holder of any loss sustained
by reasons of defects in the title.
Title Report A report prepared by a title
examiner stating the current condition of
title to a property and listing and recorded
encumbrances such as mortgages or liens.
See: Preliminary Title Report.
Title Search An examination of the public
records to determine what defects, if any,
may exist in the title to specific real
property.
Total Market Cap The total market
value of a REIT’s or company’s
-74-
outstanding common stock and
indebtedness.
Tranche A class of securities. CMBS
offerings are generally divided into rated
and unrated classes, or tranches, according
to seniority and risk. Higher rated tranches
allow for internal credit enhancements,
while lower rated classes offer higher
yields to investors.
Transfer Tax Tax stamps required to be
affixed to a deed by state or local law.
Following the repeal of the federal revenue
tax on conveyances of real estate in 1967,
most states passed laws requiring tax
stamps to be affixed to deeds and
conveyances.
Triple Net Lease A lease which requires
the tenant to pay all taxes, insurance,
operating expenses, repairs and
replacements. In reality, few leases provide
for totally triple-net rent, although many
industrial and retail leases come close. The
term "triple" refers to 1) operating
expenses; 2) insurance premiums; and; 3)
property taxes. It is not uncommon to hear
the term "net lease" used interchangeably
with "triple net lease." While there are
double net leases where the tenant pays
operating expenses and insurance, and
single net leases where the tenant pays
only operating expenses, these are less
common and the terms are less frequently
heard in everyday real estate parlance.
Turnover The ratio of renewal to
vacating tenants that is expected at a
property. See: Downtime; Rollover.
Trustee An individual or other entity who
holds title to plan assets and is responsible
for managing the assets or for selecting
and retaining an investment manager or
consultant for such management.
Turn-key Used to describe an agreement
where a landlord or developer agrees to
deliver the premises or project ready in
every respect for the specified needs of the
user.

Two Hour Door A door with a

resistance to fire, so that it would take a
fire two hours to burn through it.

Two Hour Wall A wall with a resistance

to fire, so that it would take a fire two
hours to burn through it.

-75-
 contracts are those which are impossible to
perform, those which are required to be in
-U- writing but are not and those for which the
statute of limitations has expired.
Underimprovement An improvement
which is deficient in size or quality in
Uniform Commercial Code (UCC) A
relation to the site on which is built.
body of law which attempts to make
standard throughout the country certain
Undeveloped Land Land with no added
commercial transactions such as
improvements, undivided, and without
conditional sales contracts, pledges and
zoning regulations which would permit
chattel mortgages secured by personal
higher use. Also known as Raw Land.
property. The UCC is most relevant to
real property transactions in the area of
Unimproved Land Land which may have
furniture, fixtures and equipment including
been taken through the subdivision and
such matters as a landlord's lien rights in
regulatory process but without physical
the trade fixtures and inventory of a
improvements such as street, drainage and
tenant.
utilities.
Unrated Classes Typically the most
Unit Cost In relation to real estate, a cost
subordinated class or classes of certificates
per square foot. Also called unit price.
in a CMBS issue. If part of a rated CMBS,
it is implied that, if rated or ratable, the
Unit of Measurement Dimensional or
unrated class would be assigned a lower
quantitative units used to measure different
rating than the lowest rated class in the
property types. For example: net rentable
issue.
area in square feet for office buildings;
gross leasable area in square feet for retail
Unrealized Gain or Loss Gain or loss
centers; number of units for apartments;
resulting from changes in market value as
number of rooms for hotels; and area in
determined by appraisal or other indication
acres for land. These units are used in the
of value other than sale of the asset.
computation of value per unit of
Calculated by subtracting the investment's
measurement and should always be clearly
book basis from market value.
specified.
Unrelated Business Taxable Income
Underwriter A company, usually an
(UBTI) Income derived by a tax exempt
investment banking firm, that guarantees
entity from the conduct of any business not
or participates in a guarantee that an entire
related to the function of the entity.
issue of stocks or bonds will be purchased.
Certain types of income from real estate
The lead underwriter takes the company
can be UBTI, in which case a tax-exempt
through the registration process and is in
entity must file tax returns and pay taxes
charge of marketing securities. The lead
on that portion of its total income. An
underwriter will usually from a syndicate
example of UBTI is rent derived from a
of underwriters that participate in
sale leaseback which is taxable because the
distributing the herring in the issue.
tax code views the transaction as a
financing rather than an equity purchase.
Unenforceable Contract A contract
which may have been valid when made but
Unlawful Detainer Action A legal action
which cannot be proved or enforced by a
brought to evict a tenant who is in default
court. Examples of unenforceable
of the terms of its lease.
-76-

Umbrella Partnership (UP) REIT A
REIT structure in which the REIT does
not own a direct interest in properties, but
rather in an "umbrella" partnership that
owns interests in properties. For this
reason, this umbrella partnership is
generally referred to as the operating
partnership in an UPREIT structure to
own interests in joint ventures in addition
to properties. The UPREIT has been the
structure of choice in most REIT initial
public offerings over the past several years,
owing to the tax deferral benefits this
structure offers to the company's
principals.
The UPREIT structure allows the
principals, who are transferring their
properties from private ownership via an
IPO, to maintain their historical cost basis
by transferring the properties to the
operating partnership rather than directly
to the REIT. The REIT, in turn, is the
general partner of, and owns a majority
interest in, the operating partnership. If
the properties were transferred directly to
the REIT, it would result in a stepped-up
cost basis in the properties for the new
public entity and trigger a taxable event
for the transferring principals. By
transferring the properties to the operating
partnership in exchange for operating
partnership (OP) units, the principal's
historical cost basis is maintained.
The OP units are exchangeable on a one-
for-one basis into REIT common shares,
and over time, the principals can convert
OP units to REIT common shares
(triggering a taxable event), giving the
principals the option to incur their tax
liability in smaller increments. The main
argument against the UPREIT structure is
in regard to the potential for conflicts of
interest between the principals and REIT
shareholders. In the case in which it may
be in the best interest of the REIT to sell a
property (a taxable event), the principals
-77-
may have a disincentive to sell based on the
tax liability that this would trigger for
them. UPREIT's generally try to avoid
such potential conflicts by having only
disinterested, independent board members
vote on such transactions.
ULI Urban Land Institute, an independent
non-profit research and educational
organization made up of developers,
investors, urban planners and other real
estate professionals devoted to the purpose
of improving the quality and standards of
land use and development.
Usable Area The actual number of square
feet contained within a tenant's demised
space. Compare with rentable area which
includes an allocated portion of common
area space not within the usable area of the
tenant demise.
Use Clause The clause in a lease which
limits the uses which the tenant may
conduct in the premises. Retail use clauses
are particularly important because they
control the tenant mix in a shopping
center.
Useful Life The period of time over which
an asset or component of an asset is
expected to remain economically
productive.
Usury The act of charging a rate of
interest in excess of that permitted by law.
Utilities Services such as sewer, water,
telephone, electricity, cable television
delivered to a site or to a tenant premises.

-V-
Vacancy The absence or lack of tenants.
Usually expressed as a percentage, square
footage, or where negative cash flow
occurs, days to foreclosure.
change in a security’s price with respect to
a change in redemption yield. The yield on
a long-term security will tend to be more
sensitive to changes in the market yields
than that of a like security with a short
remaining maturity.

Vacancy Allowance An allowance, usually

a percentage of gross income, which is
deducted from gross income to arrive at
effective gross income. The vacancy
allowance is used to adjust pro forma and
appraisal analyses of properties for an
assumed background level of vacancy
which normally occurs.

Vacancy Factor See: Vacancy Allowance.

Value The price at which products,

commodities of services exchange. See:
Fair Market Value.

Valuation Methodologies The three

approaches to value used in conducting a
real estate appraisal: the cost approach; the
income approach; and the market approach.
In a full narrative appraisal, the appraiser
uses all three approaches and then
reconciles the results to come to a single
opinion of value.

Variable Rate A loan interest rate that

varies over the term of the loan; the rate is
usually tied to a predetermined index. Also
called adjustable rate.

Variance 1) The difference between actual

operating results to budget expectations or
to prior years results. 2) Permission
granted to an owner by a zoning board or
board of appeals to depart from some
requirement of the zoning ordinance.

Volatility 1) The variability (often, the

standard deviation) of movements in a
security’s price; 2) the sensitivity of one
variable to changes in another, e.g., the

-78-
 Weighted Average Equity The
-W- denominator of the fraction used to
calculate investment level income,
Waiting Period Time between the initial
appreciation, and total returns on a
filing of a registration statement and its
quarterly basis, consisting of the net assets
effective date.
at the beginning of the period adjusted for
weighted contributions and distributions.
Warehouse An industrial building used
for the storage and distribution of
Workout The process by which a
merchandise.
borrower attempts to negotiate with a
lender to restructure the borrower's debt
Warranty Deed A form of deed wherein
rather than go through foreclosure
the grantor agrees to warrant and defend
proceedings.
the title to the property from any claim
that may arise to the grantors right to
Without Recourse The provision in a
have conveyed clear title.
loan document which limits the lender's
security to the value of the asset and
Waste A legal concept of the destruction
prohibits the lender from seeking a
of the economic value of a property. Most
deficiency from the borrower in the event
leases contain specific prohibition against
that a foreclosed asset's value is less than
the tenant committing waste to the
the outstanding loan amount at the time of
property. While the intent of this
the foreclosure. See: Non-recourse debt.
provision in older leases may have been to
prohibit abnormal wear and tear on the
Work Letter A specification of tenant
property, some courts have held that the
improvements to be paid for by the
waste provision of a lease can extend to
landlord, usually incorporated as an exhibit
claims for environmental damage caused
to an office lease. There is usually a
by a tenant's use.
building standard work letter, which
provides for certain qualities of
Wattage Allowance The total amount of
improvements such as linear feet of wall
power consuming equipment such as
per thousand square feet of office space.
lighting, computers, copiers, etc., which a
See: Building Standard Allowance.
tenant may connect to the building
electrical system without incurring
Working Drawings The final stage of
additional charges under some full service
architectural design, being a set of
leases.
drawings sufficiently detailed for a
contractor to construct the improvements.
Wear and Tear The gradual physical
See: Conceptual drawings; Design
deterioration of a property resulting from
Development.
normal use, the passage of time, weather,
etc.
Work Out 1) To resolve the financial or
leasing problems of a property which is not
Weighted Average Coupon The
performing satisfactorily. Frequently,
weighted average of the gross interest
working out a property may involve the
rates of the mortgages underlying the pool
restructuring of debt. 2) A property with
as of the pool issue date, with the balance
problems in need of being worked out or in
of each mortgage used as the weighting
the process of being worked out.
factor.

-79-
Wrap-around Loan A form of secondary
financing wherein a junior loan is created
by a second lender to refinance an existing
loan by lending an amount over and above
the existing first mortgage. The borrower
then makes payments on the junior "wrap
around" loan and the junior lender uses a
portion of those payments to continue to
make payments on the first mortgage loan.
Write-off The accounting procedure
used when an asset has been determined to
be uncollectible and is therefore charged
off as a loss.
Yield Spread The difference in yields
between, say, a commercial mortgage and a
benchmark value, typically U.S. Treasuries
of the same maturity.
Yield-To-Maturity The return of a
security earns if it is held to maturity.
This is a function of coupon interest,
reinvestment rate and accrual of discount
or amortization premiums.

-X-
Xeriscaping The use of drought-resistant
plant materials in the design of
landscaping to reduce the consumption of
water for irrigation.

-Y-
Yield The dollar amount of income
realized after deducting all expenses,
including the amortization of tenant
improvements and commissions. Yield is
expressed as a percentage of principal.

Yield Curve A diagram showing the

relationship between yields and maturities,
for a set of similar securities or interbank
deposits.

Yield Maintenance The specific language

in a loan document which references
amounts the borrower must pay to
extinguish the debt during time periods
where the loan is open for prepayment.
The calculation of yield maintenance fees
will vary by loan, but usually is tied to the
current loan rate for similar maturities of
some type of Treasury obligation. Yield
maintenance fees are a deduction from
market value in the calculation of equity
value.

-80-
-Z-
Zero Lot Line A zoning provision which
allows one or more walls of a building to
be built upon the lot line without setback.

Zoning The division of communities into

zones or districts according to present and
potential uses to which properties may be
put for the purpose of controlling and
directing the use of land, size of lots,
heights, bulk, type, and use of buildings,
the proportion of a lot that a building may
occupy and the density of development.
Zoning laws and regulations are enacted
by local governmental entities under
enabling legislation of the state and
constitute an exercise of police power by
the municipality.

Zoning Ordinance A local ordinance

which regulates land use, building
dimensions, set backs, density, parking
ratio and other design other criteria. See:
Building Code.

Zygocephalum In civil law, an inaccurate

measure of land. The area of land a yoke of
oxen could plow in one day.

-81-
 Addenda - Glossary of Technical &
Communication Terms
ATM (Asynchronous Transfer Mode)
An information transfer standard that is
one of a general class of packet
technologies used to transmit a mix of
voice, data and video over communications
networks.
Backbone The part of the
communications network that carries the
most traffic and from which information is
then distributed to spurs that branch out
from the main line.
Bandwidth The range of analog
frequencies or digital signals that can be
passed through a transmission medium,
such as fiber-optic cable. The greater the
bandwidth, the greater the information
carrying capacity. Measured in Hertz
(analog) or Bits Per Second (digital).
Bit A contraction of the term Binary
Digit. It is the basic unit in data
communications. Ones or zeros typically
represent bits.
ƒ Megabit – One million bits.
ƒ Gigabit – One billion bits.
ƒ Terabit – A thousand gigabits.
CLEC (Competitive Local Exchange
Carrier) A company that competes with
the local exchange carriers in the local
services market.
Conduit A pipe, usually made of metal,
ceramic or plastic, that protects buried
cables.
Dark Fiber Fiber-optic cable without any
of the electronic or optical equipment
necessary to use the fiber for transmission.
DWDM (Dense Wave Division
Multiplexing) High-speed version of
-82-
WDM, which is a means of increasing the
capacity of fiber-optic transmission
systems by dividing the information signal
into different streams of colored light. It
has the potential to increase the capacity of
each strand of fiber-optic cable many times
over.
Digital The use of a binary code to
represent information. In communications,
transmission/switching technologies use
discrete, distinct pulses (on/off) to transmit
this binary code. It has the benefit over
analog of being much clearer.
DS-3 DS (digital signal) is the standard
telecommunications industry designation
of a hierarchy of digital signal speeds used
to classify capacities of communication
lines and trunks. DS-3 has a bit rate of
approximately 45 megabits per second.
DSL (Digital Subscriber Line) A generic
name for a family of evolving digital
services to be provided by local telephone
companies to their local subscribers. Such
services go by different names and
acronyms – ADSL (Asymmetric Digital
Subscriber Line), HDSL (High Bit Rate
Digital Subscriber Line) and SDSL (Single
Pair Symmetrical Services). Such services
propose to give the subscriber up to eight
million bits per second one way,
downstream to the customer and
somewhat fewer bits per second upstream
to the phone company.
Fiber Miles The number of strands of
fiber-optic cable multiplied by the length of
the cable in miles (e.g., a one-mile cable
with 20 strands of fiber = 20 fiber miles).
Fiber Optics A technology in which light
is used to transport information from one
point to another. Fiber-optic cables are
thin filaments of glass through which light
beams are transmitted over long distances
carrying enormous amounts of data.
Modulating light on thin strands of glass
produces the major benefits of high
bandwidth, relatively low cost, low power
consumption, small space requirements,
and total insensitivity to electromagnetic
interference and high security.
ILEC (Incumbent Local Exchange
Carrier) A company historically providing
local telephone service. Most often refers
to one of the Regional Bell Operating
Companies (RBOCs).
Internet Protocol Commonly referred to
as IP, it is a form of packet technology that
routes information over networks based on
a system of unique addresses.
IP Telephony A new form of voice
communications that uses Internet
Protocol to send voice information over
networks. It is currently in its infancy as a
technology but has great potential as a
new form of packet technology.
ISP (Internet Service Provider) A multiple packets in a stream of packets
vendor who provides direct access to the
Internet.
IXC (Interexchange Carrier) Literally, a
company providing services that cross
local exchange boundaries. Refers to long
distance carriers.
Lit Fiber Fiber-activated or equipped
with the requisite electronic and optical
equipment to use the fiber for transmission.
Local Loop A term used to describe the
network of communication cables, wires, or
fiber optics that run between end-users and
carriers in a localized area. Most
commonly used in reference to intra-city
networks in major metropolitan areas.
Long Haul Term commonly used to
describe intercity networks.
Metered Telecommunications Service
Service provided by a communications
-83-
company where charges are assessed based
on usage. Unmetered service is where
charges are based on a flat, fixed rate
regardless of usage.
OC-3, OC-12, OC-48, and OC-192 OC
(Optical Carrier) is a measure of
transmission at the optical carrier level.
The number following the OC designation
is equal to the corresponding number of
DS-3s (e.g., OC-192 is equal to 192 DS-3s,
or 9,995 mbs).
Packet Switching Sending data in
packets through a network to some remote
location. The data to be sent is assembled
by the PAD (Packet
Assembler/Disassembler) into individual
packets of data, involving a process of
segmentation or protocol of the
transmitting device. Each packet has a
unique identification and each packet
carries its own destination address.
Thereby, each packet is independent, with
often traversing the network from
originating to destination packet switch by
different routes.
Photonics The technology that uses light
particles (photons) to carry information
over fiber-optic cable.
Photonic Signal The light pulse that is
conducted over a fiber-optic cable to
transmit information.
RBOC Regional Bell Operating Company.
Route Miles The number of miles
spanned by fiber-optic cable calculated
without including physically overlapping
segments of cable.
SONET (Synchronous Optical Network)
An electronics and network architecture
for variable bandwidth products that
enable transmission of voice, data and
video at very high speeds. SONET ring
architecture provides for virtually
instantaneous restoration of service in the
event of a fiber cut by automatically
rerouting traffic in the opposite direction
around the ring.

Tier One The top 15 cities in the United

States based on population.

-84-