Before we begin, let's define a few terms.

Have you ever toured a property or overheard a conversation about commercial real estate and
just wondered what the agent or those investors were talking about
Or have you opened a property marketing packet and struggled to understand what they were
actually marketing
If you're not a yes to either one of those scenarios, let me assure you of two things.
you're not crazy and you're not alone.
Everyone starts at the beginning and that's nothing to be intimidated by or ashamed of.
There's a lot to learn about commercial real estate, but if you start with the right foundation
knowledge of the words and lingo that the pros use, the rest of your education is going to be a lot
easier to take in.
I've compiled a short list of the most common commercial real estate terms in order to help you
navigate your way through your first deal.
The list we're about to cover is by no means exhaustive, but it'll definitely give you a great head
start.
I've also included a pdf glossary of terms for you to reference throughout the course.
Amortization The repayment of loan principal through equal payments of both principals and
interest over a designated period of time.
Cam or common area maintenance.
The Cam charge is an additional rent charged on top of the base rent and is mainly composed of
maintenance fees for work performed on the common areas of a property.
Cap rate or capitalization rate.
A cap rate is the ratio of the net operating income, the NOI to the property asset value.
If a property were listed at five hundred thousand dollars with an NOI of seventy-five thousand
dollars the cap rate would be fifteen percent
You just take seventy-five thousand divided by five hundred thousand to get point one five
multiplied by a hundred for percentage and there you go.
Capital gain taxable income derived from the sale of a capital asset is equal to the sales price
minus the cost of the sale.
Your adjusted basis suspended losses, excess cost recovery and recapture of straight-line cost
recovery cash flow.
The net cash received in any period taking into account net operating income, debt service
capital expenses, loan proceeds, sale revenues and any other sources and uses of cash.
Cash on cash return.
A return measure that is calculated as cash flow before taxes divided by your initial equity
investment.
Commercial real estate.
Any multifamily, residential, office, industrial or retail property that can be bought or sold in a
real estate market.
Common area areas of the site available to all tenants for use on a non-exclusive basis.
For example, hallways, parking lots, elevators, roofs.
Get the point.
Depreciation The loss of utility and value of a property over time.
Depreciation may be used as a tax write off.
It's one of the many tax benefits of commercial real estate for a designated number of years.
Demographics.
Characteristics of human populations as defined by population size, density of regions,
population growth rates, migration, vital statistics and their effect on socioeconomic conditions.
Due diligence.
The process of examining a property.
Related documents and procedures conducted by or for the potential lender or purchaser to
reduce risk.
Applying A consistent standard of inspection and investigation, one can determine if the actual
conditions do or do not reflect the information as presented.
Fixed costs.
Costs that do not change with the building's occupancy rate.
These include property taxes, building insurance in some forms of building maintenance FSG or
full-service gross.
In a full-service gross lease, the landlord is responsible for paying the taxes, maintenance,
insurance, and utilities for the premises out of the rent that they collect.
Ground lease.
A lease of the land only, typically for extended periods of time, so that a developer or tenant may
actually construct a building, landlord, a person, or business that leases land, buildings, or
residential space to a tenant.
LOI or letter of intent.
A document outlining one or more agreements between two or more parties before the
agreements are finalized by a contract and is typically not binding, though sometimes it can be n
and n or triple net expenses.
A lease structure in which the tenant or lessee is responsible for paying a portion or all of the
common area expenses related to real estate ownership.
That would include property taxes, insurance and maintenance of the premises, net operating
income, the potential rental income plus other income.
Less vacancy, credit losses and other operating expenses.
Pass throughs operating expenses for the premises that are passed on to the tenant by the
landlord, hence the name.
Very creative preferred return.
The minimum returns a limited partner investor must receive before the general partner can
earn a performance fee or a split of any of the profits ROI or return on investment.
The percentage return on each dollar invested, also known as yield rent concession.
A period of free rent given to the tenant by the lessor.
Typically, two to three months in the national market.
could be zero, could be one month, could be as long as a year.
Just depends on how the market is step up lease A lease in which the rental amount paid by the
lessee increases by a preset rate or a set dollar amount at predetermined intervals.
A step-up lease is a means for the lessor to hedge against inflation and future maintenance or
operational expenses.
For example, a ten percent rental increase in year five of a ten-year lease.
Square feet, the unit used to measure the floor area of a space.
For example, if a space was twenty feet wide and sixty feet deep, it would be twelve hundred
square feet.
simply twenty feet multiplied by sixty feet.
Sublease A lease in which the original tenant, the lessee sublets all or part of the leasehold
interest to another tenant, known as the subtenant, while still retaining A leasehold interest in
the property, also known as a sandwich lease.
Due to the sandwiching of the original s c between the lessor and the subtenant, the original s c
is still liable to pay the rent if the sublease.
if the sub, the original s c is still liable to pay the rent if the Subway C should default.
Tenant A tenant is a person or business that occupies land or property from the landlord.
Tenant Improvements.
The improvements made to a lease premises prior to or during a tenant's occupancy, which may
be paid for by either the landlord, the tenant, or both.
These may include adding or removing walls, fixtures, doors, etcetera.
TI a or tenant improvement allowance.
The amount a landlord is willing to give to the tenant, typically on a per square foot basis to
make improvements to the premises.
Zoning The designation of specific areas by a local planning authority within a given jurisdiction
for the purpose of legally defining land use or land use categories.
This designation will determine whether a property is commercial, residential or industrial and
can be very specific as to the property's use.
All right.
Now that we've got the boring part out of the way and we're on the same page with basic
terminology of the commercial real estate industry, let's talk briefly about why commercial real
estate is such a great investment and or career.