ASSET MANAGEMENT

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KEY TERMS

Tenant Improvement (TI) Allowance

Allowance provided by landlord to tenant in order to build out tenant’s suite. Generally expressed
on a per square foot basis.

Leasing Commissions (LCs)

Percentage of the base rent amount that is paid to leasing broker as compensation for assisting
landlord in finding a tenant to occupy a property.

Net Operating Income (NOI)

Operating revenue minus operating expenses, not including one-time capital expenses and other
non-recurring items.

Internal Rate of Return (IRR)

The discount rate at which the net present value (NPV) of all future cash flows is equal to zero.
Measures the annualized rate of return for an investment.

Equity Multiple
Cash distributed divided by equity invested. Measures how many times over an investor has made
their money.
Example: $200,000 total cash distributed throughout hold period / $100,000 equity investment =
2.0x equity multiple

Cash-on-Cash Return
Annual cash distributed as a percentage of total equity investment.
Example: $8,000 total cash distributed in first year of ownership / $100,000 equity investment =
8.0% cash-on-cash return

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 Pro Rata Share
The percentage of total leasable area a tenant occupied at a commercial property.
Example: Tenant leasable square footage (10,000 SF) / Total property square footage (100,000) =
10% pro rata share

Present Value (PV)

The current value of a future stream of cash flows based on a specified discount rate.

Discount Rate
Interest rate used to discount future cash flows. Expressed as the required rate of return in order
for an investment to be worth pursuing.

Triple Net (NNN)

Expense reimbursement structure in which tenant reimburses landlord for its pro rata share of all
operating expenses associated with the property.

Full-Service Gross (FSG)

Expense reimbursement structure in which tenant does not reimburse landlord for its pro rata
share of operating expenses associated with the property.

Modified Gross (MG)

Expense reimbursement structure in which tenant reimburses landlord for its pro rata share of a
portion of operating expenses associated with the property.

Base Year Stop (BYS)

Expense reimbursement structure in which tenant reimburses landlord for its pro rata share of
operating expenses over a set base year stop amount.

Percentage Rent
Landlord participation in tenant sales over a certain breakpoint amount.
Example: Tenant Sales = $3,000,000 | Breakpoint $ & % = $2,500,000 & 6% | % Rent = $30,000

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 Option To Renew
Exclusive tenant option to renew a lease for a predetermined period of time at predetermined lease
terms.

Personal Guarantee
Promise made by individual to personally accept responsibility for tenant rent owed to landlord if
tenant fails to pay contractual lease obligations.

Cap Rate
Annual net operating income divided by purchase price.

Going-In / Exit Cap Rate

Going-In Cap Rate: Cap rate when buying the property.
Exit Cap Rate: Cap rate when selling the property.

Unlevered Returns
Investment returns without the use of debt on the property.

Levered Returns
Investment returns with the use of debt on the property.

Letter of Intent (LOI)

Non-binding agreement expressing intent from buyer and seller to enter into a purchase agreement
or lease agreement.

Transfer Taxes
Taxes paid when property is transferred from one owner to another.

Capital Gains Tax

Taxes owed when property is sold for a gain over the initial invested basis.

Loan-To-Value Ratio
Loan amount divided by property value.

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 1031 Exchange
Sale process which allows investors to defer payment of capital gains taxes on investment
properties when sold, with the purchase of another “like-kind property” of equal or greater value.

Depreciation
Accounting method which allocates the cost of an asset over its useful life and is used to account
for declines in value. In real estate, this asset is the value of the property improvements (building)
and not the land. Depreciation creates an expense from an accounting perspective, even though no
out-of-pocket costs were incurred by the real estate investor, potentially reducing the investor’s tax
burden.

Depreciation Recapture Tax

Tax owed on a gain realized at sale of a real estate property, expressed as a percentage of the
overall depreciation expense that was incurred throughout the ownership period.

Broker Opinion of Value (BOV)

Memorandum created by investment sales professionals which explains high, low, and target
values for real estate properties based on current market conditions, and outlines a marketing plan
for the asset to present to potential buyers.

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