Commercial Real
Estate Dictionary

All Definitions


“Agency” Debt - Financing that is issued by one of the two government-sponsored enterprises, Fannie Mae or Freddie Mac.

Above-the-line Expenses - Expenses that are deducted from revenues before arriving at NOI. The “line” in this expression is NOI.

Above/Below Market Rent -  A metric that is important to evaluate if the rents being charged at a property are either too low or to high. This is often evaluated when looking to add value to a deal. If an investor can identify a property that is charging rents that are too low compared to other properties, this represents an opportunity to acquire the property and bring the rents in line with where the market sits which will increase the income and thereby the value of the building. This process is known as “marking the rents to market” or a “mark to market opportunity.”

Absolute Net Lease - A type of lease where every capital and operating expense (with no exceptions) is passed on to the tenant. This includes structural repairs.

Absorption - The total (gross) sum of all square feet or units that were leased during a given period in a market. This differs from “net absorption” which then subtracts the total number of square feet or units that were delivered to the market or that went vacant.

Acquisition Fee - A fee paid to the owner or operator at closing when a property is acquired. This fee is usually paid by the venture to the minority owner that is in charge of daily operations as compensation for their services.

Actual/360 or Actual/365 - The method in which interest accrues on a loan. Actual signifies the “actual” number of days that elapsed in the period and the denominator is either 360 or 365. Many lenders prefer to use a 360-day year because they technically earn more interest (a smaller denominator equals a larger quotient). For example, a month that has 30 days and an annual rate of 5.0% - the monthly interest rate would be 0.41667% for 30/360 and 0.41096% for 30/365.

ADR (Average Daily Rate) - The average rate at which rooms are sold during a given period. It is calculated as total room revenue for the period divided by total number of rooms sold for the period.

Advance Rate - This is the ratio on a loan at which the lender will advance costs against the value or total cost of the collateral. For example, if an advance rate is 70%, then the lender will advance $0.70 for every $1.00 of approved collateral that is acquired. An advance rate is mainly seen in credit lines or revolving credit facilities, but can also be used in construction loans. The metric is similar in nature to LTC or LTV.

Amortization - The repayment of principal over a specified timeframe. Most amortizing loans have amortization schedules of 25 or 30 years. A loan can have a term of less than the amortization schedule, which results in the loan not fully amortizing over the term and a large payment being due at maturity. For example, a 10-year loan can have a 25-year amortization schedule.

Appraisal - An unbiased, third-party opinion of value for a given asset.

Asset Management - The act of overseeing a portfolio of assets to maximize value and increase efficiencies. This is oftentimes confused with property management. The asset manager typically sits “above” property management ensuring all assets are properly managed and costs are most efficient. The asset manager also takes a high level approach to ensure the asset has the most optimal debt, capital structure, etc.

Asset Management Fee - In real estate, there are many misnomers for fees paid to managers. Generally, real estate funds have a “management fee” that is paid to the manager, which is usually 1.5%-2.0% annually (paid quarterly) on invested or committed capital to the fund. This is not to be confused with a “property management fee” which is paid to a third-party local manager that oversees the daily operations of a specific property. Furthermore, there is sometimes an “asset management fee” which is similar to a “property management fee,” but it is paid to the owner rather than a third-party manager. An asset management fee for a specific property is usually a small percentage of collected revenues (such a 1%).

Assumptions - “Assumptions” generally is a term used in the real estate industry to talk about what type of financial inputs you used in a model or pro forma. These can be future rent assumptions, occupancy rates, credit loss percentages, expense amounts. Further, you can talk about “debt assumptions” which are the specific assumptions you made about a loan including LTC/LTV, interest rate, term, etc.

AUM (Assets Under Management) - A term or metric used by fund or asset managers to describe the total amount of aggregate investor money under their control. For example, if ExampleManager had three funds totalling $200 million each, they would have $600 million AUM. Taking this a step further, if ExampleManager used these funds to provide equity for real estate acquisitions at a 65% leverage ratio (i.e. they used 65% LTV loans to acquire property), then they would have purchased $1.7 billion of real estate ($600,000,000/(1-0.65)). Some managers use the higher figure to talk about how much property value they control but this is mainly for sales reasons.

B-Piece - The b-piece in a CMBS pool is the lowest rated (or non-rated) tranche of a CMBS securitization. This is also referred to as the “first loss” piece because any principal losses hit this tranche of the securitization first. It is possible for this tranche to be completely eliminated in a total loss, or “wiped out.” The b-piece buyer usually has some ability to kick out certain loans from a securitization that they deem problematic. The b-piece buyer also has the ability to appoint a special servicer for the entire securitization. It is typical of b-piece buyers to also engage in the business of special servicing to protect their interests.

Base year stop - See Modified Gross Lease.

Below-the-line Expenses - Expenses that are deducted from NOI such as capex or owner fees. The “line” in this expression is NOI.

Booking Pace - The rate (velocity)  at which the hotel is booking rooms. Hotels often use this metric to forecast demand and understand what future revenues look like. Similar to lease-up at a multifamily property.

Brand - The specific brand of the property, for example, a Residence Inn brand as part of the Marriott flag.

Brand-managed - A type of arrangement where the actual brand will also provide the management services for the hotel. For example, many higher-end properties are brand managed so the franchisor can ensure high standards and level of service for its brand.

Bridge Loan (Debt) - See Floater.

Built-to-Suit or Build-to-Suit - A type of development where the developer builds a building to the specific needs of a tenant that was identified and secured prior to construction. Having a signed lease in hand before building gives lenders comfort that the space will generate revenue upon completion and is much easier to obtain financing than with a spec development.


DY (Debt Yield) - A metric used by lenders to assess credit profile for their underwriting of an investment. The debt yield is calculated by dividing the NOI by the loan amount. A debt yield can be described as the “lender’s cap rate.” Generally, since a loan is a safer investment than equity, the debt yield should be greater than market cap rates. For example, if you are acquiring a multifamily property at a 5% cap rate, you might find a lender offering a loan that represents a debt yield of 6-7%. This offers the lender a “margin of safety” of approximately a 1-2% spread to foreclose and recoup their investment.

DSCR (Debt Service Coverage Ratio) - A ratio and metric used to determine the “affordability” or a potential loan for a given set of cash flows produced by an investment. The DSCR is calculated by dividing NOI by debt service. A positive number greater than 1 indicates that the NOI “covers” the debt service or that the property can sustain the cost of debt independently without an equity infusion. Inversely, a negative number indicates that the NOI from an investment is not sufficient to pay the interest and/or principal payments for a given loan.

Draw Schedule - The schedule/timing under which monthly construction costs will be paid or advanced from a construction loan. The draw schedule is related to “construction draws.”

Dock-High - Refers to an industrial building that has “dock-high” loading capacity for trucks. This means that a truck’s bed is level with the floor of the warehouse for seamless loading and unloading. A leveler can be used to bridge small gaps.

Distribution - Generally described as large-scale industrial facilities with wide column spacing, dozens of truck bays, and high clear heights for racking.

Disposition Fee - A fee paid to the owner or operator when a property is sold. This fee is usually paid by the venture to the minority owner that is in charge of daily operations as compensation for their services.

Discounted Cash Flow (DCF) - An analysis (usually 5- or 10-year) that projects the annual or monthly cash flows of a given asset with a hypothetical reversion value. If a purchase price is specified, then you can solve for the IRR (discount rate). If you are solving for a purchase price, you will need to assume a required IRR (discount rate).

Discount Rate - The expected rate of return that is used to calculate a purchase price by discounting a future set of projected cash flows.

Development Fee - A fee paid (usually a percentage of hard/soft costs but sometimes excluding land) as ongoing compensation to the developer of a property. The developer also earns a performance fee, but the performance fee is “back ended” (i.e. paid after a sale and profits are generated) and sometimes the developer needs to earn income to pay staff and operating costs during the actual development process.

Depreciation - A reduction in the value of an asset over time due to forms of obsolescence.

Demand Segmentation - The break out of where the hotel's source of demand, such as group bookings, events (weddings or corporate), business meetings, transient travel. It is important to understand where your demand is coming from in order to target your marketing efforts most efficiently.

Demand Generators - A term used in market research to identify what drivers in the market generate demand for the specific real estate in question. For example, a corporate relocation to a new area can be a demand driver for new office leasing. Using this same example, the next derivative of the corporate relocation would be new demand for multifamily or single family housing since workers will be moving into the area. These workers could also need additional stores and retail services.

Demand - The users or occupants who are in the market/submarket seeking similar spaces. Demand can originate from employers, nearby attractions, infrastructure, etc.

Defeasance - Another form of prepayment penalty often used in the CMBS financing world. It results in the lender being compensated for lost cash flows expected during the life of the loan and it is calculated by taking the difference in current market yields with the yield that the loan was originated at and replicating those cash flow in the form of treasury bonds. It is an expensive process and is not recommended unless it is near the end of the loan term.

Debt Fund - A fund or partnership that consists of many individual investors with pooled capital or equity; the pooled capital is used by the manager to originate mainly real estate debt products. These debt funds are not regulated banks and usually engage in riskier debt products, such as high leverage senior loans, bridge loans, construction loans, mezzanine debt, or preferred equity.

Debt Broker - The specific broker that has many relationships with lenders to help an owner/acquirer find appropriate debt for an acquisition or recapitalization.

Cross-Dock - A feature of a distribution center or warehouse that has docks on both sides of the building, allowing for simultaneous loading and unloading of trucks without the need for large storage.

Credit Tenant - When a tenant has a strong credit rating. This results in favorable financing terms for an asset if the tenant has good credit and generally better value for the property. (i.e. if Amazon was your tenant).

Credit Profile - Credit profile generally speaking can mean any metrics, financial statements, or due diligence used to make an investment or lending decision. In personal finance, a credit profile might include job history, tax returns, income level, and FICO score. In real estate, however, credit profile deals with the underlying collateral of a real estate transaction (i.e. the actual building or asset that is being acquired or pledged). Example of credit profile could be lease terms, types of tenants, the credit profile of individual tenants, above/below market rents, vacancy, supply/demand in the market, etc.

Cost Basis - The total dollar amount of capital expended to acquire, operate, and/or renovate a property. Assume you acquire a property for $10 million and spend another $5 million in renovations plus $1 million in carry costs during the first year of operations. In this scenario, your cost basis is $16 million. Cost basis can also be stated per unit or per square foot.

Core-Plus Deal - Core plus generally follows the same broad strokes as “core” investments; however, there are usually light improvements and a slightly more “hands-on” nature that are required for the asset to maintain its competitiveness.

Core Deal - This type of investment is the lower end of the “risk curve” and offers low returns but also low perceived risk. Examples of core investments are generally best-in-class investments in large cities with resilient demand and high barriers to entry.

Controlling Class Representative (CCR) - The class of bondholder in a specific securitization that has control rights for certain securitization decisions.

Control - Refers to the sponsors ability to transact and “control” the deal. The word control typically is used when a sponsor is under contract on the property or has some form of exclusivity.

Construction Financing - A type of loan used to build a new project or significantly renovate an existing one. Construction loans are usually shorter in term (2-4 years) with some extension options. They usually carry a floating interest rate and have significant structure in place to protect the lender from construction completion risk and liens against the property. A construction lender will typically require that the owner contribute all of its required equity on day one and then the lender will fund “draws” from the total allocated loan amount as the actual construction dollars are billed from the contractor.

Conduit Financing - For all intents and purposes, this is the same as CMBS Financing.

Comps - Competitive properties for a specific asset. Usually an asset has between 3 and 6 highly competitive properties in larger markets. Comps are chosen based on quality, location, vintage (age), service level, etc.

Competitive (Comp) Set - A selection of nearby comparable/competitive properties that are used to benchmark the subject hotel that is being analyzed.

Commencement Date - The beginning date of a loan, lease, or other event.

Comfort Letter (Tri-party letter) - A document that stipulates the terms and process in the event of a default for the eventual assignment of the franchise agreement to the lender if the lender ever had to foreclose and operate the property. This document ensures that the lender will have sufficient ability to continue to operate the property under the same brand as the original owner.

Co-Tenancy Clause - A clause in commercial leases often used specifically in the retail sector that state if Tenant A is not open/operating, then tenant B can modify their lease either paying reduced rent or no rent at all. There are other restrictions such as specific uses in shopping centers (i.e not having competing tenants such as two coffee shops or two pizza shops) and can trigger dominio effects if these clauses are triggered. Most recently with shopping malls, there were co-tenancy clauses associated with the anchor tenants (Macy’s, JC Penny, etc) and if they are not operating then the other mall tenants are able to pay reduced rent which affects the operations and income of the entire mall.

CMBS - Commercial Mortgage-Backed Securities. These types of securities are issued by investment banks that “pool” numerous individual mortgages for risk diversification. Assume an investment bank originates 100 individual loans on various properties across many locations. Generally speaking, the investment bank groups or “pools” these loans together horizontally for risk diversification and offers several vertical classes/tranches of bonds that offer investors different levels of risk. They are rated AAA (highest investment grade credit) to B (non-investment grade) and have commensurate levels of return. Interest payments are paid through the waterfall from highest rated to lowest rated; conversely, any principal losses are applied in reverse order from lowest rated to highest.

Closing Costs - The costs required to acquire or recapitalize a real estate deal. These include legal, title, consultants, survey, financing costs, reserve amounts, etc.

Clear Height - The actual open space between the slab and the ceiling span.

Chain Scale - The classification of hotel brands by STR, the leading hotel research company.

Ceiling Height - Mainly for multifamily or residential properties, the distance between the floor and the finished ceiling. Ceiling heights of 9 feet and up are preferable.

Cash-Out Refinance - A type of refinance where the new loan is greater than the existing loan, resulting in a cash payment to the borrower. Some lenders prefer not to participate in cash-out refinance transactions because there is a disincentive to the borrower to operate the property to its full standard since a portion of equity is being returned and “cash is being taken off the table.”

Carried Interest - See “promote.”

Capital Stack - The overall capitalization of a real estate deal that generally includes the “sources of funds” from the “Sources & Uses.” For example, a deal with a $100 million capitalization could have a capital stack that is represented by 50% senior debt ($50MM), 30% mezzanine debt ($30MM), and 20% equity ($20MM).

Capital Markets - The “capital markets” is a very amorphous term to describe any activity of capital raising or capital placement. The term is usually used to describe the availability and terms of real estate debt along with the availability and terms of real estate equity. A capital markets professional usually is not the person that is buying the actual real estate or crafting/executing the specific business plan but rather the person that helps to “capitalize” that same transaction.

Capital Account - The specific "paper" account within a partnership or similary entity that tracks the amount of capital invested and distributed to each partner.

CapEx (Capital Expenditures) - Costs or improvements that add to the value of the fixed assets. An example of capex could be a new HVAC system, new elevators, new windows, etc.

Cap Rate Expansion - The opposite of cap rate compression.

Cap Rate Compression - Cap rate compression occurs when new investors are willing to acquire assets at lower yields than prior owners. Asset prices increase as cap rates decrease, which is an inverse relationship. Cap rate compression can be caused by increased investor appetite for real estate assets, which drives prices higher and, in turn, cap rates lower.

Cap Rate - Capitalization rate, defined as NOI divided by value (or purchase price). The cap rate is the yield (or annual cash return) that an investor is acquiring a property at. Sometimes a cap rate can also be used to describe the current income for an existing investor’s basis. For example, let’s say an investor bought a property at a 5% cap rate 5 years ago ($10 million dollars earning $500,000 of net income). Let’s say this investor was able to raise rents and lower expenses and he increased the net income to $750,000. This investor now has a cap rate of 7.5% ($750,000/$10,000,000). This is a perfect example to show how “value” is created in real estate. If this same investor can sell the property at a 5% cap rate (like when he purchased it), that results in an implied sale price of $15 million, or a $5 million profit.


Future Funding - A portion of the total loan amount that is funded at a point (or over time) in the future. The best example of future funding is a future cost for renovation, construction, or commissions that will add value to the asset and therefore will be advanced from the senior loan. Lenders are comfortable with future funding structure because the additional loan dollars are funded to cover costs that improve the value of their collateral.

Franchisor - The hotel company that is franchising their brand to individual owners and operators (e.g. Marriott, Hilton, Hyatt).

Franchisee - The individual owner that wishes to operate their hotel under a specific franchised brand.

Franchise Agreement - The franchise agreement is a document made between a hotel franchisor (Marriott, Hilton, Hyatt, etc) and a franchisee (individual hotel owner) that governs the use of the name or “brand” of the specific hotel. A franchise fee is stipulated as well as many brand standards that the owner is required to follow.

Franchise Agreement - A type of licensing agreement that stipulates the terms under which an owner can operate its hotel using the specific brand and related services of a hotel company. Major items in the franchise agreement are brand standards, owner responsibilities, brand responsibilities, fees, term, transfer restrictions, etc.

Forbearance - A type of relief offered by a lender to a borrower that delays a lender from enforcing any legal rights for the repayment of debt.

Floater (Debt) - A shorter-term financing option (usually 2-3 years with several extension options) that has a floating rate (hence the term “floater”) consisting of a spread over LIBOR.

Flex - Generally smaller industrial with an office component that opens up to a larger industrial space. Usually 10-20% office use.

Flag - The overarching “network” of a hotel. I.e. Marriott, Wyndham, Hilton, Hyatt, etc. Some industry professionals use “flag” and “brand” interchangeably. It’s OK to clarify.

Financing Costs - The costs involved in procuring debt in a real estate transaction. These can include origination fees, lender legal, lender title insurance, etc.

FF&E Reserves - Furniture, Fixtures, and Equipment Reserves. These amounts are ongoing reserves that are deducted from cash flow that are usually stipulated by lenders and someonetimes franchise agreements. The reserve dollars accumulate in a separate account so the property has sufficient capital to maintain competitiveness with updated furniture, electronics, and systems. Most properties reserve 4% of gross revenues annually for future FF&E updates.

Fee Developer - A developer that usually contributes little to no equity and earns a fee for developing a project with someone else’s equity.

Family Office - A privately held company or loosely organized collection of companies that represents the net worth of one or several wealthy families. Family offices usually have more flexible lending and investing guidelines because they are dictated by specific family mandates. In addition, there is usually not a “fund” structure so timing or investment horizon is less of a concern.

F&B - Food and Beverage; this is the portion of the hotel dedicated to food service and drinks. Depending on the property, this can be a lobby bar, a rooftop lounge, a fancy restaurant, or a breakfast buffet.

Exit Debt Yield - The terminal debt yield that is underwritten/projected when a property is fully stabilized and is able to comfortably pay off a bridge loan. It is calculated by taking the future NOI divided by the loan amount needed in order to stabilize the property.

Exit Cap Rate - The specific cap rate used in a model to determine the terminal value of a real estate asset during a pro forma hold period.

Exit Assumptions - The assumptions or inputs that are used in a model at the exit or disposition of a property. These can include exit cap rate, sales costs, debt paydown, etc.

Equity Multiple (EM) or Multiple of Invested Capital (MOIC) - A metric used in conjunction with IRR that is referred to as a “gross” return metric because it shows the total amount of money received in an investment and is not stated as an annualized percentage. For example, if you invest $1 today and receive $3 in 5 years, the EM or MOIC will be 3 divided by 1 or 3.0x. Another way to read a 3.0x multiple is to say that you receive your money back of $1 (the 1.0 out of the 3.0) and another $2 dollars in profit.

Equity Kicker - This is usually a “participation” right for the lender that is involved in a high leverage loan. For example, a lender might agree to increase their risk by lending 80 to 90% LTV or LTC. In exchange for this high leverage loan, the lender asks for an “equity kicker,” which is essentially a stipulated percentage of profits after the loan is repaid in full.

Equity Fund - A fund or partnership that consists of many individual investors with pooled capital or equity; the pooled capital is used by the manager to deploy common or preferred equity into real estate products. Equity funds can buy assets 100% on their own or they can enter into partnerships where they provide a portion (usually 5-95%) of the equity required to purchase an asset. The partnerships are known as joint ventures or JVs.

Equity Broker - An intermediary that acts as a market expert to find a match between a buyer/operator of real estate and an equity capital provider that has sufficient funds to deploy. The equity broker is usually hired by the operating partner to source JV equity from a larger family office or more institutional fund.

Economy (Chain Scale) - Example: Motel 6

Economic Occupancy - The economic rate at which an asset is occupied. Economic occupancy is calculated by dividing the actual collected rents over the total potential rents.

Easement - A right to use a property (or portion thereof) without actually owning or possessing it.

Earn Out - A type of structure in a loan or equity investment where the borrower or operator “earns out” an additional amount of investment based on pre-specified performance hurdles such as leasing activity, occupancy level, or NOI.


Hotel Management Company - A specialized company that focuses on managing daily operations of a hotel such as front/back office, food/beverage venues, staffing, housekeeping, hiring, etc. The hotel management company typically needs to have a local understanding of the labor market to make good hires. Management companies are hired on a contract basis by the hotel ownership group and are paid a percentage of gross revenues, typically 3-5%. Some management contracts also have a performance fee which is a profit split above a specific return to the ownership.

HNWI or High Net Worth Individual - A loose term used to describe an individual investor with significant assets to invest. The “floor” for HWNIs is usually $1 million dollars of net worth excluding their primary residence. HWNI is a similar but much more loosely defined term than an “Accredited Investor” which is utilized by the Securities & Exchange Commission (SEC).

Historical Occupancy - The rate of occupancy that has been achieved at a building since its inception/completion. It is often a good metric when evaluating a property to see how it has performed in the past.

Historical Financials - A package of financial data that is provided by a borrower or a seller for an existing asset that describes its past performance. Normally, the historical financials are just a few years of occupancy history with accompanying yearly P&Ls (income statements).

Historic Tax Credits - Tax credits that are issued as a result of a developer/investor renovating a building that is registered as a national historic building. Oftentimes the facçcade must stay intact and the developer can earn up to around 20% of the renovation costs in the form of a tax credit, which helps subsidize the cost of development.

Highest and Best Use - The most valuable real or hypothetical use of improved or unimproved land. For example, the highest and best use could be different than the actual use of the property if a piece of land is improved with a one-story parking garage in the middle of a dense urban district. The actual use is a parking garage but the highest and best use could be an office or apartment building.

High Yield - A category of monetary return that is considered strong but often comes with increased risk.

High Octane - Similar to high yield, this is industry slang/lingo used to denote something that is high yield whether that is referring to the return of the asset or the cost of capital (debt).

Hard Money - A type of financing that is more expensive and more stringently structured and is often used in dire situations where traditional methods of financing have either failed or where the borrower was unable to qualify. Hard money is usually a last resort type financing as it is always very expensive (often 10%+ interest rate) and is short term. If the loan is not able to be repaid, the lender will take back the property.

Hard Costs - The costs in a development that are associated with the physical construction of the building, such as concrete, steel, framing, wood, etc.

Ground Lease - A lease agreement where the land (“ground”) is bifurcated from the improvements (the building built upon the land). The lessor is the “fee owner” or owner of the land. The lessee (leasehold owner) is the owner of the improvements. The ground landlord (lessor) usually maintains a super senior position and can foreclose on the leasehold to take control of the improvements if the lessee defaults on the ground lease. Ground leases are usually structured for long-dated terms, commonly 99 years.

Gross Lease - A type of lease where the tenant pays a specific rent and the landlord is responsible for all operating costs and repairs.

Grade - A term used to define a level base or a sloping elevation. “At grade” means the property is flat or at even level. “Below grade” means a basement or that there is typically a slope and is used for truck ramps.

General Partner (GP) - The day-to-day operator of an investment alongside a passive limited partner (LP).

General Contractor (GC) - The company that oversees other sub-contractors ensuring that projects get built according to construction documents (CDs). They will act as the lead and coordinate all the other “subs” that complete the project. They often will provide a bid and must adhere to the costs and timeline associated with that bid.


JV Equity - A large (usually majority >50%) equity investment in a joint venture to acquire or recapitalize a property.

Joint Venture - A partnership between two or more parties; usually one partner is the “money partner” (investor) and the other is the operator or developer that brings the expertise.

IRR - Internal rate of return, an annualized metric used to estimate the profitability of an investment. Consider a simple example: an investment of $1 million that generates an IRR of 8% would need to receive the initial investment of $1 million back and generate an additional $80,000 per year in profits. IRRs are used to compare opportunity cost between potential investments with finite capital available to invest.

Investment Sales Broker - The broker that is hired to market a specific property for sale.

Interest Reserve - A type of account that is created and capitalized at closing that is used as extra security for a lender in a real estate transaction. An interest reserve required an owner to commit more equity up front so the lender has complete control over the interest reserve account. As interest payments are due, the lender will debit the reserve account so the owner does not need to pay twice. An interest reserve requirement is better for lenders but worse for borrowers because it requires more equity to be deployed at closing, thereby reducing the returns.

Interest Rate - The rate at which interest accrues on a loan. An interest rate can be “fixed” or “floating.” A fixed rate remains the same for the entire term of the loan (e.g. 5.0%). A floating rate is quoted as a spread over an index rate and the index is usually adjusted (updated) monthly (e.g. 300 basis points LIBOR).

Interest Only (IO) - A loan payment that does not have any amortization or principal payments. Only interest is paid.

Insurance Lender - A lender that uses the capital of an insurance company for originate loans for commercial real estate. Insurance lenders generally have lower rates and longer terms to manage duration in their portfolio. They also generally choose safer assets to lend on rather than riskier business plans.

Independent Hotel - A hotel that is not affiliated with a major brand or flag and instead operates independently.

In-Place Debt Yield - A metric typically used by lenders to underwrite the current yield on a property’s debt. It is calculated by taking the in-place NOI (see net operating income) divided by the loan amount or existing debt on the property. Another way to think of the debt yield is like the lender’s cap rate if they had to take over. The in-place debt yield is a good metric of where the property stands today and is a term often used by bridge lenders.

In-place Cap Rate - See cap rate.

Impact Fees - Fees that are paid to a municipality for the disruption/strain on infrastructure that is as a result of the new project/development, such as increased stress on traffic, plumbing and other infrastructure-related items.


Luxury (Chain Scale) - Example: Ritz Carlton

Look-Back - In terms of IRR calculation, a look-back is important because it “looks back” to the actual cash investments made as well as any cash equity distributions. The look-back calculation then determines what the threshold level of distributions would need to be assuming the actual cash flows for the investment.

Loan-to-Value (LTV) - A ratio expressed in percentage terms that represents the loan amount in relation to the value of a property. For example, a property that is valued at $1 million with a $650,000 loan would have an LTV of 65%.

Loan-to-Cost (LTC) - A ratio expressed in percentage terms that represents the loan amount in relation to the total cost or total basis of a property. For example, consider a property that is purchased for $1 million and then renovated with an additional $1 million for a total basis of $2 million. The owner uses $1.5 million of debt to purchase and renovate the property, which represents an LTC of 75%.

Loan Sizing (to size) - A loan sizing is a process that evaluates the credit risks of the proposed loan and “sizes” (or determines) the appropriate loan amount based on various credit metrics such as debt yield and DSCR.

Loan Documents (Loan Docs) - A set of various documents that govern the rights and obligations of the lender and the borrower. These can include mortgages, promissory notes, title policies, loan agreements, escrow agreements, etc.

Loan Agreement - Loan agreements are the private agreement that define the “structure” and detailed covenants of the loan that is evidenced by a promissory note. For example, where extension terms, certain earnout provisions, or quarterly DSCR tests are defined.

Liquidity - The amount of unencumbered cash or cash equivalents readily available to pay expenses. This generally includes cash in the bank of immediately marketable securities.

Limited Partner (LP) - The passive majority capital partner/investor that turns over day-to-day control to a general partner to operate or develop the investment. The limited partner may require “control rights” or “major decisions” to ensure their investment is protected and to maintain a level of overarching control over the investment.

LIHTC (Low Income Housing Tax Credits) - Tax credits that a developer receives for developing affordable housing units. There are certain thresholds that need to be met such as a certain number of units rented out to tenants that fall in certain income categories. The credits then help subsidize the cost of development. For a more detailed breakdown we recommend googling LIHTC.

Light Industrial - Generally a manufacturing use that produces goods for the end user. These assets could have high levels of customization for heavy machinery or a production line.

LIBOR - The London Interbank Offered Rate, which serves as a globally accepted benchmark rate that is indicative of borrowing costs between banks. The rate is calculated using a survey of participant banks.

Levered IRR - The IRR calculation that includes leverage or financing in the calculations. Can also be referred to as the leveraged IRR.

Leasing Commissions - Commissions paid to the landlord representative/broker (landlord rep) and the tenant representative/broker (tenant rep) in a leasing deal. Leasing commissions are usually 5-6% of the total monetary value of the lease for new deals and 2.5-3% for renewal deals. Leasing commissions can be paid out over time for longer duration leases.

Lease-up Velocity - The metric that shows the monthly absorption of a new or newly renovated property. This metric is common in new multifamily developments to understand, on average, how many new leases are being executed per month. If a building has 100 units and a leasing velocity of 10 units per month then that building is on track to be fully leased within 10 months.

Lease-up - The process after construction or renovation where the owner of an asset is procuring and signing leases for potential tenants of the building.

Landlord Rep - The leasing broker that represents a landlord/owner who has space available to lease in a building.

Land Basis - For a development analysis, this metric is used to describe the cost of owning the land to-date. This can be expressed a whole number but, more frequently, it’s expressed a dollar amount per buildable square foot or unit.

Key Money - The up-front payment to a potential franchisee by a franchisor to entice the franchisee to use a specific flag or brand of hotel.


Non-Traded REIT - A form of ownership structure for real estate (see REIT) but is not publicly traded.

Non-Recourse Debt - The only recourse the lender has for the repayment of the loan is the specific collateral pledged during the origination of the loan.

NMTC (New Market Tax Credits) - Tax credits that an investor/developer can receive for investing into NMTC designated zones (similar to opportunity zones). They are below a certain median household income and the credits are received and then sold to banking institutions and then used by developers as a way to generate creatively structured equity into projects that qualify.

Net Worth - Assets minus liabilities. For example, suppose an individual owns a property that has an appraised value of $10 million with a $7 million loan outstanding. In this case, the individual’s net worth is $3 million.

Net Sale Proceeds - The amount of proceeds (dollars) that a seller receives or is projected to receive after paying off outstanding debt and all closing costs.

Net Present Value (NPV) - The resulting value that you would be willing to pay today based on discounted future cash flows using a specified discount rate in a DCF analysis. In a real estate analysis, the NPV is generally the purchase price that you would be willing to pay today based on the required return (discount rate).

Net Cash Flow or Cash Flow - The actual dollars that are distributed to the ownership after expenses and debt service are paid.

Net Absorption - See absorption.

Multi-Tenant - A building or property with more than one tenant. In terms of risk, multi-tenant is better for credit analysis because all of the cash flow is derived from numerous sources without one point of failure.

MSA - Stands for Metropolitan Statistical Area. It is defined by the U.S. Census as: the general concept of a metropolitan or micropolitan statistical area is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.

Monetary Default - A payment default under a loan that involved the payment of interest or principal and could be during the term or at maturity. Maturity default is a type of monetary default where a borrower fails to take out (or repay) a loan in full at the balloon payment.

Modified Gross Lease - A type of lease where the landlord is responsible for all expenses up to a “base year” but then marginal increases over the base year are the responsibility of the tenant. The base year is usually the initial year of the lease.

Mini-perm - A type of bridge loan that is traditionally used to replace construction financing.

Midscale (Chain Scale) - Example: Tru by Hilton

Mezzanine Debt - Mezzanine debt is a type of subordinate financing (i.e. lower in lien priority or repaid after the senior loan) that is collateralized by the equity interest in the entity that owns the real estate and formalized with a UCC filing. It is generally more risky and therefore carries a higher rate of interest. The collateral in a mezzanine loan is the distinguishing factor from preferred equity.

Maturity Default - See monetary default.

Master Servicer - A master servicer is responsible for servicing the loan throughout its term so long as there is no default under the loan. Loan servicing involves collecting interest, principal, and escrow payments on behalf of lenders from borrowers.

Market Vacancy - The overall vacancy of a market that includes many similar properties. For example, the multifamily vacancy of Manhattan might be 2% but this would include thousands of individual properties in the survey.

Market - The overall market or metro area of a deal. For example, if you are looking at a building in Downtown LA, the submarket would be Downtown and the market would be Los Angeles.


Property Management Fee - A fee paid to a third-party manager for day-to-day property management services. This fee is generally around 3.0% of collected revenues, paid monthly.

Property Management Agreement (PMA) - The property management agreement (PMA) is a document between ownership and a third-party or affiliated property manager that defines the rights and responsibilities of the property manager. Some examples of provisions include the ability to hire staff, to execute leases, and to earn a specified property management fee.

Promote - The outsized return that is earned as compensation for a general partner exceeding the preferred return in a particular deal. The “promote” dilutes the limited partner’s return because the general partner earns a share of cash flow greater than their pro rata capital account after they achieve a preferred return or hurdle rate.

Promissory Note - A legal instrument where one party promises to pay another. Promissory notes are generally recorded instruments and can sometimes be public record.

Program - The layout and goals of the hotel. Hotel “programming” is important such as the layout of the meeting space, where the food/beverage outlets are located, etc.

Pro Rata - Proportional. For example, if one partner invests 90% and the other partner invests 10%, the cash flow could be distributed “pro rata” meaning 90%/10% for the entire deal. Some in the industry might refer to this as “straight up.”

Pro Forma - Pro forma is a general term related to financial statements that show future/expected income. There are many assumptions used to generate pro forma statements.

Principal - Usually the lead investor in a deal is referred to as the principal. They are the ones putting in the time/effort to put together the deal and represents the ownership in the deal.

Primary Market - Typically “gateway” markets that are internationally recognized by most investors. These cities include NYC, LA, Chicago, San Francisco, Miami, and others.

Pricing - This is a widely used and flexible term in the real estate industry. Pricing can relate to the actual gross dollar price of an asset, the price per unit, or, most frequently, the expected return of an equity or debt investment. In terms of debt, pricing is used to refer to the interest rate and the cost of the loan.

Prepayment Penalty - The penalty associated with prepaying a loan prior to the stated maturity of the loan. Lenders require prepayment penalties because they need to manage their portfolio of capital and maintain certain level of duration or term outstanding on the money they invest.

Preferred Return or Hurdle Rate - This is the return that an investor earns on his/her invested capital before any promote (i.e. outsized return) accrues to the sponsor/developer. For example, a deal (or a fund) could have an 8% preferred return. Generally speaking, if someone invested $1 in the deal, they would have to receive their $1 invested capital back and an additional $0.08 per year for every year the $1 was outstanding before a profit sharing split is achieved.

Preferred Equity - Similar to a mezzanine loan in relation to the economics of the investment (i.e. a higher rate and leverage amount), however the legal structure of preferred equity is actually an equity investment rather than a loan. In this case though, preferred equity is “senior” to the subordinate (or “common”) equity in the real estate transaction.

Pre-Sales - Sales (i.e. signed contracts) that have occurred prior to the completion of a new or renovated building.

Pre-Leasing - Leasing (i.e. signed leases) that has occurred prior to the completion of a new or renovated building.

Pre-Cast - A type of construction where concrete components are cast (formed) off-site and then transported by truck or rail to the construction site.

Pipeline - Lingo used to refer to a list of deals or transactions that the someone is looking to transact on or evaluate. In real estate it is important to build your pipeline and have a lot of deals going at once since you never know which ones will ultimately happen.

PIP (Product Improvement Plan) - Renovation plan mandated by the franchisors (brands i.e Hilton, Hyatt, Marriott) in order to keep up with brand standards and is typically required to renew a franchise agreement

Physical Occupancy - The physical rate at which an asset is occupied. Physical occupancy is calculated by dividing the actual occupied units or area by the total units or area of the building.

Phases (reference to development) - The act of building a project in multiple intervals. This often happens with large scale developments as to not “flood” the market with new supply, such as apartment units or commercial space. It is often staggered to allow the market to absorb the new space.

Personal Guarantee - A guarantee where the borrower pledges his or her personal assets as well as real property collateral as security to entice a lender to make a loan. If a loan with a personal guarantee is not repaid, the lender can seek repayment by looking to the borrower’s personal assets in a court of law.

Personal Financial Statement (PFS) - A personal balance sheet stating the assets and liabilities of an individual. This is usually provided by a borrower for a lender during credit analysis and for personal guarantees.

Permanent Loan or Permanent Financing - A longer-term financing solution that usually has a term greater than five years and most commonly a term of 10 years (for multifamily assets specifically). Permanent financing usually has a fixed rate that is quoted as a whole interest rate or a spread over U.S. treasuries.

Per Unit or Per Door - Multifamily purchase prices are commonly quoted as “per unit” and more commonly in industry slang as “per door.” For example, if a $1 million property has 10 units, the purchase price would be $100,000 per door.

Per Key - Hotel purchase prices are commonly quoted as “per key” which is derived from the fact that you use a “key” to enter a hotel room. For example, if a $1 million hotel has 10 guest rooms, the purchase price would be $100,000 per key.

Penetration - A metric used to understand how much of the market a hotel is capturing. Penetration is usually calculated by the subject property’s RevPAR/ADR/Occupancy divided by the average of the comp set. Penetration can be above or below 100%.

Parking Ratio - A ratio of the amount of parking spaces to the total area of the property. This metric is used to gauge whether there is sufficient parking at the property. For multifamily, the ratio is calculated as “spaces per unit” (total parking spaces / total units). In office, retail, and industrial, the ratio is calculated as “spaces per 1,000 SF” (total parking spaces / (total area / 1,000)).

Pari Passu - Latin for “on equal footing.” This refers to how cash flow is distributed and implies that there is no subordination amongst the equity. For example, if one partner negotiates to receive their investment back before another partner receives any distributions, this situation would not be pari passu.

PACE Financing - A new form of creative financing that stands for Property Assessed Clean Energy. It is generally able to be used for up to 20% of the project costs and the costs that qualify are directly correlated to energy efficiency (HVAC, LED Lighting, plumbing, insulation, etc). The financing is paid back in the form of an annual tax assessment on your property tax bill, which creates an issue with lenders as this is a superior lien to the first mortgage, so it is often a creative way to get things done, but just requires lenders to be familiar with the product.

OTAs - Online travel agencies (Expedia, Travelocity, etc).

Opportunity Zone Equity/Fund - A fund or equity investor that requires opportunity zone treatment in a designated qualified opportunity zone (QOZ) based on the 2017 Tax Cuts and Jobs Act.

Opportunistic Deal - These deals follow the same broad strokes as “value-add” deals but they require significant risk and significant repositioning. These deals are often vacant or have little in-place cash flow. Additionally, there might be a heavy construction component, a sizable renovation budget, or many unknowns in the underlying quality or story of the building.

Operating Agreement - The set of documents that governs the ownership, operations, and provisions for an entity. Could also be known as “partnership agreement” or “LLC agreement.”

Off-Market - Refers to a property that is not formally “listed” for sale. Similar to residential MLS, the commercial market has platforms such as Loopnet, Costar, Crexi, and Ten-X where properties are readily available to be seen and marketed to a wide audience. Most investors prefer deals to be “off market” so that they are not very competitive, which often results in increased pricing. Real estate professionals pride themselves on finding off market deals through personal relationships.

Occupancy (Hotel) - Expressed as a percentage, the total number of rooms actually sold/occupied divided by the total number of rooms available in a given period.

“Price per pound” - Another term for “price per unit of measurement” (i.e. square foot, door, unit, key, etc).


Run a process - Industry lingo that refers to when a brokerage runs a formal sale or debt process where it is widely marketed online and to many investment groups with formal deadlines for bidding and closing. This is the opposite of “off market.”

Rollover Risk - The risk that a tenant does not renew their lease upon expiration. It is important to analyze the lease expiration schedule and if certain tenants have given notice of renewal which can affect the WALT/WART (see definitions) of the asset.

RevPar - Revenue per Available Room. This is calculated by multiplying the ADR by the occupancy. This metric allows you to see the actual revenue-generating potential of a hotel on a per-key basis. For example, if you only consider ADR, this doesn’t tell the full story of how much revenue you will generate for ALL of the rooms in the hotel and only the rooms that were sold. Instead, RevPAR considers all rooms in the calculation, rather than just the rooms that are sold.

Return on Cost (ROC) / Yield on Cost (YOC) - A metric that is used to determine the stabilized yield that a property will generate based on the total cost or total basis of the property. Let’s assume an asset is developed for $1 million total cost. Once the property is leased up, the NOI is $60,000. The stabilized ROC would be 6% ($60k/$1mm). The ROC can be quoted for any year of operations and can also be referred to as the specific cap rate for that year. Generally speaking, the ROC should be greater than the “market” cap rate, which indicates that you can sell the property for a profit and that actual value has been created.

Return - A backward-looking profitability metric that is calculated after an investment is fully realized based on the cash inflows and cash flows of the specific investment. This differs from “yield” which is a profitability metric that is calculated based on a certain period in time.

Rent Roll - A spreadsheet or document that lists every unit or suite of a property with the tenant name, current rent, start date, end date, and other relevant lease information.

Rent Growth - The rate at which rental rates are expected to grow over time. Historically it has been typical to underwrite 3% rent growth as a standard, but is not always the case. It is a forecast of how the property’s revenue will grow.

Renewal Notice Period - The time period that a tenant has in their lease to give notice if they are going to renew their lease or not. It is usually 6 or 12 months prior to expiration and helps the owner of the real estate plan to either look for a new tenant or can begin negotiating the renewal terms.

REIT - Real Estate Investment Trust. It is a form of real estate ownership/entity that can be publicly traded and engages in the act of owning/managing large portfolios of commercial real estate. Public REITs typically have a specific focus/asset class that they buy, such as only hotels, only apartments, etc. The REIT structure requires distribution of at least 90% of its income.

Recourse Debt - A loan or obligation where a lender can seek personal recourse to the individual if the loan is not repaid in full. For example, imagine a new acquisition of a $10 million property with an $8 million loan. The property falls in value, the lender forecloses and sells the property for $7 million. The lender can seek a personal judgement to collect the remaining $1 million against the individual borrower’s assets. This is the opposite of non-recourse debt which is more favorable to any individual; however, sometimes recourse is necessary to secure more advantageous terms (such as interest rate or loan amount).

Reciprocal Easement Agreement - Used to document shared ownership of a property, commonly a shared alleyway, driveway, or motor court.

Recapitalization - This type of transaction is the opposite of an acquisition wherein an owner seeks to “take out” or pay off an existing loan with a new loan or “buy out” an existing equity partner with a new partner or new debt.

Re-Flag - A rebranding of a hotel property. This can occur for a few reasons such as the current brand not performing well or if the owner of the hotel does not want to invest further PIP (see property improvement plan) dollars into the property to keep up to brand standards. These issues will usually result in a loss of flag. When a property gets “re-flagged” it is oftentimes a downgrade but can sometimes be the same chain scale or even an upgrade with additional improvements to the property.

Rating Agency - A rating agency is a private, third-party company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. The “big three” rating agencies are Moody’s, S&P, and Fitch.

Rack Rate - The original price of a hotel room before any discounts or promotional rates are applied.


Turning Radius  - The amount of space that a truck has to turn and navigate.

Truck Court - The truck loading/parking area.

Triple Net (NNN) Lease - A type of lease where normal repairs and all operating expenses are passed on to the tenant. Generally, structural repairs (e.g. the roof) are the responsibility of the landlord. If there are numerous tenants, then the tenant will pay its pro rata share of the expenses.

Tri-party Letter or Comfort Letter - An agreement between a lender, the borrower/owner/franchisee and a franchisor that provides the lender reasonable comfort that they will be able to continue normal operations under a brand in the event of a foreclosure.

Tri-party Letter - an agreement between 3 parties, See comfort letter.

Tranche - Defined as “a portion” of something, especially money. Tranche is a useful term in finance and especially real estate finance as cap stacks are often complex with many parts. For example, a senior loan could be split (or “tranched” for industry vernacular) between a senior A note and a subordinate B note - this loan would have two “tranches.”

Tilt-Up - A type of construction where building walls are cast on-site and tilted/lifted up with a crane. This is easily identifiable by a new building that has partial walls lifted that are propped up by diagonal support beams.

Tightening or Compression - Tightening or compression usually means a reduction in cap rate. For example, if market cap rates drop to 4.75% from 5.00% over 24 months, you can indicate that the market tightened 25 basis points.

Tight or thin - When a deal is “tight” or “thin” it usually means that the underwritten returns are very close to minimum required returns and there is little-to-no margin for error in the underwriting.

Tertiary Market - This is the third tier in terms of market classification. These are usually smaller markets where there is not as much investment or liquidity but can result in hidden value if the market continues to grow into a secondary market.

Tenant Rep - The leasing broker that represents a tenant looking to lease new space in a market.

Tenant Improvements (Leasehold Improvements) - Customized alterations that a landlord and tenant agree to as part of a lease agreement to “fit out” the space for the tenant’s specific use. The landlord is usually willing to pay more in tenant improvements for a higher rent or a longer term lease.

Technical Default - A default under the loan documents for a technical clause such as a DSCR test or quarterly occupancy threshold.

Tax Assessment/Reassessment - This is an important consideration for new acquisitions because every municipality handles real estate taxes differently. Let’s say you are analyzing a new acquisition where annual property taxes were $100,000 but the existing owner has owned the property for 20 years. If there has been significant growth in that particular market and the assessment laws are such that reassessments only “trigger” upon sale, then you might have a significant increase in annual property taxes moving forward. It’s sometimes possible for a 2-3x increase in taxes which can alter the pro forma and the specific price that you want to pay. It is very important to research tax assessment policy for the local municipality that you are anlayzing.

Tax Abatement -  Part or all of a tax bill reduced or removed for a certain period of time. It is used as a subsidy in affordable development to make projects economically feasible to build and is often negotiated and granted by a municipality to the developer/investor.

Take Out - The term “take out” refers to the eventual repayment of a loan or recapitalization of equity. It can be used in various ways, such as: “Who will take out our loan?” (i.e. who will be the lender to refi the current loan) or “There is significant take out risk because not many lenders entertain this type of property.”

T12 or TTM - This stands for trailing twelve months financials. This type of financial statement allows the analyst to understand the income-generating potential of an asset up to a very recent time period. For example, if you are analyzing a property in June, a T12 would be more useful to you than the prior calendar year income statement.

Swaps - Generally used as the index rate to price CMBS loans. This rate is based on derivative contracts that indicate how interest rate risk is priced in the overall market. These interest rate “swap” contracts are sometimes less volatile than U.S. Treasuries depending on market conditions.

Supply - The total stock of like-type buildings in a market or submarket. For example, a submarket you are analyzing might have 10,000 class A multifamily units - it would be accurate to say that the supply of Class A units is 10,000.

Submarket - The specific neighborhood or area within a market of a deal. For example, if you are looking at a building in Downtown LA, the submarket would be Downtown and the market would be Los Angeles.

Structure - When you hear someone talking about “structure” in an investment or a loan, this usually means the finer points of the negotiation such as operational controls, ongoing NOI hurdles, buy/sell arrangements, reserve account requirements, etc.

STR Report - A report published by STR, a leading hotel research company, that displays the competitive set for the specific hotel in question and the respective room rates, occupancy trends, and other metrics.

Stabilized - A “status” when a property is at a point where it can comfortably cover debt service (usually 1.25x or more) and generates distributable income to investors. The term “stabilized” is often used to define this point in a property’s life cycle.

Spread - The additional risk premium added to an index rate. Usually quoted in basis points or points.

Sponsor - The “sponsor” of a deal/transaction is the individual or company that will be responsible for the operations and potentially the guarantees under a loan.

Special Servicer - In the event of default, there are certain protocols in place to “transfer” the loan from master servicing to special servicing for loan modification, foreclosure, or workout. The special servicer has more latitude to make decisions on behalf of the securitization trust to protect principal. Special services may be required to make advances of interest or principal payments in the event of a continuing monetary default.

Spec or Speculative Construction - A type of development where a developer commences construction without signed leases and hopes to secure tenants during or after construction is complete.

Sources & Uses - The sources and uses is a balanced table that displays the total budget or total costs (i.e. total basis) of a real estate transaction and the sources of funds to pay for those costs. As a reminder, you should start with the “uses” first because you need to know how much the costs are before you can determine how to “size” the sources between debt and equity.

Soft Costs - The costs in a development that are not associated with the physical building. These are typically professional services, fees and other costs that occur in pre-development such as architect fees, engineering fees, permits, financing costs, etc.

Soft Brand - This is a relatively new hotel term that has come about with the proliferation of all the new brands that have been launched. It is typically under the umbrella of one of the major flags (Hyatt, Hilton, Marriott, etc) but not branded specifically a Hilton or Marriott. Examples of soft brand include Curio Collection by Hilton or Autograph Collection by Marriott. This allows the hotel to retain its own identity while still being part of a larger global brand.

SNDA - Subordination, Non-Disturbance, and Attornment Agreement. These agreements are usually requirements in tenant leases and they allow the landlord and lender to gain comfort with the rent roll. Upon a new loan or refinancing, a lender will typically ask for SNDAs for all tenants (or a certain threshold) to agree to “subordination” or to recognize that the lender has the most senior lien position on the property. In exchange, the lender agrees to non-disturbance, which states that the tenant will maintain their lease as is with no disruption in the event of a default and foreclosure by the lender.

Small-Bay - A form of industrial real estate, “small bay” means multiple individual tenants that make up the facility such as an auto mechanic, furniture fabricator, small business, etc. There are typically 4+ small bay tenants in a multi-tenant building.

Site Selection - The act of choosing parcels/sites that fit certain criteria for a specific use/investor. For example, fast food restaurant and gas station users select sites that have high traffic counts and specific traffic patterns.

Single-Tenant - A building or property that is leased to only one tenant. This is usually a careful consideration for credit analysis because all of the cash flow is derived from one (and only one) tenant with no diversification.

Secondary Market - Markets that exhibit strong growth but do not have the same population or economic mass as the primary markets. These are markets where investors seek to find hidden value and include cities such as Nashville, Austin, Atlanta, Seattle, San Antonio, Tampa, Raleigh, Charlotte, etc.

SBA Financing - Financing provided by the Small Business Administration, an agency of the United States government. The loans are guaranteed by the government which allow for more attractive terms, such as higher leverage, lower interest rates. SBA financing can typically go up to 90% leverage.

“Tie it up” or “tied up” - See “control.” Industry slang/lingo for having control over a deal / exclusivity.


Vintage - The build year or age of an asset. I.e., “2000 CRE Street is a 2010 vintage product.”

Value-Add Deal - These types of deals generally have some component of a “heavy lift” to the them in order to reposition the property or create value. These deals usually have in-place cash flow but significant opportunity for growth. Examples can be elevator/lobby renovations, mark-to-market rent opportunities, unit interior renovations, etc.

Vacancy - See occupancy. Calculated by using the formula (1.0 - Occupancy).

Upscale (Chain Scale) - Example: Doubletree

Upper Upscale (Chain Scale) - Example: Kimpton

Upper Midscale (Chain Scale) - Example: Holiday Inn

Unlevered IRR - The IRR calculation for a given project that does not have any financing (or leverage) included. This is also known as the “all-cash IRR.”

Unit Mix - A breakdown of the type of units in a multifamily property. This summary will show you the types of units (1 bed, 2 bed…) with their average size (SF), how many of each are at the property, and what percentage of the total they represent.

Underwriting (noun) - The “underwriting” is usually a term to loosely describe a set of assumptions and resulting financial projections for a given asset or deal. If someone asks you how the “underwriting” looks for a specific deal, they are probably looking for a pro forma with returns.

Underwrite (verb) - To underwrite a deal means to analyze the qualitative risk and merits and develop numeric assumptions to produce a pro forma.


Widening - The opposite of tightening.

Weighted Average Rent - A metric that allows the analyst to quickly understand the amount of rent per unit (SF, door, etc) that the entire property generates without worrying about individual tenants. This metric shows the overall revenue-generating ability of a property.

Waterfall - This is the official mechanism of how deal (or fund cash) flow is split between partners. The waterfall could be simple or complicated and is usually bespoke for every situation. An example waterfall might read as follows: a) First, pro rata pari passu, 90% to the Limited Partner and 10% to the General Partner until the Limited Partner receives an 8% IRR on invested capital; b) Next, pari passu 80% to Limited Partner and 20% to General Partner until Limited Partner achieves a 10% IRR on invested capital; c) Thereafter, pari passu 70% to Limited Partner and 30% to General Partner.

WALT or WART - Weighted average lease term or weighted average remaining term. This is the weighted average of the number of years remaining on the leases of the property. The average is weighted by the square footage of the individual leases, which provided the analyst with a time horizon of how soon the tenant leases will expire within the building. Property values are typically correlated with how much WALT/WART remains.


Zoning - The designation by a municipality that allows for certain uses of real estate to be built, such as industrial zoning, residential zoning.

Yield Maintenance - A form of “prepayment penalty” which results in the borrower needing to replace the yield that the lender was expecting on the loan with an up-front payment. It is typically an expensive way to prepay a loan and should only be utilized if the expected profit on the property will far exceed the penalty.

Yield - The profitability of an investment at a certain point in time defined by the cash flow for that period divided by the total cost or total basis of the investment. This is different from “return” which is a backward-looking profitability metric that is calculated after an investment is fully realized.