A-BC-DE-FG-HI-JK-LM-NO-PQ-RS-TU-VW-XY-Z

Commercial Real
Estate Dictionary

General

Definitions

A-B

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.

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.

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.

C-D

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.

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

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.

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).

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.

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.

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.

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

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.

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

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).

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.

E-F

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.

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.

G-H

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).

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.

I-J

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.

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.

K-L

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.

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.

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 - 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.

M-N

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

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 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.

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.

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.

O-P

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.

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.

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.

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.

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.

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)).

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.

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

Q-R

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.

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.

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

S-T

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.

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.

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.

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.

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.

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.

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.

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.

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.

U-V

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).

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.”

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.

W-X

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.

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.

Y-Z

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.