commercial Real Estate Jargon Investors Should Know

Commercial real estate speculation is a new territory for many real estate investors. The following is the alphabetical list of most ordinarily used terms in this area.

Anchored tenants: big brand-name national tenants, e.g. Albertsons, Longs Drug, Walmart that bring in lots of traffic to the shopping center.

Rent A Center

Cam: base Area Maintenance. linked with Cam is Cam fees. For Nnn leases, the term Cam fees refer to the money tenants pay landlord to cover property taxes, assurance and maintenance.

Cap rate: Return of speculation in the first year of ownership. Capitalization rate is the ratio of 1st year Net Operating earnings over the purchase price. The higher the cap rate, the higher the rental income. For habitancy who spend in the stock market, cap rate is the inverse of P/E ratio.

Cash on cash: yearly percentage return of your down payment not including appreciation. First year cash flow divided by your preliminary down payment.

Conduit loan: also called commercial Mortgage Backed Securities (Cmbs) loan often with the lower rate than primary commercial loan but either has high pre-payment penalty (called defeasance or Yield Maintenance Penalty) or does not have payoff flexibility.

Cpd: Car Per Day or traffic volume on a road.

Cpi: consumer Price Index. It's often used to reckon yearly rental increase to compensate for inflation.

Due Diligence Period: the period after acceptance regularly 15-30 days to allow buyer to study about the property. Buyer can cancel the covenant while this time for any reasons and get full reimbursement of the deposit.

Estoppel Certificate: a letter provided and signed by tenant confirming the current rent and terms.

Full-service lease: lease in which tenant pays rent that covers everything including utilities.

Gross income: total yearly earnings before any expenses.

Gross lease: lease in which tenants just pay rent. Landlord pays tax, insurance, & maintenance.

Gla: Gross Leaseable Area or total rentable area. This is the space that can be leased and receive rental income. It does not include spaces for utilities room, elevator, etc.

Grm: Gross Rent Multiplier for apartment. Ratio of purchase price over yearly income.

Llc: dinky Liabilities Company. A legal entity many investors formed to own commercial properties.

Loi: Letter of Intent/Interest or the regularly non-binding offer letter used to make an offer to buy a commercial property.

Mai appraiser: Member evaluation create commercial appraiser.

Master lease: lease signed by the seller to rent the vacant space to provide rent guarantee.

Mixed Use: commercial properties with sell on 1st floor and apartment on upper floors.

Triple Net (Nnn) lease: lease in which tenants pay base rent plus property tax, assurance & Cam fees. Absolute Nnn lease is Nnn lease that tenants also pay property supervision fee.

Noi: Net Operating Income. yearly earnings after all expenses (property taxes, ins., & maintenance) except mortgage payment.

Pad: stand alone building in a prime location of a big shopping center.

Pass Thru: see reimbursement.

Percentage lease: lease in which tenant pays base rent plus a percentage of tenant's revenue.

Phase I Report: inspection report that provides an evaluation for soil/environment contamination. It's regularly required by the lender as part of loan approval process for a commercial property.

Phase Ii Report: inspection report for soil & groundwater subsurface investigation. This inspection is more allembracing which involves testing to see if there is any soil and water contamination.

Proforma income: potential, i.e. Higher, earnings when the property is 100% leased.

Proforma Cap rate: potential cap rate assuming property is 100% leased at store rent.

Reimbursement: the share of property tax, assurance & Cam fees that a tenant has to pay the landlord besides the base rent.

Rent guarantee: rent paid by the seller to buyer for vacant spaces until they are leased.

Sba Loan: a government-guaranteed loan for owner-occupied properties.

Snda: Subordination, Non-disturbance, and Attornment. It's an agreement required by lender, signed by the tenants agreeing: the new lien in 1st position; lender as landlord in case of foreclosure; lease as valid as long as tenant is not in default.

Tic: Tenants In Common. A way for small/self-directed Ira investors to own a fraction of high-valued properties as tenants in common.

commercial Real Estate Jargon Investors Should Know