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  August 12, 2005
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Glossary of Real Estate Terms

This Glossary has been provided as a courtesy to assist you in gathering information relative to your commercial real estate financing needs and has been linked to various pages within the Pacific Security Capital website for your convenience. If you do not find what you're looking for in this glossary, please do not hesitate to contact us or review our FAQ's page. Thank you for your consideration.

*Note: The following information is provided without warranty of any kind and for informational purposes only.
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1031 Exchange: Section 1031 of the Internal Revenue Code allows for the disposition of interests in commercial real estate assets on a tax free basis so long as the proceeds from sale are transferred into "like kind" assets within a time period certain in compliance with section 1031. For more information on 1031 exchanges you can contact the Internal Revenue Service or a professional advisor such as Pacific Security Capital.

AAA Tenant: A tenant with a top credit rating. This type of tenant is often critical to the developer’s ability to arrange both construction and permanent financing for a major commercial project, such as a shopping center or office building.

Abandonment: The voluntary relinquishment of rights of ownership or another interest (such as an easement) by failure to use the property, coupled with intent to abandon (give up the interest).

Abatement: A reduction or decrease. Usually applies to a decrease of assessed valuation of ad valorem taxes after the assessment, and levy.

Above Building Standard: Upgraded finishes and specialized designs necessary to accommodate a tenant’s requirements.

Absorption Rate: The rate (speed) at which vacant space is either leased or sold to users in the marketplace. This rate is usually expressed in square feet per year or in the case of multi-family housing, in the number of units per year. "Market Absorption".

Abstract of Judgment: A summary of money judgment obtained in court. (When this summary or abstract is recorded in the county recorder's office, in some states the judgment becomes a lien on the debtor's property, both presently owned and/or after-acquired.)

Abstract of Title: A summary prepared by a licensed abstractor of all documents recorded in the public records of the political subdivision where the land is located. An abstract in some states or areas is reviewed by an attorney or other experienced title examiner to determine the status of title. Virtually every abstractor today provides actual copies of the records rather than an abstract of each document.

Acceleration Clause: A cause in a deed of trust or mortgage, which "accelerates," or hastens, the time when the indebtedness becomes due. For example, some deeds of trust contain a provision (an acceleration clause) stating that the note shall become due immediately upon the sale of the land or upon failure to pay interest or an installment of principal and interest.

Accommodation Recording: Recording of instruments with the county recorder by a title company merely as a convenience to a customer and without assumption of responsibility for correctness or validity.

Acknowledgment: A formal declaration before a duly authorized officer (such as a notary public) by a person who has executed an instrument that such execution is his own act and deed. An acknowledgment is necessary to entitle an instrument (with certain specific exceptions) to be recorded, to impart constructive notice of its contents and to entitle the instrument to be used as evidence without further proof. The certificate of acknowledgment is attached to the instrument or incorporated therein.

Acquisition and Development Loan (A&D Loan): Debt financing for the purchase and preparation of raw land for development. Usually a construction loan or land sale is the source of repayment.

Acre: A measure of land equal to 43,560 square feet.

Ad Valorem: According to value. This is a tax imposed on the value of property (references a general property tax), which is typically based on the local government’s valuation of the property.

Advisory Services: Outsourced professional services provided to commercial real estate practitioners in order to assist them with areas in which they don't have the internal skill sets or where they need third party impartiality. Typical areas of service include:
Advisory Services for Mezz Lenders and Equity Providers
Capital Formation and Acquisition Services
Capital Partner Services
Corporate Real Estate Services
Development Advisory Services

Add-On Factor: Often referred to as the Loss Factor or Rentable/Usable (R/U) Factor, it represents the tenant’s pro-rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. It is usually expressed as a percentage which can then be applied to the usable square footage to determine the rentable square footage upon which the tenant will pay rent.

Allowance Over Building Shell: Most often used in a yet-to-be constructed property, the tenant has a blank canvas upon which to customize the interior finishes to their specifications. This arrangement caps the landlord’s expenditure at a fixed dollar amount over the negotiated price of the base building shell. This arrangement is most successful when both parties agree on a detailed definition of what construction is included and at what price.

Amendment: A change to either alter, add to, or correct part of an agreement without changing the principal idea or essence.

American Land Title Association (ALTA): An association representing more than 2,100 title abstractors, title insurance companies, title insurance agents, and associate members that was founded in 1907. Members of the association use standardized title insurance forms developed by ALTA to provide uniformity within the industry. ALTA’s national headquarters is located at 1828 L Street, N.W., Suite 303, Washington, D.C. 20036; (202) 296-3671.

Amortization: The repayment of a mortgage debt over a period of time in a series of periodic installments. It should be noted that a portion of each payment consists of a blend of interest and amortization of principal. Specifically, this is the payback of the principal portion of the loan owed to the lender. The effect of amortization is to build up the paper value of the owner's equity while reducing the debt obligation. For your convenience, we have provided a list of most asset classes where you will see typical amortization schedules as they relate to said asset classes.

Anchor Tenant: A well-known commercial retail business such as a national chain store or regional department store (AAA Tenant) strategically placed in a shopping center so as to generate the most customers for all of the stores located in the shopping center. This term usually applies in reference to a retail property. For more information on underwriting guidelines for retail loans please click here.

Anchored Centers: A shopping center with at least one anchor tenant.

Annual Loan Constant: The ratio of the annual debt payment on a loan to the original amount borrowed. The loan constant is also referred to as a mortgage constant.

Annual Percentage Rate (APR): The actual cost of borrowing money, expressed in the form of an annual interest rate. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points, and other credit costs paid to the lender.

Appraisal: An estimate of opinion and value based upon a factual analysis of a property by a qualified professional who preferrably possesses an MAI designation. For more information please see our Advisory Services page.

Appreciation: The increased value of an asset.

"As-Is" Condition: The acceptance by the tenant of the existing condition of the premises at the time the lease is consummated. This would include any physical defects.

Assessment: A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.

Assignment: A transfer by lessee of lessee’s entire estate in the property. Distinguishable from a sublease where the sub lessee acquires something less than the lessee’s entire interest.

Average Daily Rate (ADR): The average rate charged by a hotel for one (1) room for one (1) day; arrived at by dividing the total room revenue by the actual rooms occupied. Please view our hospitality underwriting guidelines for more information

Average Life: It is a way to look at the term of a loan or bond that accounts for principal pay downs. If a loan is interest only with a full balloon at the end, the average life will equal the maturity. If there is amortization, principal is being paid over the life of the loan, decreasing the balloon payment and the average life. This number is then used to find the treasury that has the closest remaining term, but is not shorter. For example, a 10/25 loan has an average life of 9 years. 9 years from today is October 2008. The current list of outstanding, non-callable US treasury securities with maturities in 2008 includes March 2008, June 2008, September 2008 and a December 2008. The lender would choose the December 2008 because it is longer than the actual due date.



Balloon Payment: A large principal payment that typically becomes due at the conclusion of the loan term. Generally, it reflects a loan amortized over a longer period than that of the term of the loan itself (i.e. payments based on a 25 year amortization with the principal balance due at the end of 5 years). See "Bullet Loan".

Bankrupt: The condition or state of a person (individual, partnership, corporation, etc.) who is unable to repay it's debts as they are, or become, due.

Bankruptcy: Proceedings under federal statures to relieve a debtor who is unable or unwilling to pay its debts. After addressing certain priorities and exemptions, the bankrupt’s property and other assets are distributed by the court to creditors as full satisfaction for the debt. See also: "Chapter 11".

Base Rent: A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease. See also "Escalation Clause", "Operating Expense Escalation" and "Percentage Lease".

Base Year: Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences. Once the base year expenses are known, the lease essentially becomes a dollar stop lease.

Basis Points: One-100th of 1 percent. Used primarily to describe changes in yield or price on debt instruments including mortgages and mortgage-backed securities.

Below-grade: Any structure or a portion of a structure located underground or below the surface grade of the surrounding land.

Bridge Loan: A loan which enables a buyer to purchase a property, then allow for time to rehab and/or increase NOI prior to placement of permanent financing or enables buyer to get financing to make a down payment and pay closing costs before selling the present property. Also called “gap” financing. This type of financing is provided by real estate investment banks such as Pacific Security Capital.

Building Classifications: Building classifications in most markets refer to Class "A", "B", "C" and sometimes "D" properties. While the rating assigned to a particular building is very subjective, Class "A" properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking. These buildings, of course, command the highest rental rates in their sub-market. As the "Class" of the building decreases (i.e. Class "B", "C" or "D") one component or another such as age, location or construction of the building becomes less desirable. Note that a Class "A" building in one sub-market might rank lower if it were located in a distinctly different sub-market just a few miles away containing a higher end product.

Building Code: The various laws set forth by the ruling municipality as to the end use of a certain piece of property and that dictate the criteria for design, materials and type of improvements allowed.

Building or "Core" Factor: Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage. See also "Rentable/Usable Ratio".

Building Owners & Managers Association (BOMA): An organization of practitioners who own and manage buildings, most often office space. Sets the basis by which most regional expense standards are established. Address: Building Owners and Managers Association 1221 Massachusetts Avenue NW Washington, DC 20005.

Building Standard: A list of construction materials and finishes that represent what the Tenant Improvement (Finish) Allowance/Work Letter is designed to cover while also serving to establish the landlord's minimum quality standards with respect to tenant finish improvements within the building. Examples of standard building items are: type and style of doors, lineal feet of partitions, quantity of lights, quality of floor covering, etc.

Building Standard Plus Allowance: The landlord lists, in detail, the building standard materials and costs necessary to make the premises suitable for occupancy. A negotiated allowance is then provided for the tenant to customize or upgrade materials. See also "Workletter".

Build-out: The space improvements put in place per the tenant's specifications. Takes into consideration the amount of Tenant Finish Allowance provided for in the lease agreement. See also "Tenant Improvement Allowance"

Build-To-Suit: An approach taken to lease space by a property owner where a new building is designed and constructed per the tenant’s specifications.

Bullet Loan: Any short-term, generally five to seven years, financing option that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. Essentially, should the refinancing not be available, often due to the property not performing as anticipated, the borrower is "shot" and the property is subject to foreclosure. An example of this is when a developer borrows to cover the costs of construction and carry-costs for a new building with the expectation that it would be replaced by long-term (or "permanent") financing provided by an institutional investor once most of risk involved in construction and lease-up had been overcome resulting in an income-producing property.