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Real Estate Glossary


The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.

Total cost recovery deductions taken throughout the holding period of a property.

Income from salary, wages, tips, commissions, and activities in which the taxpayer materially participates. Also see passive income.

The ratio of rentable to usable square feet. Also known as the load factor and the rentable-to-usable ratio. Also see efficiency percentage. Formula:
Add-on factor = Rentable square feet
Usable square feet

Fourth stage of four-stage transaction management process pertaining to a transaction manager’s planning, effort, and continual contact with key decision-makers, investors, and users, as well as contact with ancillary professionals. This ongoing process allows for feedback, establishes a network for problem solving, provides a means to offer additional services to the client, and enhances the transaction manager’s preparedness for the next assignment.

The original cost basis of a property plus capital improvements, less total accumulated cost recovery deductions, and partial sales taken during the holding period.

Cost reductions or savings that come about from efficiency gains associated with the concentration or clustering of firms/producers or economic activities and the formation of a localized production network.

The repayment of loan principal through equal payments over a designated period of time consisting of both principal and interest.

The total amount of principal and interest to be paid each year to satisfy the obligations of a loan contract.

The true annual interest rate payable for a loan in one year taking account of all charges made to the borrower, including compound interest, discount points, commitment fees, mortgage insurance premiums. It also takes into account the time at which the principal is repaid (especially when payments of principal are made in installments throughout the year, but interest is charged at the beginning of the year), but not the actual expenses incurred by the lender in making the loan and recharged to the borrower. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)

Regular fixed payments or receipts over a designated period of time.

The possibility or probability that a real estate investment will increase in value during the holding period.

The value of real property established by the tax assessor for the purpose of levying real estate taxes.

The average annual effective rent divided by the square footage.

A simple technique used to forecast next period’s/year’s vacancy rate by averaging previous years’ vacancy rates; especially effective where vacancy rates have remained relatively flat or show little variability over time.


The final payment of the balance due on a partially amortized loan.

A face, quoted, dollar amount representing the rate or rent in dollars per square foot per year and typically referred to as the base rate.

The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. The annual base rate is the amount upon which escalations are calculated.

Employment that is considered to be export-oriented or export-driven, associated with activities that generate income from the sales of products and services in markets outside the local economy.

The total amount paid for a property, including equity capital and the amount of debt incurred.

The sum of the present values of the mortgagor and mortgagee of property.

The stage at which an investment produces an income that is just sufficient to cover recurring expenditure. For an investment in real property, the point at which gross income is equal to normal operating expenses, including debt service (the stage at which the next cash flow becomes positive). Also known as the default point. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)

The sales threshold over which percentage rent is due. It is calculated by dividing the annual base rent by the negotiated percentage applied to the tenant’s gross sales.

The uncertainty associated with the possible profit outcomes of a business venture.

The point at which there is a recognizable shift of expenditure allocations away from owner-occupied housing and to the rental housing market (or vice-versa) as a result of changing market conditions.


See common area maintenance.

The maximum amount for which the tenant pays its share of common area maintenance costs. The owner pays for any CAM expenses exceeding that amount.

Property improvements that cannot be expended as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot—such items are added to the basis of the property and then can be depreciated over the holding period. Distinguished from cash outflows for expense items such as new paint or plumbing repairs (operating expenses) that can be expended in the year they occur.

Taxable income derived from the sale of a capital asset. It is equal to the sales price less the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.

The supply and demand for resources to invest in real estate and other investments.

A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price.

Any tax on a change in capital value (including capital gains tax, estate tax, or inheritance tax); as distinguished from a tax on income. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)

The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.

For properties, it is the result of first calculating the net operating income, less mortgage and construction loan interest, less cost recovery for improvements and personal property, less amortization of loan points and leasing commissions to arrive at real estate taxable income. Next, real estate taxable income is multiplied by the applicable marginal tax rate to result in the tax liability (savings). Then, from the net operating income, annual debt service is subtracted to equal the cash flow before taxes (CFBT). Finally, the cash flow after taxes (CFAT) is calculated from the CFBT, less the tax liability (savings), plus investment tax credit. The Cash Flow Analysis Worksheet can be used to calculate a property’s gross operating income, net operating income, real estate taxable income and tax liability or (savings), CFBT, and CFAT.

Net operating income
– Interest

– Cost recovery
– Amortization of loan points Real Estate taxable income

× Investor’s marginal tax rate
Tax liability (savings)
Net operating income
– Annual debt service Cash flow before taxes
– Tax liability (savings) Cash flow after taxes

For properties, it is the result of calculating the effective rental income, plus other income not affected by vacancy, less total operating expenses, less annual debt service, funded reserves, leasing commissions, and capital additions. The Annual Property Operating Data form can be used to calculate a property’s effective rental income, gross operating income, total operating expenses, net operating income, and cash flow before taxes.


Refers to information collected and presented in a form that facilitates processing and analysis.

The amount or degree to which data points in a series are spread or dispersed about their mean (also referred to as variation about the mean).

Ratio of net operating income to annual debt service. Expressed as net operating income divided by annual debt service.

The loss of utility and value of a property.

The volume or quantity of a product or service purchased, or willing to be purchased, in relation to price.

Elements or forces that influence the demand for goods and services in a given market area.

Characteristics of human populations as defined by population size and density of regions, population growth rates, migration, vital statistics, and their effect on socio-economic conditions.


Those economic activities or sectors in a local or regional economy that account for a certain share of the area’s income that is generated from exports of goods and services.

Inquiries that focus on the extent to which changes in basic employment (export-oriented activities and associated wage-income) affect the economic, employment, and population growth of a local or regional economy.

A measure that provides a rough estimate of how changes in basic employment will affect total employment in a given region (all other things being equal); defined as the ratio of total employment to basic employment.

Attributes of the workforce, including production and employment activities.

The reduction in a property’s value due to external circumstances such as legislation or changes in nearby property use.


The rudimentary components of any production process or system consisting of: land and land-based resources (including raw materials); capital, which includes real capital such as machinery, facilities, and infrastructure and financial capital to start or expand businesses; labor or human input (as defined in terms of labor hours or quality/productivity); and technology which includes production know-how and methods, as well as management and
operations skills.

The amount at which the asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. (Real Estate Information Standards)

This type of retail center is composed mainly of upscale apparel shops, boutiques, and craft shops carrying selected fashion or unique merchandise of high quality and price. These centers need not be anchored, although sometimes restaurants or entertainment can provide the draw of anchors. The physical design of the center is very sophisticated,
emphasizing a rich décor and high-quality landscaping. These centers usually are found in trade areas having high-income levels.

The process of evaluating a proposed project to determine if that project will satisfy the objectives set forth by the agents involved (including owners, investors, developers, and lessees).

The use of borrowed funds to acquire an investment.

The possible change in an investment’s ability to return principal and income.


An evaluation of the difference in the demand and supply of space (measured in terms of square footage) for a particular type of commercial property in a given market area where gaps are expressed as the amount of square footage demanded less the amount of square footage available in a given time period. Note that if demand exceeds supply, the gap will be positive. A positive gap indicates that potential opportunities exist for successful commercial real estate transactions. However, transactions might be avoided when supply exceeds demand (or when a negative gap occurs), as there is an oversupply of available space in the market.

A gap analysis that is carried out for a city or several cities (simultaneously) to identity one or more general market areas where a positive gap exists for a particular type of commercial real estate. Also see gap analysis.

Factors influenced by the demographic, economic, and locational characteristics and the organizational aspects of a market.

Commercial space that can be used for a variety of purposes, such as multiple-use office space.

System(s) (usually computer-based) used for capturing, handling, storing, retrieving, managing, manipulating, and displaying geographic information or geo-coded data.

The total number of households or housing units within a given area as defined by tenure, income, and other socio-economic attributes that are known to exist or estimated to be within specific geographic units or divisions (for example, in various census tracts).

The condition of being or becoming globalized. A concept used to recognize cross jurisdictional inter-dependencies and the continuing integration of local, regional, and national economies which now form a larger economic and production system that is worldwide in scope and application; a trend that has greatly affected local economic change
and real estate values.

Concession given or measures taken by local or regional government to attract firms or investment dollars to a given locality for the purposes of promoting economic growth and encouraging development.

A model that is used to account for a wide variety of flow patterns in human/economic systems, based on Newton’s gravity equation which defines gravity or the flow potential (between two sites or locations) as directly proportional to the product of their masses (or size) and inversely proportional to the square of the distance between them: gravity = (mass × mass) ÷ distance2.


In reference to location-decision considerations made in relation to the energy or power requirements of a firm/user in the assessment of the feasibility of a location to support a given activity.

Protecting oneself against negative outcomes.

A good or service requiring a high threshold population before it is offered to a market. Such a good or service requires a large number of consumers to support its business and requires a larger trade area than a low order good. Also see lower order good.

Economic sectors and activities oriented toward the creation and production of high technology products and the use of advanced designs, techniques, or devices in fields like electronics, optics, lasers, aerospace, computers, semiconductors, and telecommunications.

The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. [Appraisal Institute]


Unstable or nonsustainable conditions which arise out of a market disequilibrium or the lack of balance between the forces of supply and demand in any or all subcategories of commercial properties in one or more geographic submarkets over a given time period.

A market in which product differentiation exists, there is a lack of important product information, and certain buyers or sellers may influence the market. Commercial real estate is bought and sold in an imperfect market.

The process by which a given geographic area absorbs new individuals/households from locations outside that area (an influx of individuals/households to a given area).

An approach to estimating the trade area (and sales/revenue potential) for a given retail establishment or center based on observed flow patterns or traffic counts, where estimates are obtained for both the percentage of traffic that stops or patronizes that establishment/center and the percentage of people coming in-the-door who make a

A method to estimate the value of an income-producing property by converting net operating income into a value. The cap rate is divided into the net operating income to obtain the estimated value.
Value = net operating income ÷ capitalization rate

A lease in which the rental amount adjusts accordingly to changes and/or movements in a price index, commonly the consumer price index.


With respect to the handling of hazardous materials, they are important laws or statutes enacted to enforce the responsible handling of materials to minimize the danger to human beings and/or the environment.


A body or core group of workers (employed and employable) that make up the local labor force.

The lessor or owner of the leased property.

The total cost (outlay) of necessary tenant improvements paid by the landlord netted against any contribution made by the tenant.

The same concept as a sale-leaseback, but only the land is sold and leased back using a ground lease.


Generally used in reference to matters of economy or economic factors and forces portrayed or operating at the macro-level (as opposed to micro-level), used synonymously with national economy.

The ability to monitor the performance of an investment and make changes as needed.

The steps taken by an investor or manager to control or reduce investment risk.

Computer-mapping programs that perform any of a wide variety of map-making tasks (for both on-screen and file-oriented use).

The ability to sell or lease a property quickly. Marketability deals with the appeal and demand for a property, good, or service.

A geographical area in which supply and demand operate to influence the course of industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).


Borrowed funds are invested at a rate of return lower than the cost of funds to the borrower.

This center is designed to provide convenience shopping for the day-to-day needs of consumers in the immediate neighborhood. According to ICSC’s SCORE publication, a supermarket anchors half of these centers, while about a third have a drugstore anchor. Stores offering pharmaceuticals and health-related products, sundries, snacks and personal
services, support these anchors. A neighborhood center is usually configured as a straight line strip with no enclosed walkway or mall area, although a canopy may connect the storefronts.

A lease in which the tenant pays, in addition to rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs. Also see gross lease.

Employment that is considered to be of the nonexport-oriented variety: employment not associated with export-oriented activities. Nonbasic employment is best characterized by industries and activities that produce goods and services exclusively for local use or consumption.


In reference to the inadequacy, disuse, outdated, or nonfunctionality of facilities, infrastructure, products, or production technologies due to effects of time, changing market conditions, or decay (a factor considered in depreciation to cover the decline in value of fixed assets due to the invention and adoption of new production technologies, or changing consumer demand).

The actual dollars paid out by the tenant to occupy the space. It can be expressed in either pre-tax or after-tax dollars.

Low-rise – Fewer than seven stories high above ground level.
Mid-rise – Between seven and twenty-five stories above ground level
High-rise – Higher than twenty-five stories above ground level. [BOMA]

The difference between the demand for office space and the supply of office space by property type, submarket, sector, or user classification in a given geographic market.

A commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Office properties may be classified as Class A, B, or C. Class A properties are the most functionally modern.
Properties Classed B and C in the same market typically command lower rents because they are older and in need of modernization. They may not be as efficient or desirable as Class A properties because their design or condition causes functional problems.


The payments do not repay the loan over its term and thus a lump sum (balloon) is required to repay the loan.

A loan secured by real property, with a stated interest rate that also provides for a share to the lender in annual net cash flow, gain on sale, or proceeds from refinancing the property. (Real Estate Information Standards)

Income from rental activity, limited business interests, or other activities in which the investor does not materially participate.

Losses from the ownership of passive investments.

A periodic amount paid or received for two or more periods.


First stage of four-stage transaction management process pertaining to the process of gathering and evaluating information to measure a client’s readiness, willingness, and ability to consummate a transaction. The acronym QUALIFY represents the considerations of quantify, usage, authority, latitude, intention, financial, and yield involved in the qualify stage.

The psychological and individual aspects of social well-being as perceived and experienced by people in reference to a given geographic area, which reflect a state of mind or position on the prevailing quality of existence in relation to various socio-economic and environmental conditions and/or amenities known to be associated or found within that


The maximum distance consumers are willing to travel to purchase a good or service from a given establishment or location. Hence, the boundary or outer limits of the market area circumscribed about a location at which a good or service may be purchased can be easily identified having knowledge of the range.

The percentage return on each dollar invested. Also known as yield.

The regularly repeating sequence of economic downturns and upturns and associated changes in real estate market transactions tied to market dynamics and changing macroeconomic conditions, whose phases include (in order) recession, recovery, expansion, and oversupply.

Short-term variations in real estate prices or rents (usually lasting anywhere from one day to a few months) caused by natural hazards (such as tornadoes, hurricanes, floods, earthquakes, and wildfires) or boosts or shocks to the local economy (such as the entry or exit of major employers).


The rate a low risk, liquid investment achieves.

The brokerage commissions and fees, and any additional transaction costs that are incurred during the sale of the property.

A leasing and financing strategy in which a property owner sells its property to an investor, then leases it back. This strategy frees capital that otherwise would be frozen in equity.

The sale proceeds before tax minus the tax liability on the sale.

The sale price minus the sale costs and the mortgage loan balance.


A chart used to summarize the timing of real estate cash flows.

Attributes that are quantifiable, measurable, factual, or expressed numerically as data or statistics.

Likely users or investors whose needs match the property’s features.
Alternatively, when representing users, the target market is the kind of property that matches your user-client’s needs.

The impact of taxes on investment income and rate of return.

Real estate taxable income multiplied by the tax rate.


A complex and structured urban environment or system composed of highly diverse, interacting, and interdependent parts and activities aggregated or organized in such a way as to serve a common purpose and/or satisfy the needs and wants of people residing in and dependent upon that system.

Rentable area, less certain common areas that are shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). Also defined in office buildings as the area that is available for the exclusive use of the tenant. Useable area = rentable area × building efficiency percentage.

In reference to the identification and classification of properties and the evaluation of feasibility characteristics of various locations/sites in accordance with the specific needs of the user as defined by its business requirements, and the use and zoning restrictions in any given jurisdiction or municipality.


The number of units or space (of a specific commercial type) that are vacant and available for occupancy at a particular point in time within a given market (usually expressed as a vacancy rate).

A desirable level of vacancy that is known to facilitate transactions and turnover in a housing market (for example, a vacancy rate that allows the market to operate smoothly and efficiently by enhancing household mobility); an index used for estimating housing demand.

The percentage of the total supply of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market.

A measurable attribute of a person, place, property, location, or other phenomenon of interest, whose value may vary from observation to observation.

Costs, such as utilities, that vary with a building’s occupancy rate.


The average cost of capital (whether equity or debt), taking into account the relative proportions of each source of capital. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)

Mainframe-oriented or UNIX-based computer-software products, programs, and systems that are specifically geared toward large-scale applications, requiring large platforms and advanced programming skills and knowledge.


A measure of investment performance that gauges the percentage return on each dollar invested. Also known as rate of return.


The designation of specific areas by a local planning authority within a given jurisdiction for the purpose of legally defining land use or land use categories.

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