Commercial Real Estate Concepts

These flashcards cover key vocabulary and concepts from the lecture on Commercial Real Estate, including definitions and implications.

Commercial Real Estate (CRE)

Property used to run a business and generate income (not primarily for living).

Asset Classes

The main property categories (office, industrial, retail, multifamily, etc.).

Rent Roll

A list of tenants and lease details that shows who pays what and when leases expire.

Pro Forma

A forward-looking financial forecast of income, expenses, and returns for a holding period.

Gross Potential Rent (GPR)

Maximum rent if the building is 100% occupied at market rent.

Common Area Maintenance (CAM)

Tenant-paid charges to maintain shared areas (parking, lobbies, landscaping, security).

Ancillary Income

Extra income beyond base rent (parking, laundry, storage, pet fees, cell tower, etc.).

Effective Gross Income (EGI)

Total income after subtracting vacancy and credit loss (and sometimes loss-to-lease) from potential income.

Operating Expenses (OpEx)

Ongoing costs to operate the property (taxes, insurance, utilities, repairs, management).

Net Operating Income (NOI)

Income from the property before debt: NOI = EGI − OpEx.

Cap Rate

Unlevered yield based on current NOI: Cap Rate = NOI / Price (or Value = NOI / Cap Rate).

REITs

Companies that own/operate (or finance) real estate; you buy shares to get real estate exposure.

Syndications

A deal where multiple investors pool money; a sponsor runs it and investors share profits.

Debt Service (Debt Servicing)

The required loan payments (principal + interest) paid over time.

 How do people measure how much a property is making in cash flow?

By looking at NOI and cash flow after debt service (what’s left after loan payments).

What is a cap rate and what does it tell us?

A quick pricing/yield metric; lower cap = higher price/safer, higher cap = cheaper/riskier (usually).

How do interest rates affect CRE?

Higher rates make loans cost more and often push values down; lower rates usually support higher values.

Why is CRE popular?

It can produce steady income, appreciate, hedge inflation, and use leverage to boost returns.

Why does CRE move with social/economic trends?

Demand for space changes with jobs, migration, tech (e-commerce/remote work), and consumer behavior.