REFM CRE Job Interview Vocabulary Terms

Accumulated Depreciation

The amount of a property's depreciable cost that has been allocated to depreciation expense since the time the property was acquired.

Actual 360

A loan interest calculation method in which the annual rate is divided by 360 days (not 365) and then multiplied by either 365 or 366; this is the most expensive basis of calculation for the borrower.

Actual 365

A loan interest calculation basis in which the monthly rate is calculated by taking the annual interest rate, dividing it by 365 days and then multiplying that daily rate by the number of days in the current month.

Additional Rent

Any rent obligation of the tenant to the landlord under the terms of a lease other than base rent and base rent escalations. Percentage rent is a form of additional rent.

Adjusted Funds from Operations (AFFO)

A real estate company's cash available for distribution to shareholders without a deterioration of its asset base.

Adjusted NOI

Unlevered cash flow where the adjustment to NOI is the deduction of normal reserves.

After-Tax Cash Flow

Before-Tax Levered Cash Flow less Income Tax Liability.

Agglomeration Economies

The benefits that come when firms and people locate near one another together in cities and industrial clusters.

Amortization

The repayment of principal borrowed from a lender.

Amortization Schedule

The contractual schedule of principal and interest payments owed by the borrower to the lender for the principal borrowed.

Ancillary Income

Income generated from all other activities conducted at the property other than rental of suite square footage.

Annuity Factor

The interest rate- and amortization term-based factor whose reciprocal is the mortgage constant. The mortgage constant is the percentage of the original loan principal amount that when multiplied by the loan principal amount, gives you the annual constant payment (comprised of both principal and interest).

Appraisal

A valuation method for properties based on comparable sales or income capitalization.

Appurtenant Easement

The right for someone to cross through the property for transportation, ingress, or egress purposes.

Assessed Tax Value

The dollar value assigned to a property to calculate applicable real estate taxes.

Assumable Debt

Debt on a property that can be transferred from the current owner to a new owner along with the transfer of title.

Balloon Payment

A repayment of the outstanding principal sum made at the end of a loan period.

Bankruptcy

Legal protection for borrowers from their creditors; bankruptcy law provides a structured mechanism by which debtors unable to meet the terms of their credit agreements can attempt to resolve their debts and other liabilities.

Base Rent

The initial year's rent for leased space.

Base Rent Escalations

How the base rent changes during the life of a lease; may be based upon inflation measures; may grow at specified dollar or percentage increments over the lease; or there may be no rent escalations in the lease at all.

Base Year

The year in the lease at which base levels of operating expenses are set, and above which increases in expenses may be borne by the tenant.

Before-Tax Levered Cash Flow

Unlevered cash flow minus total debt service (interest payments and any amortization).

Breakpoint

A predetermined revenue threshold over which a percentage of incremental sales are paid to the retail landlord.

Brokerage Commission

The commission an investment sales broker receives for closing a property purchase and sale transaction.

Brownfield Site

A site that formerly had an industrial use that may currently be environmentally impaired.

Build to Cap Rate

Build to an X means that projected NOI for the property upon stabilization divided by the expected total development cost equals X%; so to build to a 10 means that your stabilized annual NOI return is 10% of the total development cost.

Bulk Warehouses

Very large buildings that range from 50,000-1,000,000 square feet; located near major transportation hubs for ease of truck access; concerned with cubic square footage, as stacking height is critical; must be able to accommodate multiple trucks entering and exiting the building loading docks.

Bullet Payment

If the loan term exceeds the amortization term, a final debt service payment that repays all remaining principal.

Capital Appreciation

The return you earn as the building's value increases (or decreases).

Capital Calls

When a private equity fund calls for a portion of an investment commitment be transferred to the fund.

Capital Expenditure Reserves

The cash amounts set aside for funding future capital projects such as major renovations or roof or elevator replacement.

Capital Expenditures

Abbreviated as Cap Ex, dollars spent by the landlord for the repair or replacement of major property elements not located in tenant premises.

Capital Gains Tax

U.S. tax on long-term gains on capital assets. There are two components which are taxed: 1) the actual gain you achieve on the building; 2) the property's accumulated depreciation.

Capital Items

The collection of property-related expenditures critical to attracting and retaining target tenants, and to maintaining both a high property operating standard and the integrity of the physical plant. Examples include roof repair, elevator replacement, boiler replacement, and parking structure repair.

Capitalization Rate

More commonly referred to as a cap rate, a property's stabilized NOI divided by its value (purchase price, either actual or anticipated), expressed as a percentage. The cap rate is the inverse (reciprocal) of the income multiple.

Capitalized Interest

Construction loan interest amounts that are charged but allowed to accrue (accumulate) and be added to the loan principal balance, instead of being paid current each month. Also known as accrued interest.

Capital Reserves

Funds set aside that provide for the periodic major repair or replacement of building components that wear out more rapidly than the building itself. Senior lenders require minimum capital reserves be set aside and maintained to ensure continued property competitiveness.

Capital Structure

Also known as the capital stack, this is the mix of debt and equity and any other sources of funds that comprise or capitalize a real estate transaction.

Cash Flow Cap Rate

A proxy for property income yields after normalized reserves are deducted for tenant improvements, leasing commissions, and capital expenditures.

Cash Flow Return

The return earned from the cash flows generated by the property, net of any debt service.

Cash-on-Cash Yield

The ratio of a property's annual before-tax cash flow to the total amount of cash invested, expressed as a percentage; also known as the equity dividend rate or cash yield.

Catch-Up

A provision in a partnership agreement that allows the general partner (GP) to receive a disproportionate share of profits after the limited partners (LPs) have received their preferred return, until the GP has "caught up" to a specified share of total profits.

Central Business District (CBD)

The main commercial and business center of a city, typically characterized by a high concentration of office buildings, retail stores, and public transportation.

Certificate of Occupancy

A document issued by a local government agency certifying that a building complies with applicable building codes and is suitable for occupancy.

Chevron

A V-shaped pattern used in flooring or design; in commercial real estate, it may refer to a type of flooring pattern or a company/brand name.

Class A

The highest quality and most prestigious commercial properties in a given market, typically characterized by superior construction, prime locations, excellent amenities, and high rental rates.

Class B

Commercial properties that are a step below Class A in terms of quality, location, and amenities; they are generally well-maintained and offer functional space at moderate rental rates.

Class C

The lowest classification of commercial properties, typically older buildings in less desirable locations with lower rental rates and fewer amenities; they may require significant renovation.

Claw-Back

A provision that requires the general partner to return previously received distributions to limited partners if, at the end of the investment period, the LP has not received its agreed-upon preferred return.

Clear Height

The usable height in a warehouse or industrial building, measured from the finished floor to the lowest hanging obstacle, such as a beam, sprinkler head, or lighting fixture.

Climate Controlled Structures

Buildings or storage facilities that maintain a consistent temperature and humidity level, often used for storing sensitive items such as electronics, artwork, or perishable goods.

Commercial Mortgage-Backed Security (CMBS)

A type of mortgage-backed security that is secured by the loan on a commercial property, such as an office building, hotel, or shopping center; these securities are sold to investors in the secondary market.

Common Area Maintenance (CAM)

Charges paid by tenants to cover the costs of maintaining shared spaces in a commercial property, such as lobbies, hallways, parking lots, and landscaping.

Common Areas

The portions of a building or development that are shared by all tenants or owners, such as hallways, elevators, lobbies, restrooms, and parking areas.

Community Retail Centers

Small shopping centers typically anchored by a supermarket or drugstore, serving the daily needs of the surrounding residential community; generally 100,000 to 350,000 square feet.

Comparable Transactions

Recent sales or leases of similar properties in the same market area that are used as benchmarks to estimate the value or rental rate of a subject property.

Compounded Annual Growth Rate (CAGR)

The mean annual growth rate of an investment over a specified time period longer than one year, assuming profits are reinvested at the end of each year.

Compound Return

The return on an investment that includes the effect of reinvesting interest or dividends, so that earnings generate additional earnings over time.

Condominiums

A form of property ownership in which individual units within a multi-unit building are separately owned, while common areas are jointly owned by all unit owners.

Constant Amortization Loan

A loan in which the principal is repaid in equal installments over the life of the loan, while interest payments decrease as the outstanding balance declines; total payments decrease over time.

Construction Loan

A short-term loan provided by a lender for the purpose of new property construction. The principal amounts needed for incurred project costs are borrowed monthly through a loan draw request and loan interest accrues and is added to the loan principal balance. As such, a construction loan is a form of a negative amortization loan.

Contingency Reserve

A reserve set aside for unknown but expected project cost overruns.

Convertible Debt

Debt that has the right to convert into common equity at specific terms.

Corporate General and Administrative Expense (G&A)

Corporate overhead expense related to the day-to-day operations of the company as opposed to the properties it owns.

Cost Recoveries

Tenant repayment to the landlord for tenant suite-specific expenses initially borne by the landlord.

Cost Segregation Analysis

An analysis of all of the unique depreciable elements of a property that tracks the individual depreciation amounts based on the appropriate schedules.

Co-tenancy Clause

A clause that states a tenant will only lease if other named tenants remain in the center.

Cram Down Rule

The imposition of a bankruptcy reorganization plan by a court despite any objections by certain classes of creditors.

Credit Loss/Bad Debt

The anticipated non-payment of rent and other revenues; usually 1-2% of the Expected Gross Income; rises in a weak economic environment or as your tenant quality profile deteriorates.

Curing Delinquency

Making all missed payments to bring the loan payments current.

Currency Hedge

The purchasing of a contract to protect against fluctuations in currencies detrimentally impacting an international property investment prior to closing on the property, or relating to the property's local currency operating cash flows.

Current-Pay Interest

Interest payments made monthly.

Debtor in Possession Financing (DIP)

Allows the defaulting borrower to subordinate existing debt claims to new debt which is taken on to operate the business while it attempts a successful reorganization.

Debt Service Coverage Ratio (DSCR)

Annual NOI divided by annual Debt Service Expense.

Debt Service Expense

Periodic (typically monthly) principal and interest payments made on a loan.

Debt Yield

A loan sizing ratio that is calculated as the first year's NOI divided by the loan amount. The debt yield can be thought of as the lender's cap rate.

Loan Default

When the borrower fails to cure their delinquency.

Defeasance

A type of loan prepayment penalty that involves a substitution of the collateral: Treasury bonds for the real estate. It requires that the borrower purchases a portfolio of U.S. Treasuries sufficient to make all of the remaining scheduled loan payments.

Deficiency Claim

The value of the property is not sufficient to repay the entirety of the creditors' outstanding debt.

Delinquent Mortgage

When the agreed upon debt service payments have ceased being made when they are due.