Land O Lakes Real Estate News - JLS Investment Realty

Commercial Real Estate Terminology
February 2nd, 2011 2:12 PM

Commercial Real Estate Terminology

Breakeven Occupancy: the rate of occupancy at which the property's revenue equals its expenses.

Buyers Market: an economy favoring commercial property buyers typically characterized by more available property than potential buyers.

Capitalization rate (aka cap rate) = Net Operating Income Divided by Sales Price

Cash on Cash Return = (Net Operating Income - Debt Service)/Acquisition Costs
Cash on Cash Return tells us what the overall return on our investment is as a percentage.

Effective Gross Income = Gross Potential Income - lost income due to vacancies

Estoppel Letter: a letter sent to tenants to verify the rents the tenants are paying

A Buyers Market: an economy favoring commercial property buyers typically characterized by more available property than potential buyers.

Escrow Agent: Third party that holds a sum of money pending the formal close of the commercial real estate property and facilitates the closing.

Eminent Domain: When a government purchases a parcel of land without the owner's consent.

Gross Lease: A lease where the tenant's rent covers all operating expenses in one lump sum.

Land-Use: Zoning ordinances restricting the use of a particular property.

Letter of Intent (LOI): a formal offer to purchase a property

Moratoria: A limit or ban on further development of a particular type of property.

Net Lease: Tenants pay to maintain their portion of the building or property in addition to rent.

Net Operating Income (aka NOI) = Effective Gross Income - Operating Expenses aka - what you actually take home

Obsolescence: The stage at which a commercial property degrades to become unusable.

Operating Statements: These documents show the profit and loss of a property across a specific period of time.

Pro Forma: Predicted revenue model based on the anticipated results of the property - typically provided by the seller as a way to entice a buyer

Property Class: A rating system running A=D where A class represents a high quality property (new building/good area) and D class represents a low quality property (very old building/bad area of town

Purchase and Sale Agreement (aka P&S): A formal letter detailing your intent to purchase the property under a specific set of terms

Rent Roll: A document summarizing occupancy. This typically includes lease rates, terms, and expirations for each tenant.

Replacement Reserves: Money set aside to cover the replacement of capital items (i.e. heaters/roofs/windows/sidewalks).

Sellers Market: An economy favoring commercial property sellers typically characterized by less available property than potential sellers.

Tenant at Will: A tenant currently occupying a property without a lease - generally (laws vary by state) this means the tenancy is renewed every month.

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Posted by Jennifer Stepanek on February 2nd, 2011 2:12 PMPost a Comment

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