Glossary
This glossary defines the working vocabulary of commercial real estate finance, from rent measures and lease terms to loan covenants and fund benchmarks. Each entry explains what a term means in practice.
A sponsor can check how a lender reads a coverage test and what a bullet repayment at maturity requires. A capital raiser can see how a promote or a preferred return is described in a private placement memorandum. A family office can learn how an allocation shifts when public markets fall and a fund manager calls capital. Definitions stay short. Each one names the figures and documents where the term shows up, such as a rent roll or an appraisal. Lease clauses and zoning rules get the same plain treatment as loan terms.
- Annualized Base Rent Definition
- Annualized base rent is monthly contractual or cash base rent times 12 for leases in place. Learn what it includes, what it omits, and how veterans read it.
- Appraisal Reduction Amount in CMBS
- An appraisal reduction amount is a CMBS servicing calculation built on 90 percent of appraised value, used to cut subordinate interest and test control rights.
- Assemblage in Commercial Real Estate
- Assemblage means buying two or more adjacent parcels to form one site that may be worth more than the parts, with a worked example of who captures the uplift.
- B Piece Buyer in Commercial Real Estate
- A B piece buyer holds the most junior CMBS bonds, takes losses first, reviews every pool loan and often holds rights to direct servicing decisions on the loans.
- Balloon Payment in Commercial Mortgages
- A balloon payment is the principal still owed when a commercial mortgage matures. See how amortization creates it and how a takeout loan gets sized against it.
- Bid Ask Gap in Commercial Real Estate
- The bid ask gap is the distance between what buyers will pay and what sellers will accept. See how yields create it, with a worked example and common errors.
- Bridge Loan in Commercial Real Estate
- A commercial real estate bridge loan is short-term debt for lease-up, renovation or stabilization, repaid by a sale or permanent financing at the exit.
- BRRR Strategy
- BRRR means buy, renovate, rent, refinance, repeat. See how the refinance sizes proceeds, a worked example with two cases, and mistakes that stall the cycle.
- By Right Zoning in Commercial Real Estate
- By right zoning lets a project proceed under existing zoning with no zone change. Learn the objective standards test, rezone timing risk and option terms.
- Capitalization Rate
- Capitalization rate is one year of expected net operating income divided by price. See the formula, a worked example and the errors that distort quoted rates.
- Clear Height in Commercial Real Estate
- Clear height is the distance from the finished floor to the lowest overhead obstruction in an industrial building, and it sets the usable storage height.
- Collateral Dependent Loan in Commercial Real Estate
- A collateral dependent loan is repaid from its collateral. See how sale costs, fair value and loss classification work, with a worked hypothetical example.
- Colocation Data Center
- A colocation data center is a provider-owned facility that rents space and IT load capacity to customers. See how that shapes property analysis and returns.
- Commercial Mortgage Backed Securities
- CMBS means commercial mortgage-backed securities: bonds backed by commercial loans. See how tranches share cash and losses, with a worked hypothetical pool.
- Core Real Estate: Definition, Tests & Example
- Core real estate explained: the occupancy, tenant, lease & borrowing tests that define the strategy, a worked income comparison and common classification.
- Dark Value in Commercial Real Estate
- Dark value is a property’s worth after its main tenant leaves and the space is re-leased at market. Includes a worked loan example and the main errors.
- Debt Service Coverage Ratio
- DSCR divides net operating income by annual debt service. See how amortization, rate & covenant definitions change the ratio, with a worked sizing example.
- Debt Yield in Commercial Real Estate
- Debt yield divides underwritten net operating income by the loan balance. See how it caps loan size, tests refinance capacity and works in a numbers example.
- Defeasance in Commercial Real Estate
- Defeasance releases a commercial property from a securitized mortgage by substituting Treasury securities that cover scheduled loan payments. See a cost case.
- Delegated Underwriting and Servicing (DUS) Explained
- DUS means Delegated Underwriting and Servicing, a Fannie Mae multifamily program where approved lenders underwrite loans, retain servicing and share losses.
- Denominator Effect in Commercial Real Estate
- The denominator effect lifts real estate above its target weight when other holdings fall first. Learn the mechanism, a worked example and the common traps.
- Dry Powder in Commercial Real Estate
- Dry powder is committed but uncalled fund capital in commercial real estate. A worked example shows how reserves shrink the capacity a headline figure implies.
- Effective Rent in Commercial Real Estate
- Effective rent restates a lease’s face rent after free rent and escalations. The method varies by market, so definitions must match before leases are compared.
- Entry Cap Rate and Exit Cap Rate
- How entry and exit cap rates differ, how a wider exit rate cuts sale price and equity, and which NOI each rate should use, with a worked hypothetical example.
- Equity Kicker in Commercial Real Estate
- An equity kicker gives a lender or preferred equity provider a share of upside on top of its stated return. Learn the triggers, bases & waterfall effects.
- Extend and Pretend in Commercial Real Estate Lending
- Extend and pretend is a lender granting a distressed borrower more time or payment relief without resolving the loan, with a worked refinance gap example.
- Fee Bearing Capital in Real Estate Funds
- Fee bearing capital is the capital base that entitles a fund manager to fees. See how commitments, invested capital and distributions change that base.
- Fee Offset in Commercial Real Estate
- A fee offset credits sponsor fee income against the fund management fee. See how eligibility, percentages, timing & excess credits work in a worked example.
- Gross Leasable Area in Commercial Real Estate
- Gross leasable area is the tenant floor space of a property. Scope, area versus count occupancy and rent pairing decide what a reported GLA figure means.
- Ground Lease in Commercial Real Estate
- A ground lease separates land ownership from the right to use a site, with rent paid by the leaseholder and improvements usually reverting at expiration.
- High Volatility Commercial Real Estate
- HVCRE explained for veterans: the three-part loan definition, the 150 percent risk weight, the 15 percent equity exemption, and how reclassification works.
- Hyperscale Data Center
- A hyperscale data center is defined by server count and floor area. Learn how the two cutoffs work, how they are tested, and where the label stops being useful.
- Interest Rate Cap in Commercial Real Estate
- An interest rate cap sets a ceiling on the benchmark in a floating-rate loan. Strike, notional, premium & expiry decide how much protection a borrower gets.
- Interest Reserve in Commercial Real Estate
- An interest reserve sets aside loan funds to pay interest during construction and lease-up, with sizing based on draws, rates & the expected carrying period.
- Loan to Value Ratio in Commercial Real Estate
- Loan to value ratio in commercial real estate: what goes in the numerator and denominator, how it pairs with debt service coverage, and a worked example.
- Loss to Lease in Commercial Real Estate
- Loss to lease is the gap between in-place rent and market rent. Lease expiry, costs & downtime decide how much of that gap becomes income for owners.
- Mortgage REIT Meaning
- A mortgage REIT earns income from real estate debt and mortgage securities. See how classification, repo funding, hedges & credit risk work, with numbers.
- NAV REIT meaning in commercial real estate: how net asset value sets share prices, why valuations lag, and how fees and repurchase limits shape outcomes.
- Negative Debt Spread in Commercial Real Estate
- Negative debt spread means the loan rate exceeds the cap rate, so borrowing lowers first-year equity yield. See the test, a worked example and common errors.
- Net Absorption in Commercial Real Estate
- Net absorption is the change in occupied space over a period. See how it differs from leasing activity, why preleases lag, and how to read it beside vacancy.
- Net Asset Value in Real Estate Funds
- Net asset value in real estate funds measures assets minus liabilities per unit, with valuation inputs and debt shaping the result on each calculation date.
- Net Lease in Commercial Real Estate
- A net lease has the tenant pay a share of operating expenses on top of rent. See how the expense clause changes NOI and price, with a worked cap rate example.
- Net Operating Income in Commercial Real Estate
- Net operating income measures property revenue after operating expenses, helping owners and lenders compare performance, assess value and size property loans.
- NFI ODCE Index: Meaning and Mechanics
- NFI ODCE is NCREIF’s gross-of-fee, time-weighted index for open-end core real estate funds. See how its criteria work and how to compare returns fairly.
- Non Recourse Joint Venture Debt
- Non recourse joint venture debt limits a lender to the venture and its collateral, yet investor equity can still be lost. See the mechanics and a worked case.
- Overcollateralization in Commercial Real Estate
- Overcollateralization means pooled loan principal exceeds the notes issued against it. See the ratio, the interest diversion test and a worked CRE CLO example.
- Prepayment Penalty in Commercial Mortgages
- How a commercial mortgage prepayment penalty works, how fixed and floating structures differ, and how to test an early payoff against refinancing savings.
- Programmatic Joint Venture in Commercial Real Estate
- A programmatic joint venture lets an operator and an investor invest together across many deals; see the approvals, waterfall mechanics and a worked example.
- Prohibited Transaction Tax Defined
- A REIT sale of property held for ordinary-course sale may be a prohibited transaction subject to a special tax; applicable rules vary and change. See the test and a worked hypothetical example.
- Public Market Equivalent (PME) in Real Estate Funds
- Public market equivalent restates a private real estate fund’s cash flows against a public index. See how mPME works, a worked example and common errors.
- Rake Bond in Commercial Real Estate
- A rake bond sends a CMBS loan’s senior cash flow to pooled classes and the remaining proceeds to junior bonds. See the mechanism, a worked split and errors.
- Real Estate Investment Trust Defined
- A REIT pools investor capital to own or finance commercial real estate and generally distributes at least 90 percent of REIT taxable income every year.
- Real Estate Secondaries
- Real estate secondaries are sales or restructurings of an existing commercial property investment that give investors liquidity before the asset is realized.
- Reinvestment Period in a CRE CLO
- A CRE CLO reinvestment period is the window when a manager may buy and sell loans in the pool, which shapes collateral turnover and when noteholders get paid.
- REIT Taxable Income Defined
- REIT taxable income is the tax-basis figure behind the 90% distribution test, and it can differ sharply from GAAP net income. A worked example follows.
- Replacement Cost in Commercial Real Estate
- Replacement cost is the estimated cost to build a comparable property. See how the gap to purchase price is read, with a worked multifamily example and limits.
- Return on Cost in Commercial Real Estate
- Return on cost divides stabilized net operating income by total project cost, then sets that yield against market cap rates to size a development spread.
- Same Store NOI in REIT Reporting
- Same store NOI measures the income growth of a fixed property roster. See how REITs set membership, admit development assets, and what the growth rate can hide.
- Separate Account in Commercial Real Estate
- A separate account is one investor’s capital managed under a written mandate. See how control, concentration limits and fees differ from a commingled fund.
- Substandard Asset in Commercial Real Estate
- A substandard asset is a loan with a well-defined weakness that jeopardizes repayment. See the test and a worked mall loan split between loss and substandard.
- Taxable REIT Subsidiary Defined
- A taxable REIT subsidiary is a corporation a REIT owns and elects jointly, paying corporate tax while handling activities the REIT cannot perform directly.
- Transitional Loan
- A transitional loan is short-term commercial real estate debt on a property being renovated, expanded or repositioned, repaid once the asset stabilizes.
- Value Add in Commercial Real Estate
- Value add in commercial real estate means raising an existing property’s cash flow and value through a business plan. A worked case shows the arithmetic.
- Vintage Year in Commercial Real Estate
- Vintage year is the date of a fund’s first LP contribution. See how it groups closed-end real estate funds, what it misses, and how to compare funds at one age.
- Weighted Average Lease Term Definition
- Weighted average remaining lease term is the time left on leases weighted by rent or area, with a formula, option treatment and a worked hypothetical example.
- Yield on Cost in Commercial Real Estate
- Yield on cost is stabilized net operating income divided by total project cost. The mechanism, the spread test against cap rates and common errors are covered.