Commercial Real Estate Terms Glossary
Here is the list of commercial real estate terms in alphabetical order with their definitions:
Acquisition: The purchase of a property or business.
Amortization: The process of paying off a debt with periodic payments, such as a mortgage.
Appraisal: An estimate of a property's value, typically performed by a licensed professional.
Appreciation: An increase in the value of a property.
Bridge loan: A short-term loan used to finance the purchase of a new property while the borrower is waiting for their existing property to sell.
Buyer representation agreement: A contract between a buyer and a real estate agent outlining the terms of the agent's representation of the buyer in the purchase of a property.
Capitalization rate (Cap rate): The rate of return expected on a real estate investment, calculated by dividing the net operating income by the property's value.
Closing: The final step in a real estate transaction, where the title is transferred to the buyer and the property is officially sold.
Closing costs: Fees and expenses associated with the purchase of a property, such as title insurance, attorney fees, and lender fees.
Commercial lease: A lease agreement for the rental of commercial property, such as an office building or retail space.
Contingency: A condition that must be met before a real estate contract is considered valid.
Debt service coverage ratio (DSCR): A measure of a property's ability to generate income sufficient to cover its debt payments.
Debt-to-income ratio (DTI): The ratio of a borrower's monthly debt payments to their monthly income.
Depreciation: A decrease in the value of a property due to wear and tear, obsolescence, or other factors.
Due diligence: The process of evaluating a potential investment or product to confirm all facts, such as reviewing financial records and contracts.
Earnest money deposit: A deposit made by a buyer to show their good faith in a real estate transaction.
Eminent domain: The power of the government to take private property for public use, with compensation to the owner.
Encumbrance: A claim against a property, such as a mortgage or lien.
Equity: The ownership interest in a property, calculated as the difference between the property's value and the amount of debt outstanding on it.
Escrow: A financial arrangement in which a third party holds and regulates payment of the funds required for two parties involved in a given transaction.
Feasibility study: An analysis of the potential success of a proposed project, taking into account factors such as market demand and financing.
Foreclosure: The legal process by which a lender repossesses a property due to the borrower's failure to make mortgage payments.
Homeowners association (HOA): An organization that manages a community of homes and common areas.
Indemnification: A promise to compensate someone for losses or damages incurred.
Joint venture: A business arrangement in which two or more parties work together on a specific project or business venture.
Leasehold: A type of property ownership in which the owner holds a lease for a certain period of time, rather than owning the property outright.
Leasehold improvement: Alterations or improvements made to a leased property by the tenant.
Leverage: The use of borrowed money to increase the potential return on an investment.
Lien: A legal claim against a property that must be satisfied before the property can be sold.
Listing agreement: A contract between a property owner and a real estate agent authorizing the agent to represent the owner in the sale of the property.
Liquidation: The process of converting assets, such as real estate, into cash.
Load factor: The percentage of leased space in a building compared to the total available space.
Market analysis: A study of the supply and demand for real estate in a particular area.
Net operating income (NOI): The income generated by a property after operating expenses have been deducted.
Offer to purchase: A written proposal to buy a property at a specified price.
Option agreement: A contract that gives the holder the right, but not the obligation, to buy or sell a property at a specified price within a certain timeframe.
Real estate investment trust (REIT): A company that owns and operates income-generating real estate assets and is required to distribute at least 90% of its taxable income to shareholders.
Tenant improvement allowance: An amount of money offered by a landlord to a tenant to cover the cost of improvements to a leased space.
Zoning: The regulation of the use and development of land in a particular area.