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Dictionary of Terms

 Some useful terms and their definitions:

  • Anchored Tenant: big brand-name tenants, e.g. Albertsons, Longs Drug, Walmart that bring in lots of traffic.
  • Big Box: a large free-standing building with a single tenant, e.g. Costco, Home Depot.
  • Breastaurant: a restaurant that has scantily-clad waitresses, e.g. Tilted Kilt, Hooters, Bombshells.
  • CAM: Common Area Maintenance.
  • Cap rate: Return of investment in the first year of ownership. Capitalization rate is the ratio of 1st year Net Operating Income over the purchase price. The higher the cap rate, the higher the rental income.
  • Cash on cash: annual percentage return of your down payment not including appreciation. First year cash flow divided by your initial down payment.
  • Class-A office: highest quality office in term of materials, design and architecture.
  • Community Center: a 100,000-300,000 SF shopping center anchored by a grocery or home improvement or discount store and about a dozen other stores.
  • Conduit loan: also called Commercial Mortgage Backed Securities (CMBS) loan often with the lower rate than traditional commercial loan but either has high pre-payment penalty (called defeasance or Yield Maintenance Penalty) or does not have payoff flexibility.
  • Convenience Center: a multi-tenant shopping center offering day to day services: dry cleaner, dental office, video store.
  • CPD: Car Per Day or traffic volume on a road.
  • CPI: Consumer Price Index.  It’s often used to calculate annual rental increase.
  • Double Net (NN) Lease: A lease in which tenant is responsible for paying property taxes and insurance expenses.  Landlord is responsible for maintenance expenses.  A lease in which tenant is responsible for property taxes, insurance, and maintenance of everything except roof and structure is also called NN lease.
  • Due Diligence Period: the duration after contract is executed. Normally 15-30 days to allow buyer to investigate about the property.  Buyer can cancel the contract during this time for any reasons.
  • Estoppel Certificate: a letter provided and signed by tenant confirming the current rent and lease terms.
  • Factory Outlet: a shopping center with factory outlets or close-out outlets selling discounted merchandise.  Often located along the main freeway outside of a major metropolitan.
  • Full-service lease: tenant pays rent that covers everything including utilities.
  • Ground lease: lease for the parcel/land.  Read more.
  • Gross income: total annual income before any expenses.
  • Gross lease: lease in which tenants just pay rent. Landlord pays tax, insurance, & maintenance.
  • GLA: Gross Leaseable Area or total rentable area.
  • GRM: Gross Rent Multiplier for apartment. Ratio of purchase price over annual income.
  • Hard corner: intersection with traffic lights.
  • Kick out Clause: a clause in the lease that allows for termination of the lease before the expiration of the term if a specific sales threshold has not been met by the tenant.
  • Lifestyle center: a shopping center designed to target upscale consumers with attractive landscaping, outdoor seating.
  • LLC: Limited Liabilities Company.
  • LOI: Letter of Intent/Interest or the normally non-binding offer letter to buy a commercial property.
  • MAI appraiser: Member Appraisal Institute commercial appraiser.
  • Mall: major shopping center (normally enclosed) with adjacent parking buildings.
  • Master lease: lease signed by the seller at the end of closing, normally 1 year long to cover the vacant spaces .  Also see rent guaranty.
  • Mixed Use: commercial properties with retail on 1st floor and apartment on upper floors.
  • NAP: Not A Apart.
  • NNN (Triple net) lease: lease in which tenants pay a base rent plus property tax, insurance & CAM fees. Absolute NNN lease is NNN lease that tenants also pay property management fee.
  • NOI: Net Operating Income. Annual income after all expenses (property taxes, ins., & maintenance) except mortgage payment.
  • Outparcel: see pad site.
  • ROFR: Right Of First Refusal.  Tenant’s option to buy the property whenever the landlord receives an offer to buy the property.
  • Pad site: a prime-location lot in front of a big shopping center.
  • Pass Thru: see reimbursement.
  • Percentage lease: lease in which tenant pays base rent plus a percentage of tenant’s revenue.
  • Phase I Report: inspection report that provides an assessment for soil/environment contamination.  It’s normally required by the lender as part of loan approval process for a commercial property.
  • Phase II Report: inspection report for soil & groundwater subsurface investigation.  This inspection is more extensive which involves testing to see if there is any soil and water contamination.
  • Proforma income: potential, i.e. higher, income when the property is 100% leased.
  • Proforma Cap rate: potential cap rate when property is 100% leased at market rent
  • Reimbursement: the share of property tax, insurance & CAM fees that a tenant has to pay the landlord besides the base rent.
  • Rent guarantee: rent paid by the seller to buyer for vacant spaces until the spaces are leased.
  • REO: stands for Real Estate Owned.  It’s a division inside a bank that handles foreclosed properties.
  • SBA Loan: Small Business Administration — a government-guaranteed loan for owner-occupied properties.
  • SNDA: Subordination, Non-disturbance, and Attornment.  it’s an agreement required by lender, signed by the tenants agreeing: the new lien in 1st position; lender as landlord in case of foreclosure; lease as valid as long as tenant is not in default.
  • TIC: Tenants In Common.  A kind of properties in which each owner owns a portion of the property and all owners hold title as tenants in common.
  • Triple Net Lease: See NNN.
  • TI: Tenant’s Improvements.