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Glossary of Commercial Real Estate Terms

— A
The amount of inventory or units of a specific commercial property type that become
occupied during a specified time period (usually a year) in a given market, typically reported
as the absorption rate.

Accumulated cost recovery
Total cost recovery deductions taken throughout the holding period of a property.

Active income
Income from salary, wages, tips, commissions, and activities in which the taxpayer
materially participates. Also see passive income.

Add-on factor
The ratio of rentable to useable square feet. Also known as the load factor and the
rentable-to-useable ratio. Also see efficiency percentage. Formula:
Add-on factor =Rentable square feet
Useable square feet

Add value

Fourth stage of four-stage transaction management process pertaining to a transaction
manager’s planning, effort, and continual contact with key decision-makers, investors, and
users, as well as contact with ancillary professionals. This ongoing process allows for
feedback, establishes a network for problem solving, provides a means to offer additional
services to the client, and enhances the transaction manager’s preparedness for the next

Adjusted basis
The original cost basis of a property plus capital improvements, less total accumulated cost
recovery deductions, and partial sales taken during the holding period.

See annual debt service.

Agglomeration economies
Cost reductions or savings that come about from efficiency gains associated with the
concentration or clustering of firms/producers or economic activities and the formation of a
localized production network.


The repayment of loan principal through equal payments over a designated period of time
consisting of both principal and interest.

Annual debt service (ADS)

The total amount of principal and interest to be paid each year to satisfy the obligations of a
loan contract.

Annual percentage rate (APR)
The true annual interest rate payable for a loan in one year taking account of all charges
made to the borrower, including compound interest, discount points, commitment fees,
mortgage insurance premiums. It also takes into account the time at which the principal is
repaid (especially when payments of principal are made in installments throughout the year,
but interest is charged at the beginning of the year), but not the actual expenses incurred
by the lender in making the loan and recharged to the borrower. (Encyclopedia of Real
Estate Terms 2nd Edition, Damien Abbott)

Regular fixed payments or receipts over a designated period of time.

An investment’s increase in value.

Appreciation potential
The possibility or probability that a real estate investment will increase in value during the
holding period.

Assessed value
The value of real property established by the tax assessor for the purpose of levying real
estate taxes.

Average annual effective rate

The average annual effective rent divided by the square footage.

Average annual effective rent
The tenant’s total effective rent divided by the lease term.

Averaging method
A simple technique used to forecast next period’s/year’s vacancy rate by averaging previous
years’ vacancy rates; especially effective where vacancy rates have remained relatively flat
or show little variability over time.

— B
Balloon payment
The final payment of the balance due on a partially amortized loan.

Base (in lease terminology)
A face, quoted, dollar amount representing the rate or rent in dollars per square foot per
year and typically referred to as the base rate.

Base rent
The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face,
quoted, contract amount of periodic rent. The annual base rate is the amount upon which
escalations are calculated.

Basic employment

Employment that is considered to be export-oriented or export-driven, associated with
activities that generate income from the sales of products and services in markets outside
the local economy.


The total amount paid for a property, including equity capital and the amount of debt

Before-tax investment value

The sum of the present values of the mortgagor and mortgagee of property.

Break-even point
The stage at which an investment produces an income that is just sufficient to cover
recurring expenditure. For an investment in real property, the point at which gross income
is equal to normal operating expenses, including debt service (the stage at which the next
cash flow becomes positive). Also known as the default point. (Encyclopedia of Real Estate
Terms 2nd Edition, Damien Abbott)

The sales threshold over which percentage rent is due. It is calculated by dividing the
annual base rent by the negotiated percentage applied to the tenant’s gross sales.

Business risk

The uncertainty associated with the possible profit outcomes of a business venture.

Buy/rent threshold

The point at which there is a recognizable shift of expenditure allocations away from owneroccupied housing and to the rental housing market (or vice-versa) as a result of changing
market conditions.

— C
See common area maintenance.

CAM cap

The maximum amount for which the tenant pays its share of common area maintenance
costs. The owner pays for any CAM expenses exceeding that amount.

Cap rate
See capitalization rate.

Capital expenditures
Property improvements that cannot be expensed as a current operating expense for tax
purposes. Examples include a new roof, tenant improvements, or a parking lot—such items
are added to the basis of the property and then can be depreciated over the holding period.
Distinguished from cash outflows for expense items such as new paint or plumbing repairs
(operating expenses) that can be expensed in the year they occur. Also see operating

Capital gain
Taxable income derived from the sale of a capital asset. It is equal to the sales price less
the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of
straight-line cost recovery.

Capital market
The supply and demand for resources to invest in real estate and other investments.

Capitalization rate
A percentage that relates the value of an income-producing property to its future income,
expressed as net operating income divided by purchase price. Also referred to as cap rate.

Capital tax
Any tax on a change in capital value (including capital gains tax, estate tax, or inheritance
tax); as distinguished from a tax on income. (Encyclopedia of Real Estate Terms 2nd
Edition, Damien Abbott)

Cash flow

The net cash received in any period, taking into account net operating income, debt service,
capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.

Cash flow after tax/es (CFAT)
For properties, it is the result of first calculating the net operating income, less mortgage
and construction loan interest, less cost recovery for improvements and personal property,
less amortization of loan points and leasing commissions to arrive at real estate taxable
income. Next, real estate taxable income is multiplied by the applicable marginal tax rate
to result in the tax liability (savings). Then, from the net operating income, annual debt
service is subtracted to equal the cash flow before taxes (CFBT). Finally, the cash flow after
taxes (CFAT) is calculated from the CFBT, less the tax liability (savings), plus investment
tax credit. The Cash Flow Analysis Worksheet can be used to calculate a property’s gross
operating income, net operating income, real estate taxable income and tax liability or
(savings), CFBT, and CFAT.
Net operating income
– Interest
– Cost recovery
– Amortization of loan points
Real Estate taxable income
× Investor’s marginal tax rate
Tax liability (savings)
Net operating income
– Annual debt service
Cash flow before taxes
– Tax liability (savings)
Cash flow after taxes
Cash flow before tax/es (CFBT)
For properties, it is the result of calculating the effective rental income, plus other income
not affected by vacancy, less total operating expenses, less annual debt service, funded
reserves, leasing commissions, and capital additions. The Annual Property Operating Data
form can be used to calculate a property’s effective rental income, gross operating income,
total operating expenses, net operating income, and cash flow before taxes.

Cash flow model
The framework used to determine the cash flow from operations and the cash proceeds
from sale.

Cash-on-cash rate
A return measure that is calculated as cash flow before taxes divided by the initial equity

Cash proceeds from sale
The sales price less sales costs, mortgage balance, and tax liability on sale. Also known as
sales proceeds after tax.

Central place theory
A location theory that accounts for the size, distribution, and organization of settlements,
places, market areas, and establishments in a competitive and interdependent urban
system, to explain differences in the locational tendencies and preferences of businesses as
they seek to maximize market accessibility, sales, and profits.


See cash flow after tax.

See cash flow before tax.

An urban settlement or system containing various functions, agents, institutions, and
components which interact and work together to satisfy the wants and needs of its
inhabitants (as well as a portion of the population in surrounding rural areas).

Class life
The useful economic life of an asset set by the Internal Revenue Service.

Third stage of four-stage transaction management process pertaining to bringing the parties
together and consummating an agreement. The acronym CLOSE represents the
contingencies, legal instruments, obstacles, signatures, and execution involved in the close

Commercial real estate
Any multifamily residential, office, industrial, or retail property that can be bought or sold in
a real estate market.

Common area
For lease purposes, the areas of a building (and its site) that are available for the nonexclusive use of all its tenants, such as lobbies, corridors, and parking lots. (Real Estate
Information Standards)

Common area maintenance (CAM)
Charges paid by the tenant for the upkeep of areas designated for use and benefit of all
tenants. CAM charges are common in shopping centers. Tenants are charged for parking
lot maintenance, snow removal, and utilities.

Community center

A community center is a retail property type that typically offers a wider range of apparel
and other soft goods than the neighborhood center does. Among the more common
anchors are supermarkets, super drugstores, and discount department stores. Community
center tenants sometimes contain off-price retailers selling such items as apparel, home

Community center (continued)
improvement/furnishings, toys, electronics, or sporting goods. The center is usually
configured as a strip, in a straight line, “L”, or “U” shaped. Of the eight center types,
community centers encompass the widest range of formats. For example, certain centers
that are anchored by a large discount department store refer to themselves as discount
centers. Others with a high percentage of square footage allocated to off-price retailers can
be termed off-price centers.

Comparative advantage
The principle that cities or regions tend to produce those items or support those activities
for which they have the greatest advantage over other areas as defined by the factors of
production, demand, supporting industries, and quality of life considerations, as defined in
relation to human, financial, and physical resources, and opportunity costs—costs expressed
in terms of opportunities foregone.

Competition (retail)
A market condition or setting in which numerous firms compete for a share of the retail
market in a given geographic area; a term which is also used to denote rivals or

Compound interest
Interest computed on the original principal and accumulated interest.

A type of calculation in which interest earned is reinvested and earns additional interest.

Confidence range method (95%)
A statistical method of estimating a range of vacancy rates with a 95% confidence such that
the expected vacancy rate for the next time period falls within that range (using the sample
mean vacancy rate and corresponding standard deviation as input).

Contract rent
The total rental obligation, expressed in dollars, as specified in a lease. Also known as base
rent. (Real Estate Information Standards)


The actual dollar amount paid for a property or the amount needed to build or improve it at
a specified time in the future.

Cost approach
A method of determining the market value of a property by evaluating the costs of creating
a property exactly like the subject.

Cost approach improvement value
The current cost to construct a reproduction of, or replacement for, the existing structure
less an estimate for accrued depreciation from all causes. [Appraisal Institute]

Cost of capital
See weighted average cost of capital.

Cost of occupancy
Expenditures that are required to assume and maintain occupancy of a space. Such
expenditures include rent and/or mortgage payments, and recurring costs, such as real
estate taxes, repairs, operating expenses, and other outgoings directly resulting from the
use of the property. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)

Cost recovery

An annual deduction based on the class life of an asset.

Cost recovery recapture
According to the Taxpayer Relief Act of 1997, for properties sold after May 6, 1997, a
noncorporate taxpayer will have to recapture, or pay taxes on, any straight-line cost
recovery taken during the holding period, to the extent there is any gain.

Cross-over chart
A visual representation of the relationship between the costs of leasing and owning at
varying discount rates.

Cross-over (office use) demand
Industrial space that is used as office space in order to lower the rental rate of a property.
Also known as flex space.

Customer-spotting approach
An approach to estimating the retail trade area (and sales/revenue potential) for a given
establishment or center based on the location of existing customers via point-of-sale
information (by obtaining customer address or zip code data) or customer surveys (by
interviewing customers as they enter the store); data which can later be mapped to
determine the extent of the trade area.

— D
Refers to information collected and presented in a form that facilitates processing and

Data dispersion

The amount or degree to which data points in a series are spread or dispersed about their
mean (also referred to as variation about the mean).

Debt-coverage ratio (DCR)
Ratio of net operating income to annual debt service. Expressed as net operating income
divided by annual debt service.

The loss of utility and value of a property.

The volume or quantity of a product or service purchased, or willing to be purchased, in
relation to price.

Demand factors
Elements or forces that influence the demand for goods and services in a given market

Characteristics of human populations as defined by population size and density of regions,
population growth rates, migration, vital statistics, and their effect on socio-economic

The loss of utility and value of a property.

Desktop GIS
GIS software programs that support a wide variety of functions, queries, and mapping
capabilities for personal computer-based applications, geared toward visual presentation
and descriptive analyses of geo-coded data.

Differential cash flow
The difference that results when the cash flows from one alternative are subtracted from the
cash flows from another alternative.

Direct survey method

The use of personal interviews with key personnel in all major firms within a given
community to determine the percentage of a firm’s revenues obtained from sales made
outside the local economy for the purpose of estimating firm-specific basic employment and,
by aggregation, the total basic employment in that community; a method that is known to
be costly and time consuming.

Disaggregating demand

The process of separating and identifying the various forces and factors which affect the
demand for a given property type in a given market or the differentiation of demand by
category (in reference to tenure, household income, and geographic submarket).

Disaggregating supply

The process of separating and identifying the various forces and factors which affect the
supply of a given property type in a given market or the differentiation of supply by
category (including leased versus owned, unit type, price, and geographic submarket).

Discount rate

The percentage rate at which money or cash flows are discounted. The discount rate
reflects both the market risk-free rate of interest and a risk premium. Also see opportunity

Discounted effective rent

The cash flows over the term of the lease, discounted to the present value.
The process of reducing the value of money received in the future to reflect the opportunity
cost of waiting to receive the money.

Displaced sales

Sales that result from purchases made by customers who are not located in the subject
service area (represents a revenue gain for retail establishments as sales are generated
from consumers who reside outside the local trade area).


A method of reducing risk by investing in unrelated (uncorrelated) assets.

Drain information

Information (substantiated and rumored) regarding inventory that is to be removed from
the market by the forecast period.

Drive-time approach

An approach to estimating the trade area (and sales/revenue potential) for a given retail
establishment or center based on the central place theory concept of range and how far
people are willing to travel to obtain retail goods as defined by drive time or mileage.

Due diligence
The process of examining a property, related documents, and procedures conducted by or
for the potential lender or purchaser to reduce risk. Applying a consistent standard of
inspection and investigation one can determine if the actual conditions do or do not reflect
the information as represented.

Dynamic system
A complex and ever-changing or evolving set of diverse and interrelated entities and agents
which are organized into a coherent and working totality which serves multiple and/or
common purposes or objectives. Also see system and market dynamics.

— E
Economic base
Those economic activities or sectors in a local or regional economy that account for a certain
share of the area’s income that is generated from exports of goods and services.

Economic base analysis
Inquiries that focus on the extent to which changes in basic employment (export-oriented
activities and associated wage-income) affect the economic, employment, and population
growth of a local or regional economy.

Economic base multiplier

A measure that provides a rough estimate of how changes in basic employment will affect
total employment in a given region (all other things being equal); defined as the ratio of
total employment to basic employment.

Economic characteristics
Attributes of the workforce, including production and employment activities.

Economic obsolescence
The reduction in a property’s value due to external circumstances such as legislation or
changes in nearby property use.

Economic sectors
Branches or divisions of a local or regional economy in which particular activities take place.


An amount after a base amount has been adjusted for concessions, allowances, and costs.

A measure of the capacity or effectiveness of space to produce the desired results with a
minimum expenditure of time, money, energy, and materials.

Efficiency percentage
The relationship of useable area to rentable area on a given property. Also see add-on
factor, load factor, and rentable-to-useable ratio. Formula:
Efficiency % = Useable square feet
Rentable square feet

Employment ratios
The percentage of total employees (at the firm or industry level) that are office space users.

Environmental conditions
Features or state of the physical environment and the surroundings, factors, or forces which
influence or modify that environment.

Environmental hazards
Any physical or natural condition or event which possesses a risk to humans.

Environmental impacts
The repercussions of an activity or specific land use on the physical/social environment as a
consequence of emissions, waste disposal, water and power useage, etc.

Equilibrium point
The price at which the quantity supplied equals the quantity demanded.

Equity lease
A type of joint venture arrangement in which an owner enters into a contract with a user
who agrees to occupy a space and pay rent as a tenant, but at the same time, receives a
share of the ownership benefits such as periodic cash flows, interest and cost recovery
deductions, and perhaps a share of the sales proceeds.

Equity yield rate
The return on the portion of an investment financed by equity capital.

Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or
business or held as an investment can be exchanged tax-deferred. Under a fully qualified
Section 1031 exchange, real estate is traded for other like-kind property. All capital gains
taxes are deferred until the newly acquired real estate is disposed of in a taxable
transaction. The underlying philosophy behind the deferral of capital gains taxes is that
taxation should not occur as long as the original investment remains intact in the form of
(like-kind) real estate (like-kind refers to real property as such, rather than the quality or
quantity of property).

A phase of the real estate or business cycle characterized by the dramatic short-term
increase in the supply of available units in a given market (due to economic growth and
increasing construction activity) as a response to increasing and/or pent-up demand and
rising price levels.

Expected value (EV)
The sum of the weighted averages of all possible outcomes of a probability distribution.
Probability distribution is the collection of all possible outcomes for an event and their
corresponding probabilities of occurrence. The probabilities of occurrence for each possible
outcome are used as the weights. The sum of each possible value multiplied by its
probability of occurrence equals the EV of the outcome. EVs can be calculated for any type
of outcome the investor chooses to analyze: net operating incomes, after-tax cash flows,
and rates of return (IRRs). An example of calculating the EV of the IRR for an investment
Expected value (EV)
Scenario IRR% Probability Weighted Average
Best-case 17.0 0.10 1.70
Most-likely case 14.6 0.80 11.68
Worst-case 13.2 0.10 1.32
Sum = 1.00 EV = 14.70

Expenditure patterns
The tendencies or propensities of individuals/households to spend disposable income on a
given good or service in comparison to other goods and services (typically defined as a
percentage of disposable income) in relation to income level or range and/or other
demographic or socio-economic characteristics.

Expense stop
The level (or maximum amount) up to which the landlord will pay certain operating
expenses. Amounts above the stop are the responsibility of the tenant.

External economies
Savings or cost-cutting allowances realized by firms or industries within a given city that are
primarily due to the advantages of sharing production inputs, information, and
infrastructure and/or possibly linked to a city’s comparative advantage to support a given

External obsolescence
A form or source of accrued depreciation considered in the cost approach to market value.
The loss of value is because of external forces and change. For example, a new mall causes
traffic and congestion, negatively affecting residential property values nearby, or a motel is
no longer viable because a highway is rerouted, or another example would be depressed
market conditions.

— F
Factors of production
The rudimentary components of any production process or system consisting of: land and
land-based resources (including raw materials); capital, which includes real capital such as
machinery, facilities, and infrastructure and financial capital to start or expand businesses;
labor or human input (as defined in terms of labor hours or quality/productivity); and
technology which includes production know-how and methods, as well as management and
operations skills.

Fair value of an asset (or liability)
The amount at which the asset (or liability) could be bought (or incurred) or sold (or
settled) in a current transaction between willing parties, that is, other than in a forced or
liquidation sale. (Real Estate Information Standards)

Fashion/specialty center
This type of retail center is composed mainly of upscale apparel shops, boutiques, and craft
shops carrying selected fashion or unique merchandise of high quality and price. These
centers need not be anchored, although sometimes restaurants or entertainment can
provide the draw of anchors. The physical design of the center is very sophisticated,
emphasizing a rich décor and high-quality landscaping. These centers usually are found in
trade areas having high-income levels.

Feasibility analysis
The process of evaluating a proposed project to determine if that project will satisfy the
objectives set forth by the agents involved (including owners, investors, developers, and

Financial leverage
The use of borrowed funds to acquire an investment.

Financial risk
The possible change in an investment’s ability to return principal and income.

Fixed expenses
Costs that do not change with a building’s occupancy rate. They include property taxes,
insurance, and some forms of building maintenance.

Fixed lease
A lease in which the lessee pays a fixed rental amount for the duration of the lease.

Flex space
Space that is flexible in terms of what it can be used for (for example, space that could be
utilized for industrial or office activities). Also see cross-over (office use) demand.

An estimate or prediction of a future condition or outcome.

Forecast period
An upcoming time period of interest in which a forecast is to be made.

Formal (or geographic) data
Information/data collected and presented by formal region. Also see formal region.

Formal region
A region identified by political jurisdiction or on the basis of the presence or absence of one
or more distinguishing features or characteristics.

Free rent
See rent concessions.

Fully amortized mortgage loan
A method of loan amortization in which equal periodic payments completely repay the loan.

Functional components
Factors which determine how a location or site functions.

Functional data
Information/data collected and presented by functional region. Also see functional region.

Functional feasibility
Considerations made in the site selection process which assist in the evaluation of site
potential as defined in terms of the practicality of a site, the best site for a given use, or the
determination of a site’s best use, through the examination of linkages, competition,
demographics, and market conditions.

Functional obsolescence
A form or source of accrued depreciation considered in the cost approach to market value.
The reduced capacity of a property or improvements to perform their intended functions due
to new technology, poor design, or changes in market standards.

Functional region
A region delineated in terms of linkages or economic interactions that are typically
organized as a trade area about a dominant location, center, or economic activity.

Future value (FV)
The amount to which money grows over a designated period of time at a specified rate of
See future value.

— G
Gap analysis
An evaluation of the difference in the demand and supply of space (measured in terms of
square footage) for a particular type of commercial property in a given market area where
gaps are expressed as the amount of square footage demanded less the amount of square
footage available in a given time period. Note that if demand exceeds supply, the gap will
be positive. A positive gap indicates that potential opportunities exist for successful
commercial real estate transactions. However, transactions might be avoided when supply
exceeds demand (or when a negative gap occurs), as there is an oversupply of available
space in the market.

General market area gap analysis
A gap analysis that is carried out for a city or several cities (simultaneously) to identity one
or more general market areas where a positive gap exists for a particular type of
commercial real estate. Also see gap analysis.

General market factors
Factors influenced by the demographic, economic, and locational characteristics and the
organizational aspects of a market.

Generic space
Commercial space that can be used for a variety of purposes, such as multiple-use office

Geographic Information System(s) (GIS)
System(s) (usually computer-based) used for capturing, handling, storing, retrieving,
managing, manipulating, and displaying geographic information or geo-coded data.

Geographic submarket
The total number of households or housing units within a given area as defined by tenure,
income, and other socio-economic attributes that are known to exist or estimated to be
within specific geographic units or divisions (for example, in various census tracts).


The condition of being or becoming globalized. A concept used to recognize crossjurisdictional interdependencies and the continuing integration of local, regional, and
national economies which now form a larger economic and production system that is
worldwide in scope and application; a trend that has greatly affected local economic change
and real estate values.

Government incentives
Concession given or measures taken by local or regional government to attract firms or
investment dollars to a given locality for the purposes of promoting economic growth and
encouraging development.

Gravity model
A model that is used to account for a wide variety of flow patterns in human/economic
systems, based on Newton’s gravity equation which defines gravity or the flow potential
(between two sites or locations) as directly proportional to the product of their masses (or
size) and inversely proportional to the square of the distance between them: gravity =
(mass × mass) ÷ distance2.

Gross area
The entire floor area of a building or the total square footage of a floor.

Gross leasable area (GLA)
The total floor area designed for tenant occupancy and exclusive use, including basements,
mezzanines, and upper floors, and it is measured from the center line of joint partitions and
from outside wall faces. GLA is that area on which tenants pay rent; it is the area that
produces income.

Gross lease
A lease in which all expenses associated with owning and operating the property are paid by
the landlord. Also see net lease.

Gross operating income
The total income generated by the operations of a property before payment of operating
expenses. It is calculated from potential rental income, plus other income affected by
vacancy, less vacancy and credit losses, plus other income not affected by vacancy. The
Annual Property Operating Data form or the Cash Flow Analysis Worksheet can be used to
calculate a property’s gross operating income.

Gross rent multiplier (GRM)
A method investors may use to determine market value. This method calculates the market
value of a property by using the gross rents an investor anticipates the property will
produce at end of year 1 multiplied by a given factor (known as the gross rent multiplier
extracted from the marketplace).

Ground lease

A lease of the land only. Usually the land is leased for a relatively long period of time to a
tenant that constructs a building on the property. A land lease separates ownership of the
land from ownership of buildings and improvements constructed on the land.

Growth patterns
In reference to the patterns of urban or population growth in a geographic market, an
important consideration in retail trade area analyses as growth patterns are known to affect
sales/revenue potential within a market given the tendency of retail to follow population
movement and income concentrations over time.

— H
Heavy utility needs
In reference to location-decision considerations made in relation to the energy or power
requirements of a firm/user in the assessment of the feasibility of a location to support a
given activity.

Protecting oneself against negative outcomes.

High order good
A good or service requiring a high threshold population before it is offered to a market.
Such a good or service requires a large number of consumers to support its business and
requires a larger trade area than a low order good. Also see lower order good.

Economic sectors and activities oriented toward the creation and production of hightechnology products and the use of advanced designs, techniques, or devices in fields like
electronics, optics, lasers, aerospace, computers, semiconductors, and telecommunications.

Highest and best use
The reasonably probable and legal use of vacant land or an improved property, which is
physically possible, appropriately supported, financially feasible, and that results in the
highest value. [Appraisal Institute]

Highest and best use (financial) analysis
A determination of the highest and best use of one or more sites (either vacant or as
though vacant) or properties as improved by examining the profitability of all possible use
scenarios (including renovation, rehabilitation, demolition, and replacement).

A housing unit or residence at a given location that is occupied by one or more persons
(that is, a social unit comprised of one or more individuals living together in the same
dwelling or place).

Household population
The total number of households in a given geographic market or submarket as defined by
specific demographic and socio-economic characteristics.

Housing demand
The total number of housing units demanded in a given market, defined as occupied
household units divided by one minus the vacancy allowance for that market (where
demand is affected by the rate at which new households are being added to the market,
allowing for a normal level of vacancy).

— I
Unstable or non-sustainable conditions which arise out of a market disequilibrium or the lack
of balance between the forces of supply and demand in any or all subcategories of
commercial properties in one or more geographic submarkets over a given time period.

Imperfect market

A market in which product differentiation exists, there is a lack of important product
information, and certain buyers or sellers may influence the market. Commercial real estate
is bought and sold in an imperfect market.


The process by which a given geographic area absorbs new individuals/households from
locations outside that area (an influx of individuals/households to a given area).

In-the-door approach
An approach to estimating the trade area (and sales/revenue potential) for a given retail
establishment or center based on observed flow patterns or traffic counts, where estimates
are obtained for both the percentage of traffic that stops or patronizes that
establishment/center and the percentage of people coming in-the-door who make a

Income capitalization approach
A method to estimate the value of an income-producing property by converting net
operating income into a value. The cap rate is divided into the net operating income to
obtain the estimated value. Value = net operating income ÷ capitalization rate

Index lease
A lease in which the rental amount adjusts accordingly to changes and/or movements in a
price index, commonly the consumer price index.

Industrial gap
The difference between the demand for an industrial property and the supply of that
property in a given market or area.

Industrial location decision-making
A decision-making process that involves the examination and evaluation of alternative
locations or sites for a particular industrial activity based on location/site feasibility
characteristics; great importance is placed on the national or regional location decision
(usually narrowing the location decision to a handful of cities or localities), with less
importance given to the local site selection process.

Industrial property
Commercial properties that are used for the purposes of production, manufacturing, or

Industrial service area
The geographic area within a market that contains either an acceptable number of
employees (and meets necessary labor requirements), or the necessary service and
resources needed to support a given industrial activity or facility.

Initial investment
The outlay of cash needed to acquire an investment.

Input-output modeling
A mathematical approach to the description of a local or national economy, which takes
explicit account of the flows and linkages within and between economic sectors.
Recognizing that output (products and services) from one sector may require production
inputs for other sectors, used to estimate sector- and region-specific multipliers for the
purpose of analyzing the direct and indirect impacts of a given change in a particular sector
or region.

Insurable value
The value of the portions of the property that are physically destructible.

Intangible characteristics
Attributes that are not directly measurable or quantifiable, and therefore must be expressed
in a qualitative or abstract manner.

Interest-only loan
A method of loan amortization in which interest is paid periodically over the term of the loan
and the entire original loan amount is paid at maturity.

Internal growth
The rate at which a base population or the number of new households is changing due to
natural increase (births less deaths) and time (the aging and maturation of that population),
as children are born, grow up, and form families and households of their own.

Internal rate of return (IRR)
The percentage rate earned on each dollar that remains in an investment each year. The
IRR of an investment is the discount rate at which the sum of the present value of future
cash flows equals the initial capital investment.

Internal rate of return method
A comparison method that calculates the internal rate of return of the differential cash flow
between any two investment alternatives, then compares that rate with the user’s
opportunity cost. Also see internal rate of return.

The supply or stock of a given commodity or a listing thereof.

Limiting current consumption in favor of future consumption.

Investment value
The value to a specific investor, based on that investor’s requirements, tax rate, or

See internal rate of return.

IRR of the differential
The internal rate of return on the difference between the cash flows for any two investment
alternatives. Also see internal rate of return method and differential cash flow

— J
No glossary terms are available.

— K
Key federal laws
With respect to the handling of hazardous materials, they are important laws or statutes
enacted to enforce the responsible handling of materials to minimize the danger to human
beings and/or the environment.

— L
Labor pool
A body or core group of workers (employed and employable) that make up the local labor


The lessor or owner of the leased property.

Landlord-paid tenant improvements (LPTI)

The total cost (outlay) of necessary tenant improvements paid by the landlord netted
against any contribution made by the tenant.

Land sale-leaseback
The same concept as a sale-leaseback, but only the land is sold and leased back using a
ground lease.

Leakage (retail)
Purchases made in other service areas by consumers located within the subject area
(representing a loss of revenue for retailers located within the trade area in which those
consumers reside).

A contract that creates the relationship of landlord and tenant. A contractually binding
agreement that grants a right to exclusive possession or use of property, usually in return
for a periodic payment called rent. (Encyclopedia of Real Estate Terms 2nd Edition, Damien

Lease buyout
The process by which a landlord, tenant, or third party pays to extinguish the tenant’s
remaining lease obligation and rights under its existing lease agreement.

Lease terminology
Terms commonly used in reference to a lease.

Leased fee
In exchange for permitting a tenant to use the property, the owner/lessor has the right to
receive rental income and the right to repossess the property upon termination of the lease.

Leased fee interest
The value (to the owner) of the rental payments plus the value of the property at the end of
the lease term (reversionary interest).

Leasehold estate
In exchange for rent, the tenant has the right to occupy and use the property for the
duration of the lease.

Leasehold interest

The value (to the tenant) of the lease. The value of the leasehold interest is determined by
present value of the difference between market rent and the contract rent.

A means of obtaining the physical and partial economic use of a property for a specified
period without obtaining an ownership interest.

The person renting or leasing the property. Also known as a tenant.

The person who rents or leases a property to another. Also known as a landlord.

The use of borrowed funds to finance a portion of the cost of an investment.

Lifestyle characteristics (psychographics)
Intangible characteristics of a local economy that define and shape the quality of life
element and the social and cultural identity of the local population.

The cost to transport goods, services, or people to and from a site measured in time,
distance, and inconvenience.

Liquidation value
The likely price that a property would bring in a forced sale (foreclosure or tax sale). Used
when a sale must occur with limited exposure time to the market or with restrictive
conditions of sale.

The ability to convert an investment into cash quickly without loss of principal.

Load factor
The ratio of rentable area to useable area. The load factor is a gauge by which a user can
evaluate different sites with comparable rents. It is also known as the add-on factor.
Load factor = Rentable square
Useable square feet
Loan balance
The amount of money remaining to be paid on an amortizing loan at a given time.
Loan or mortgage value
That portion of the value of real property recognized by the lender when used to secure a

Loan point
A charge prepaid by the borrower upon the origination of a loan. One point equals one
percent of the loan amount.

Loan-to-value ratio (L/V)
The amount of money borrowed in relation to the total market value of a property.
Expressed as the loan amount divided by the property value.

Location analysis
The process of evaluating whether a general location meets the requirements of being both
possible and practical as defined on the basis of technical and functional components.

Location quotient
An index, defined in ratio form that compares the proportion of a local activity to the
proportion of that activity found at some larger geographic scale, such as the nation.

Location quotient method
A method for estimating a community’s economic base multiplier using basic employment
estimates obtained from estimated location quotients (under various simplifying

Lower order good
A good or service requiring a low threshold population to be offered. A good or
service is considered to have a low threshold if it does not require a large number of
consumers to support its business and thus requires a small trade area. Also see high order

— M
Generally used in reference to matters of economy or economic factors and forces portrayed
or operating at the macro-level (as opposed to micro-level), used synonymously with
national economy.


The ability to monitor the performance of an investment and make changes as needed.

Managing risk
The steps taken by an investor or manager to control or reduce investment risk.

Mapping GIS software
Computer-mapping programs that perform any of a wide variety of map-making tasks (for
both on-screen and file-oriented use).

The ability to sell or lease a property quickly. Marketability deals with the appeal and
demand for a property, good, or service.

Market area
A geographical area in which supply and demand operate to influence the course of
industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).

Market adjustments
A change in market parameters or conditions brought about in response to one or more
market signals (including price changes from shifts in supply and demand); typically
characterized as cycles, fluctuations, or trends (categories that differ in terms of cause,
duration, and impact on commercial real estate markets).

Market analysis
The process of examining market supply and demand conditions, demographic
characteristics, and opportunities; identifying alternative locations/sites that meet specific
objectives or satisfy various criteria; and assessing the financial feasibility of those
locations/sites to facilitate decision making regarding the commercial potential or suitability
of various locations/sites to support a given activity or use.

Market data
Information/data collected and displayed for a given market or by market area.

Market data approach
A method of determining the property’s value by analyzing recent sales or rental prices of
comparable properties.

Market dynamics
In reference to changing market conditions and the underlying processes responsible for
creating change and defining/redefining interrelationships amongst components in an
economic system (consider the change in price levels of a given commodity as an outcome
of the forces and interplay of supply and demand).

Market feasibility
Pertaining to the evaluation or selection of a site or an analysis of a site’s highest and best
use. Also see feasibility analysis.

Market gap
The demand for space minus the supply of space for a specific type of commercial property
in a given real estate market. Also see general market area gap analysis.

Market opportunities
Advantageous circumstances in a market which facilitate a given action or outcome that is
generally viewed as favorable from a money-making standpoint.

Market pricing
The pricing of commodities (including rental rates of various types of commercial properties)
as determined by the forces and factors of influence operating in a market.

Market risk
The possibility that downward market trends will reduce an investment’s market value.

Market share
Refers to the percentage of total sales in a retail category that each competing outlet is
expected to capture based on current patterns and trends in the market.

Market strategy
A course of action defined with respect to a particular real estate market phase. For
example, consider the market strategy of avoiding real estate transactions when there is an
oversupply of space available in the market.

Market value
The most probable price that a property would bring in a competitive and open market
under fair sale conditions. Market value also refers to an estimate of this price.

Second stage of four-stage transaction management process pertaining to gathering and
evaluating property information to unite the investor and user. The acronym MATCH
represents the activities to market, analyze, target, compare, and highlight during the
match stage.

A measure of central tendency (for a distribution of values) defined as the average value of
a variable in a sample and calculated by adding together all the values observed in a data
set and dividing by the number of values observed.

Defined as the middle value of a data set (or sample) when the values are arranged in order
(by size ranking, in ascending or descending order). Note that for an odd number of values
in an ordered data set, the median is identified as the value which divides the data set into
two data sets of equal size on each side of the median or middle value. For an even
number of values arranged in order, the median is found by simply calculating the value
mid-way between the two middle values. Note that the position of the median value of an
ordered data set containing n observations may be found by using the formula: position of
the median = n/2 + 1/2.

Metropolitan Statistical Area (MSA)
Generally, the area in and around a major city. The Office of Management and Budget
(OMB) defines an MSA as having one of the following characteristics: a city with a
population of at least 50,000, or an urbanized area with a population of at least 50,000 with
a total metropolitan population of 100,000.

Mid-month convention
A requirement of the Tax Reform Act of 1984 that taxpayers use the 15th of the month to
establish the date of acquisition and date of disposition when calculating cost recovery
deductions. This act applies to real estate placed in service after June 22, 1984 (with the
exception of low-income housing).

Minimum requirement
The observed minimum proportion of employment in a given economic sector for
communities within a given size range, assumed to be that employment/activity level that is
necessary to serve the needs of a community that falls within a predetermined size range
(the minimum amount of nonbasic employment necessary to support a typical mix of
industry for a population base of a given size range).

Minimum requirements method
A method for estimating a community’s economic base multiplier using basic employment
estimates that are obtained by comparing employment levels by economic sector to the
identified minimum requirement.

Moving allowance
A specified dollar amount paid by the owner to cover, in part or in whole, tenant moving
expenses. Also known as owner’s moving expense.

Moving expenses
The cost incurred by the tenant to move into the new space. The landlord may pay a
portion or all, depending on what is negotiated in the lease. Also see moving allowance.

Multifamily housing
Housing units that accommodate more than one family or household.

Multiple-use office space
Office space that can be used for a variety of purposes; sometimes referred to as generic
office space.

— N
A component of the T-bar that represents the number of periods over which the investment
is held.

Negative leverage
Borrowed funds are invested at a rate of return lower than the cost of funds to the

Neighborhood center
This center is designed to provide convenience shopping for the day-to-day needs of
consumers in the immediate neighborhood. According to ICSC’s SCORE publication, a
supermarket anchors half of these centers, while about a third have a drugstore anchor.
Stores offering pharmaceuticals and health-related products, sundries, snacks and personal
services, support these anchors. A neighborhood center is usually configured as a straightline strip with no enclosed walkway or mall area, although a canopy may connect the

Net lease
A lease in which the tenant pays, in addition to rent, all operating expenses such as real
estate taxes, insurance premiums, and maintenance costs. Also see gross lease.

Net operating income (NOI)

The potential rental income plus other income, less vacancy, credit losses, and operating

Net present value (NPV)
The sum of all future cash flows discounted to present value and netted against the initial

Neutral leverage
An investment situation in which the cost of borrowed funds is exactly equal to the yield
provided by the investment.

See net operating income.

Non-basic employment
Employment that is considered to be of the nonexport-oriented variety: employment not
associated with export-oriented activities. Nonbasic employment is best characterized by
industries and activities that produce goods and services exclusively for local use or

Non-household population
That portion of the total population that is not considered to be part of the local residential
housing market; composed of individuals living in dormitory-like facilities (including military
bases) or institutional settings (such as students in residence halls).


See net present value.

— O


In reference to the inadequacy, disuse, outdated, or nonfunctionality of facilities,
infrastructure, products, or production technologies due to effects of time, changing market
conditions, or decay (a factor considered in depreciation to cover the decline in value of
fixed assets due to the invention and adoption of new production technologies, or changing
consumer demand).

Occupancy cost
The actual dollars paid out by the tenant to occupy the space. It can be expressed in either
pre-tax or after-tax dollars.

Low-rise – Fewer than seven stories high above ground level.
Mid-rise – Between seven and twenty-five stories above ground level
High-rise – Higher than twenty-five stories above ground level. [BOMA]

Office gap
The difference between the demand for office space and the supply of office space by
property type, submarket, sector, or user classification in a given geographic market.

Office property
A commercial property type used to maintain or occupy professional or business offices.
Such properties typically house management and staff operations. The term office can refer
to whole buildings, floors, parts of floors, and office parks. Office space that can be used for
a variety of purposes is sometimes referred to as generic office space. Office properties
may be classified as Class A, B, or C. Class A properties are the most functionally modern.
Properties Classed B and C in the same market typically command lower rents because they
are older and in need of modernization. They may not be as efficient or desirable as Class A
properties because their design or condition causes functional problems.

Operating expense stop
A negotiable amount at which the owner’s contribution to operating expenses stops. It also
can be stated as the amount above which the tenant is responsible for its pro rata share of
operating expenses.

Operating expenses
Cash outlays necessary to operate and maintain a property. Examples of operating
expenses include real estate taxes, property insurance, property management and
maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do
not include capital expenditures, debt service, or cost recovery.

Opportunity cost
The cost of selecting one alternative is the benefit foregone from the next best alternative.
Also see discount rate.

Original basis
The total amount paid for a property, including equity capital and the amount of debt

The process by which a given geographic area expels or loses individuals/households to
locations outside that area (an outflux of individuals/households from a given area).

Outlet center
A retail property type usually located in rural or occasionally in tourist locations, outlet
centers consist mostly of manufacturers’ outlet stores selling their own brands at a discount.
These centers are typically not anchored. A strip configuration is most common, although
some are enclosed malls, and others can be arranged in a village cluster.

Overage rent
See percentage rent.

In reference to commercial real estate, oversupply is a stock or supply of a given
commercial property type that is greater than that which can be cleared under prevailing
prices levels and market conditions (for example, excess supply). Also, a phase of the real
estate market cycle denoting that period of time in which commercial real estate markets
become saturated with units due to overbuilding.

Owners moving expense
See moving allowance.

A means of obtaining the full economic use of a property for an unspecified period by
obtaining an ownership interest.

— P
Partially amortized mortgage loan
The payments do not repay the loan over its term and thus a lump sum (balloon) is required
to repay the loan.

Participation mortgage
A loan secured by real property, with a stated interest rate that also provides for a share to
the lender in annual net cash flow, gain on sale, or proceeds from refinancing the property.
(Real Estate Information Standards)

Passive income
Income from rental activity, limited business interests, or other activities in which the
investor does not materially participate.

Passive losses
Losses from the ownership of passive investments.

Payment (PMT)
A periodic amount paid or received for two or more periods.

Percentage lease
A lease in which the rent amount is based on a percentage of gross sales (monthly or
annually) made by the tenant.

Percentage rent
The additional rent (over a base amount) that is paid by tenants to owners on tenant sales
over a specified dollar amount. It is frequently found in retail leases. Also known as
overage rent.

Perfect market
A market in which the products are homogenous, there is complete information, and no
buyers or sellers may influence the market.

Physical depreciation or deterioration
A form or source of accrued depreciation considered in the cost approach to market value.
The physical decay or deterioration of a property that may result from breakage, deferred
maintenance, effects of age on construction material, and normal wear and tear. (Barron’s
Dictionary of Real Estate Terms)

Physical limitations
Limitations imposed by the physical size, shape, or characteristics of a property or its level
of development.

Pipeline information
Information (substantiated and rumored) regarding new inventory that is in the process of
being added to the market by a specified forecast period.
Planned additional inventory
In reference to commercial real estate, it is the supply or stock of a specific type of
commercial unit or the amount of space that will be available in an upcoming forecast
period from expansions, conversions (in), and new construction.
Planned removed inventory
In reference to commercial real estate, it is the supply or stock of a specific type of
commercial unit or the amount of space that will not be available in an upcoming forecast
period due to demolitions and conversions (out).


See payment.

Population/expenditure approach
An approach to estimating the trade area (and sales/revenue potential) for a given retail
establishment or center based on the minimum area (or threshold population) that would be
required to sustain a business, by calculating the population necessary to support total
square footage of both existing and proposed space for a specific-use and
determining/mapping the extent of the trade area based on population density.

Population growth

The rate at which a given population base in a given geographic area is growing (positive or
negative) in relation to the forces of internal growth, in-migration, and out-migration; a
factor that is widely acknowledged as having the greatest impact on the demand for

Population migration
The movement and relocation of people from one place of residence to another in response
to social and economic factors and forces; a long-term trend that can be expected to affect
local economies and real estate values.

Portfolio income

Income from interest, dividends, royalties, or the disposition of property held for

Positive leverage
Borrowed funds are invested at a rate of return higher than the cost of the funds to the

Potential rental income
The total amount of rental income for a property if it were 100 percent occupied and rented
at competitive market rates.

Power center
This retail center is dominated by several large anchors, including discount department
stores, off-price stores, warehouse clubs, or category killers—stores that offer tremendous
selection in a particular merchandise category at low prices. The center typically consists of
several freestanding (unconnected) anchors and only a minimum amount of small specialty

Present value (PV)
The sum of all future benefits or costs accruing to the owner of an asset when such benefits
or costs are discounted to the present by an appropriate discount rate.

Present value method
A comparison technique that compares the present values of the cash flows for any two real
estate alternatives. The best user alternative is based on the lower present value amount.
It is not the same as net present value.

Prestige and property classes
In reference to the recognition that various levels of status may be assigned to commercial
properties as defined by user needs, the quality of a property and its amenities in relation to
site factors, and its general location, suggesting the division of properties into distinct

The dollar amount that was offered, asked, or actually paid for a property.

Primary source data
Information obtained directly from field observations and survey instruments (by observing
or monitoring a phenomenon or site firsthand), typically involving quantitative
measurement and/or qualitative assessment of that which is observed or monitored.

The portion of a loan payment used toward reducing the original loan amount.

Probabilities and expected value
A quantifiable method of risk analysis. This method assigns probabilities to specific, possible
investment outcomes, calculates an expected outcome for the investment based on these
probabilities, and measures the likelihood that actual results will differ from the expected

Probabilities and expected value (continued)
outcome. This method of risk analysis can be applied directly to real estate investments. It
also can be used in conjunction with the forecasts generated through sensitivity analyses.
This technique requires that probabilities be assigned to possible outcomes. Probabilities on
the best-case, most-likely, and worst-case scenarios can be assigned to the resulting
expected values for the return. Variances also can be computed using the assigned

Any economic activity that alters, enhances, or transforms a product or material, thereby
increasing the value of that product or material by changing its physical form and/or

Property data

Property/site-specific information obtained from primary and secondary sources.

Property market
The supply and demand for ownership interests in property.

Property-specific factors
Factors influenced by the site-specific and technical characteristics of a property or parcel
including its layout, limitations, orientation, physical features, and ability to comply with
government imposed zoning and land-use restrictions.

Property type
The classification of commercial real estate based on its primary use. The four primary
property types are: retail, industrial, office, and multi-family residential.

Proprietary data
Information obtained (usually at a cost) from private sources or firms that hold the
exclusive rights to manufacture and distribute information created for specific commercial
applications, supplying business, sales, and market-potential data and other information
services to a targeted audience.

Purchasing power risk
The variability in the future purchasing power of income received from an investment.

See present value.

— Q
First stage of four-stage transaction management process pertaining to the process of
gathering and evaluating information to measure a client’s readiness, willingness, and ability
to consummate a transaction. The acronym QUALIFY represents the considerations of
quantify, usage, authority, latitude, intention, financial, and yield involved in the qualify

Quality of life
The psychological and individual aspects of social well-being as perceived and experienced
by people in reference to a given geographic area, which reflect a state of mind or position
on the prevailing quality of existence in relation to various socio-economic and
environmental conditions and/or amenities known to be associated or found within that

— R
The maximum distance consumers are willing to travel to purchase a good or service from a
given establishment or location. Hence, the boundary or outer limits of the market area
circumscribed about a location at which a good or service may be purchased can be easily
identified having knowledge of the range.

Rate of return

The percentage return on each dollar invested. Also known as yield.

Real estate

See commercial real estate.

Real estate cycles (phases)
The regularly repeating sequence of economic downturns and upturns and associated
changes in real estate market transactions tied to market dynamics and changing macroeconomic conditions, whose phases include (in order) recession, recovery, expansion, and

Real estate fluctuations
Short-term variations in real estate prices or rents (usually lasting anywhere from one day
to a few months) caused by natural hazards (such as tornadoes, hurricanes, floods,
earthquakes, and wildfires) or boosts or shocks to the local economy (such as the entry or
exit of major employers).

Real estate investment trust (REIT)
An investment vehicle in which investors purchase certificates of ownership in the trust,
which in turn invests the money in real property and then distributes any profits to the
investors. The trust is not subject to corporate income tax as long as it complies with the
tax requirements for a REIT. Shareholders must include their share of the REIT’s income in
their personal tax returns. (Barron’s Dictionary of Real Estate Terms and Encyclopedia of
Real Estate Terms 2nd Edition, Damien Abbott)

Real estate trends
Long-term movements or tendencies in the demand for commercial real estate (which can
typically last for years or decades), usually tied to macro-economic or business cycles.

A period of reduced economic activity or a general economic downturn marked by a decline
in employment, production, sales, profits, and weak economic growth that is not as severe
or prolonged as a depression. As a result, sales in real estate markets are slow, property
values and price levels are flat or decreasing, and there is virtually no construction of new
stock given excess supply of units in most real estate markets.

A period of increasing economic activity or a general economic upturn, typically following a
stabilization of key sectors and industries, marked by increasing sales and recovering prices
in real estate markets as a direct result of an external shock (for example, a favorable tax
code revision) or an increase in demand for commercial real estate which, in turn, leads to
the absorption of excess space. Little or no construction occurs during the initial stages of
this phase until most of the excess space is absorbed or until reasonable financing
opportunities become available.

Regional center

This center type provides general merchandise (a large percentage of which is apparel) and
services in full depth and variety. Its main attractions are its anchors: traditional, mass
merchant, discount department stores, or fashion specialty stores. A typical regional center
is usually enclosed with an inward orientation of the stores connected by a common
walkway and parking surrounds the outside perimeter.

Regulatory requirements
In reference to land use, they are restrictions or guidelines on development or use of land,
properties, or facilities as defined in accordance with design standards, building construction
requirements, land use plans, occupancy codes, and zoning classifications as determined by
the controlling or governing parties at the municipal or county levels.

Rent concession
A period of free rent given to the tenant by the lessor.

Rentable area
The computed area of a building as defined by the guidelines of Building Owners and
Managers Association (BOMA) and typically measured in square feet, including both
core/structure and useable area. The actual square foot area for which the tenant will pay
rent. It is the gross area of an office building, less uninterrupted vertical space (such as
stairways and elevators). Unlike useable area, rentable area includes common areas such
as lobbies, restrooms, and hallways as well as the measurement of structural columns and
architectural projections.

Rentable-to-useable ratio
Defined as rentable area divided by useable area. Also known as the add-on factor or load
factor. Also see efficiency percentage.

Rent escalators
Items specified in a lease such as base rent, operating expenses, and taxes that may
increase by predetermined amounts at stated intervals or by a constant annual percentage.
Also see index lease and expense stop.

Replacement cost
The estimated cost to construct, at current prices, a building with utility equivalent to the
building being appraised, using modern materials and current standards, design, and layout.
[Appraisal Institute]

Residential property
Single- or multifamily housing units that are used, serve, or are designed as a place of

Also see community center, fashion/specialty center, neighborhood center, outlet center,
power center, regional center, superregional center, and theme/festival center.

Retail gap analysis
A gap analysis performed specifically on retail floorspace in a given market or trade area.

Retail gravity model
A gravity model used to estimate dollar flows to or the sale/revenue potential of competing
retail establishments in a given geographic market. Also see gravity model.

Retail property
Properties used exclusively to market and sell consumer goods and services.

Retail trade area
Also referred to as service area, is generally defined as the geographic or formal area from
which a sustained patronage is attracted to support a retail center or establishment; the
extent to which is determined by numerous factors including the site characteristics of the
center or establishment, its accessibility, the presence or absence of physical barriers to
movement, and general limitations imposed by driving time, congestion, and

Reversion value
A lump-sum cash benefit that an investor receives or expects to receive upon the sale of an

The probability that actual cash flows from an investment will vary from the forecasted cash

— S
Safe rate
The rate a low risk, liquid investment achieves.

Sale cost
The brokerage commissions and fees, and any additional transaction costs that are incurred
during the sale of the property.

A leasing and financing strategy in which a property owner sells its property to an investor,
then leases it back. This strategy frees capital that otherwise would be frozen in equity.

Sales proceeds after tax
The sale proceeds before tax minus the tax liability on the sale.

Sale(s) proceeds before tax
The sale price minus the sale costs and the mortgage loan balance.

Sales comparison approach
A way to determine market value by comparing a subject property to properties with the
same or similar characteristics.

Sales comparison value
An estimate of value derived by comparing the property being appraised to similar
properties that have been sold recently, applying appropriate units of comparison, and
making adjustments to the sales prices of the comparable based on the elements of
comparison. [Appraisal Institute]

Sales per square foot
Sales revenue generated per square foot of retail floor space.

Sales potential
The possible or expected revenue of a retail outlet as defined by conditions within the
market or trade area and the forces of competition.

Sales price point of indifference
The future reversionary value (sales price) that would make the present cost of leasing
mathematically equal to the present cost of owning a property.

Sales volume
The total amount of sales/revenue generated by a retail outlet or facility in a given time

A subset of a statistical population (typically selected randomly).

The practice of obtaining a sample from a given statistical population.

Sandwich lease
See sublease.

Scale economies
Cost reductions, savings, or advantages that come about from efficiency gains associated
with increasing levels of production output or the increased size of an operation or system
(as the average cost of production falls with increasing output or size).

Secondary source data
Information obtained from second-party or archival sources.

The phenomenon of indirectly investing in real estate markets in ways that minimize risk
(for example, investments made collectively with pooled money or the use of investment
packages/funds, such as mortgage backed securities sold on the secondary financial
market) as opposed to direct investments where investors own property or hold mortgages;
a long-term trend that has had significant impact on real estate values.

Segmentation of formal regions
The compartmentalization or division of formal regions into smaller geographic areas for the
purpose of carrying out a more detailed market area analysis.

Sensitivity analysis
The process of recalculating outcomes under alternative assumptions to determine the
impact of the variable under analysis.

Service area
The geographical area that encompasses/delineates the principal share of clients or
customers served by the tenants of the property (a concept that becomes less applicable as
the service area of the customer base increases).

Sinking fund
A fund designed to accumulate a designated amount of money over a specified period of
time. The periodic amount of money deposited plus compound interest will accumulate to
the designated amount of money over the specified period of time.

Site analysis
The identification and evaluation of a site or sites to satisfy a given use or objective.

Site factors
Site-specific factors, features, conditions, or attributes which are important in the analysis
or evaluation of a location/site (including relative location, visibility, aesthetics, landscaping,
condition of existing structures, regulatory mechanisms, and lot size).

Site selection
The process of determining the best site for a specific use.

Space market
The supply and demand for the use of physical space.

Standard deviation
A measure of the amount of dispersion or variation of data points or values about the mean.
The standard deviation has a very useful property in that 95.4% of the values of a data set
will lie within two standard deviations (plus or minus) of the mean.

Standard Industrial Classification (SIC)
A classification scheme used for general recording purposes by government and industry to
categorize and account for economic and employment activity by sector using a series of
standardized and universally accepted codes.

Statistical descriptions
Drawing a reasonable conclusion or deduction from statistical evidence based on sample
statistics, while attaching a statement as to the likelihood that an assertion made about a
given statistical population is true (in probabilistic terms).

Statistical population

The total set of elements or the collection of all individuals, items, or objects under
consideration in a statistical inquiry. In short, a population is a universe comprising all
members of a specified group.

Step-up lease
A lease in which the rental amount paid by the lessee increases by a preset rate or set
dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge
against inflation and future maintenance or operational expenses.

Street-based mapping
Relatively easy-to-use GIS applications that allow the user to map objects such as
commercial properties or retail establishments by street address.

A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to
another tenant (known as a subtenant) while still retaining a leasehold interest in the
property. Also known as a sandwich lease due to the sandwiching of the original lessee
between the lessor and the subtenant.


A segment or portion of a larger geographic market defined and identified on the basis of
one or more attributes that distinguish it from other submarkets or locations.

Substitute basis
The basis in a property acquired in a qualified Section 1031 Exchange is reduced by
deferred gain and becomes the substitute basis. For example, if the market value of
property given up is $200,000, and the basis in that property was $75,000, then realized
gain equals $125,000. Assume the market value of property acquired through a taxdeferred exchange is $350,000, then subtracting the unrecognized gain of $125,000 equals
the substitute basis of $225,000. The effect of this adjustment to basis is to build in the
deferred $125,000 gain into the property acquired. If the new property were sold the next
day for $350,000, a $125,000 gain would be reported.

Sunk costs
Investment costs that are committed and cannot be recovered.

Superregional center
A retail property type similar to regional centers, but because of its larger size, a
superregional center has more anchors, a deeper selection of merchandise, and draws from
a larger population base. As with regional centers, the typical configuration is as an
enclosed mall, frequently with multilevels.

The amount of property that will be made available for sale or rent at a given price or rental

Supply factors
Elements or forces that influence the supply of goods and services in a given market.

Supporting industries
Industries that offer goods or services that are necessary as inputs in a production process
or for the transportation and marketing of intermediate or finished products.

Suspended losses
Passive losses that cannot be used in the current year are suspended for use in future years
or at the time of sale.

Synthetic lease
A leasing and financing strategy whereby the terms of the lease under specific Financial
Accounting Standard Board guidelines change the lease obligation from a capital lease
(long-term lease on the company’s balance sheet) to an operating lease (short-term lease
on the company’s balance sheet).

See dynamic system and systems analysis.

Systems analysis
A methodological framework for investigating the structure, components, and functions of a

— T
A chart used to summarize the timing of real estate cash flows.

Tangible characteristics
Attributes that are quantifiable, measurable, factual, or expressed numerically as data or

Target market
Likely users or investors whose needs match the property’s features. Alternatively, when
representing users, the target market is the kind of property that matches your user-client’s

Tax impact
The impact of taxes on investment income and rate of return.

Tax liability
Real estate taxable income multiplied by the tax rate.

Tax savings (annual expense)
Entry on the tenant’s Cash Flow Form. All annual expenses incurred by the tenant are tax
deductible. The tax savings are calculated by multiplying the annual deduction by the
tenant’s tax rate.

Tax savings (capital expenditure)
Entry on the tenant’s Cash Flow Form. It refers to any tax savings associated with any
capital expenditure by the tenant in terms of the site or major, unusual business expenses
incurred to make the new office efficient for the business. The amount of tax savings is
calculated by multiplying the annual deduction amount by the tenant’s tax rate.

Tax shelter

The ability of real estate investments to reduce an investor’s tax liability through the use of
cost recovery.

Taxable income
Adjusted gross income less personal deductions and exemptions.

How an investment is affected by tax laws and codes.

Technical components
Factors that determine whether a location or site is suitable or able to support a given use.

Technical feasibility
In the case of site selection, it is an evaluation of multiple sites to determine which sites
should be considered further based upon their physical limitations, regulatory requirements,
and environmental and legal considerations; whereas in the case of highest and best use, it
refers to the determination of the possible uses of a particular site as based upon technical

A person or entity who has possession of the property though a lease. A tenant also may
be referred to as a lessee.

Tenant improvements
Preparation of leased premises prior to or during a tenant’s occupancy, which may be paid
for by either the landlord, the tenant, or both.

Tenant-paid tenant improvements (TPTI)
The total cost (outlay) of necessary tenant improvements paid by the tenant netted against
any allowance provided by the landlord.

A designation which distinguishes between the renter versus owner-occupied status of
housing units or households.

Theme/festival center
These retail centers typically employ a unifying theme that is carried out by the individual
shops in their architectural design and, to an extent, in their merchandise. The biggest
appeal of these centers is to tourists; restaurants and entertainment facilities can anchor
them. These centers, generally located in urban areas, tend to be adapted from older,
sometimes historic, buildings and can be part of mixed-use projects. [International Council
of Shopping Centers (ICSC) Shopping Center Descriptions]

Threshold population
The minimum number of people or minimum market area or sales volume necessary to
sustain a business or make it economically viable. Also see high order goods and lower
order goods.

See tenant improvements.

TI allowance from owner
Entry on the tenant’s Cash Flow Form. A specified amount of money the owner will pay for
tenant improvement.

Time value of money (TVM)
An economic principle recognizing that a dollar today has greater value than a dollar in the
future because of its earning power.

Total effective rate
The rate per square foot paid by the tenant over the entire period analyzed. Formula:
Total effective rate = Total effective rent
Square footage rented

Total effective rent
The total dollar amount (cash flow) that the tenant actually will pay out over the entire
period analyzed.

Total employment
The total number of actively employed people in the workforce within a given geographic
area at a particular point in time.

Total existing inventory
In reference to commercial real state, it is existing and currently available supply or stock
as represented by the total number of units or total amount of space available of a specific
commercial property type in a given market at a particular point in time.

Total forecast supply
Total existing inventory plus forecast planned additional inventory minus forecast planned
removed inventory for a specific commercial property type in a given market area.

Total supply of commercial real estate
Refers to all existing space vacant or occupied, built, forecasted, or demolished, for a
particular market area for a specific period of time.

See tenant-paid tenant improvements.

Trade area
An area delineated about a central or dominant location, comprising a zone that is
dependent upon production output from that location to meet internal demand, whose
outermost boundaries are defined in terms of the presence or absence of interactions with
that central or dominant location (for example, a localized area over which some specific
activity or transaction takes place). Note that in central place theory context, the terms
trade area and range are used interchangeably. Also see range.

Trade area gap analysis
A gap analysis performed on a specific trade area located within a predetermined market
area or city.

Traffic generators
A business, retailer, or site that draws business to a given location (for example, a large
retail store/anchor in a regional shopping mall that generates traffic for smaller retail shops
located within the mall or nearby).

Transaction management process
A continuous, cyclical four-stage process in which a transaction manager is involved with
qualifying, matching, closing, and adding value for clients. Also see qualify, match, close,
and add value.

Transfer income
Money that is transferred to a local economy from outside sources without the exchange of
any good or service (including social security, welfare and retirement benefits, interest
dividends and rent on investments).

See time value of money.

— U
Urban system (city as a system)
A complex and structured urban environment or system composed of highly diverse,
interacting, and interdependent parts and activities aggregated or organized in such a way
as to serve a common purpose and/or satisfy the needs and wants of people residing in and
dependent upon that system.

Useable area
Rentable area, less certain common areas that are shared by all tenants of the office
building (such as corridors, storage facilities, and bathrooms). Also defined in office
buildings as the area that is available for the exclusive use of the tenant. Useable area =
rentable area × building efficiency percentage.

User criteria
In reference to the identification and classification of properties and the evaluation of
feasibility characteristics of various locations/sites in accordance with the specific needs of
the user as defined by its business requirements, and the use and zoning restrictions in any
given jurisdiction or municipality.

— V
The number of units or space (of a specific commercial type) that are vacant and available
for occupancy at a particular point in time within a given market (usually expressed as a
vacancy rate).

Vacancy allowance
A desirable level of vacancy that is known to facilitate transactions and turnover in a
housing market (for example, a vacancy rate that allows the market to operate smoothly
and efficiently by enhancing household mobility); an index used for estimating housing

Vacancy rate
The percentage of the total supply of units or space of a specific commercial type that is
vacant and available for occupancy at a particular point in time within a given market.

A measurable attribute of a person, place, property, location, or other phenomenon of
interest, whose value may vary from observation to observation.

Variable expenses
Costs, such as utilities, that vary with a building’s occupancy rate.

— W
Weighted average cost of capital (WACC)
The average cost of capital (whether equity or debt), taking into account the relative
proportions of each source of capital. (Encyclopedia of Real Estate Terms 2nd Edition,
Damien Abbott)

Workstation GIS
Mainframe-oriented or UNIX-based computer-software products, programs, and systems
that are specifically geared toward large-scale applications, requiring large platforms and
advanced programming skills and knowledge.

— X
No glossary terms are available.

— Y
A measure of investment performance that gauges the percentage return on each dollar
invested. Also known as rate of return.

— Z
The designation of specific areas by a local planning authority within a given jurisdiction for
the purpose of legally defining land use or land use categories.