A useful guide to commercial real estate lingo
The world of real estate is full to overflowing with acronyms, jargon, and insider terms.
If you’re looking to test your knowledge or learn something new, we compiled a list of some of the most common terms used by commercial real estate brokers.
This guide is also best shared with interns, junior associates, or anyone new to the business of commercial real estate.
Investment Sales
LTV – “Loan to Value” is the ratio of mortgage loan to property value.
Operating Expenses – The total expenses incurred during a commercial property’s operation. These typically include property taxes and insurance, cost of utilities, and maintenance costs.
BOE – This stands for “Back of Envelope,” a time-saving method used by investors to analyze investment opportunities. The BOE concludes whether or not a possible real estate investment makes the cut, before more time is further spent analyzing the investment.
CAM – Or “Common Area Maintenance” refers to expenses that cover maintenance fees such as cleaning, landscaping, snow removal, and the like.
Trophy Building – The best type of investment property. Trophy buildings are first class in every respect from the architecture , location, technology, finishes, environmental sustainability, to other factors.
Development
FAR – “Floor Area Ratio” is the ratio between the total size of the property and the size of a structure or building that can be constructed within the property. This ratio is determined by officials from the local municipality according to zoning regulations in the neighborhood, district, town, or city.
Zoning – This is the term used for the laws regarding the legal use of land or real estate in an area. These laws determine which type of properties can be developed within certain areas, whether it’s a commercial, industrial, or residential property. Zoning laws also determine specific restrictions and guidelines such as height, required parking, and FAR (see above).
Leasing
Lessee – The lessee is the property’s tenant, or the party currently occupying a leased space and paying its rent.
Lessor – This is another term for landlord. This is the party that collects the rent and allows the lessee to occupy and use the leased space.
Sublease and Direct Lease – A direct lease is a negotiation between a tenant (or lessee) and a landlord (or lessor). A sublease on the other hand, is an arrangement between two tenants leasing the same space.
Sublessee and Sublessor – These are the two parties involved in a sublease. The tenant that has an active lease on a space is a sublessor, while the one leasing the space from the other is a sublessee. A sublessor can decide whether to lease out the entire area or one portion of the space.
Availability Rate – This is the quantity of office space that may be leased. This includes vacant space, space that is available within the next quarter, and available space for sublease.
Absorption – This is the amount of leasable square footage within a given period of time. Total absorption or gross absorption is the total amount of square footage that does not include the space vacated during the same period. Net absorption takes both figures into account, and can be calculated by subtracting the amount of occupied square footage during the start of a time period from the square footage occupied during the end of the same period.
Vacancy Rate – This is a percentage of all the available units in a city’s entire market, submarket, property, or portfolio within a given period of time.
Landlord Representative – Also known as an LL Rep is hired by landlords to stand in their stead during leasing transactions. Talented LL reps are able to negotiate for low vacancy rates and high rents, and often enjoy a consistent flow of repeat business from the many satisfied landlords they represent.
Tenant Representative – On the other hand, tenant reps are brokers hired by those seeking out store or office space, in single or multiple locations, including globally. Tenant reps ensure the client’s best interests are represented during negotiations. They can also be in charge of finding the space and location that perfectly suits a tenant’s needs.
Rentable Area – This is the total square footage a tenant pays for. This includes hallways, lobbies, and other common areas. The rentable area, however, does not include elevators and stairs.
Usable Area – This area is the leased space used by the tenant. This includes recessed entrances, columns, and other necessary fixtures, even though tenants cannot physically make use of these.
Assignable or Carpetable Area – This is the actual area that may be physically used by a tenant, the total space that does not include columns or other similar obstructions. It’s space you can actually place a carpet on, hence the term “carpetable.”
Loss Factor – The percentage of a Rentable Area that a tenant cannot make use of.
Load Factor or Add-on Factor –A percentage that indicates how much larger a Rentable Area is compared to the Usable Area.
Lease Types
Full Service or Gross Lease – With this, a landlord usually covers all operating expenses, though there are certain cases wherein tenants are responsible for covering a partial amount of annual increases in operating expenses.
Modified Gross Lease – A Modified Gross Lease means a tenant covers a portion of operating expenses along with the base rent. This amount typically includes utility bills and maintenance or janitorial services.
Triple Net or NNN Lease – This type of lease means a tenant is responsible for three kinds of operating expenses: property tax, insurance, and maintenance. Landlords with this type of lease collect a net amount, since they are free from paying for operating expenses.
Double Net or NN Lease – This is the same as the Triple Net Lease, except landlords are responsible for covering maintenance expenses.
