Commercial Real Estate Definitions

Term	Definition	Example
Accumulated depreciation	The total depreciation that has been taken for tax purposes each year.  This depreciatition impacts the capital gain tax on sale of the property.	A property has had $2,000 of depreciation every year for the past five  years.  If the property is sold at the end of year 5, the accumulated depreciation is 5 x $2,000 or $10,000.
Acre (ac)	A land measure equal to 43,560 square feet. It is also equivalent to 4,840 square yards, 4,047 square meters, 0.4047 hectare, 160 square rods, or 10 square chains.  A square mile or section contains 640 acres.
Adjustable rate mortgage (ARM)	A mortgage loan in which the interest rate is adjusted periodically based on a specified index or formula.  ARMs may include a limit on the amount that the interest rate can rise or fall in a given year as well as a limit on the total amount the rate can rise or fall over the life of the loan.  Adjustable rate mortgages often have an initial interest rate that is lower than fixed rate mortgages because the risk of interest rate change is partially borne by the borrower with an adjustable rate loan.  See also fixed rate mortgage.
Adjusted basis	In income tax accounting, the amount used as the starting point for identifying capital gain on resale of a property.  Adjusted basis can be calculated as the original cost plus any additional capital investment in the property minus accumulated depreciation or cost recovery.  Also called basis.  See also book value, capital gain.	For example, a property is purchased for $800,000.  An additional $50,000 is invested in the property, and accumulated depreciation equals $110,000.  The adjusted basis can be calculated as:  Original cost  $800,000  + $50,000 capital improvement - $110,000 accumulated depreciation = $740,000 adjusted basis.
Adjusted sales price	The estimated sales price of a comparable property after additions and/or subtractions have been made to the actual sales price to allow for differences between the comparable and the subject property transaction.  This is what the comparable would have sold for if it had possessed all the characteristics of the subject property as of the effective date of the appraisal.  See also adjustments, sales adjustment grid, direct sales comparison approach.
Adjustments	The value changes added to or subtracted from the sales price of a comparable property to arrive at an indicated value for the property being appraised (subject property).  Adjustments may be made by percentage changes or by specific dollar amounts.  Real estate elements of comparison that are used to adjust the sale price of the comparable property include: property rights, financing terms, conditions of sale, market conditions, location and physical characteristics.  See also direct sales comparison approach, sales adjustment grid.
After-tax cash flow (ATCF)	The cash flow (either from operations or at resale) that remains from net operating income and net resale proceeds after deduction for annual debt service, loan repayment, and all ordinary income taxes applicable to each period.  See also before-tax cash flow, debt service, net operating income, taxable income, tax liability.	NOI is $20,000, Debt Service (principal and interest) is $5,000 and federal income taxes are $5,000.  The after tax cash flow wil be $10,000.  If the property is sold for $100,000 and the mortgage balance is $70,000 and taxes from sale (capital gain and recapture) is $20,000 then the After tax caseh flow from sale is $10,000.
After-tax equity discount rate	The annualized rate of return that discounts all expected after-tax cash flows (from operations and resale) to a present value equal to the original equity investment in the property.  It represents the internal rate of return on equity after taxes.  See also before-tax equity yield rate, equity discount rate.
After-tax internal rate of return (ATIRR)	The annualized rate of return, calculated after income taxes are deducted, on capital that is generated or capable of being generated within an investment or portfolio.  It is the rate that makes the present value of the after tax cash flows from operations and resale equal to the initial equity investment.
Amortization	1.  The process of retiring a debt through repayment of principal.  Amortization occurs when the payment on the debt exceeds the required interest payment for a particular time period.  For example, suppose a loan has a balance at the beginning of a year of $100,000, annual payments of $12,000, and a 10 percent interest rate.  Interest for the year would be 10 percent of $100,000 or $10,000.  Amortization would be equal to $12,000 less $10,000 or $2,000 per year.  See also amortization schedule.  2. Annual deductions allowed in the calculation of federal income taxes.   For example, points paid on a loan on income property are amortized over the loan term.  This means that if points amount to $25,000 and the loan has a 25 year term then $1,000 can be deducted each year for tax purposes.
Amortization term	The length of time over which the periodic principal repayments are made to pay off a loan in its entirety.  See also amortization, amortization schedule.
Annual debt service	The total mortgage payments, including interest and principal, required in one year by a particular loan or for a particular property.  See also amortization, amortization schedule.
Assessed value	The value or worth of a property according to tax rolls on which ad valorem taxes are based.  See also property tax.
Base rent	The minimum rent stipulated in a lease.  It is typically associated with leases that also allow for overage rent.  See also rent, overage rent.
Before-tax cash flow (BTCF)	Income that remains from net operating income (NOI) after debt service is paid, but before ordinary income tax on operations is deducted.  See also after-tax cash flow, net operating income.  Also called equity dividend, pre-tax cash flow.	For example, if a property has a net operating income of $20,000 and debt service of $5,000, then the before-tax cash flow from operations is $15,000.  If the property sells for $100,000 and the mortgage balance is $70,000 and selling costs are $7,000 the before tax cash flow from sale is $12,000.
Before-tax equity discount rate	The annualized rate of return that discounts all expected before-tax cash flows (either from operations or at resale) to a present value equal to the original equity investment in the property.  It represents the internal rate of return on equity before taxes.  See also after-tax equity discount rate, equity yield rate.
Before-tax internal rate of return (BTIRR)	The annualized rate of return on capital that is generated or capable of being generated within an investment or portfolio.  See internal rate of return.
Capital expenditure	The cash outflow or creation of a liability used to invest in an asset, e.g. purchases of land, buildings, machinery, and equipment; as opposed to expenses that are considered a part of daily operations (capital expenses).
Capital gain	The taxable profit derived from the sale of a capital asset.  It equals the sales price minus the total of sales costs and the adjusted basis; where the adjusted basis equals the original cost plus capital additions minus accumulated depreciation.
capital gain tax rate	The tax rate that applies to capital gains.  It usually refers to long-term capital gains for investments sold after one year.  It is usually lower than the ordinary income tax rate.
Capitalization Rate	A ratio that represents the relationship between a particular year's cash flow and the present value or the interest applicable to the cash flow; usually assumed to be an overall capitalization rate unless stated otherwise.  In appraisal, the term is typically proceeded by a description that identifies the applicable interest.  For example, the capitalization rate found by dividing first year net operating income by the overall property value is called the overall capitalization rate.  One approach to estimating the value of a property is to divide the current annual income of the property by an appropriate capitalization rate.  Also called cap rate.	For example, a property produces a net operating income (NOI) of $12,000 during the first year of operation.  The value of the property is estimated to be $120,000.  Therefore, the overall capitalization rate would equal 10% ($12,000/$120,000).  A second comparable property may produce a first year NOI of $10,000.  If other comparable properties also indicate capitalization rates of 10%.  The value of the second property could be estimated at $100,000 ($10,000/.10).
Cash Flow	Annual amounts available to an investor after subtracting debt service from Net Operating Income.  Capital Expenses, Capital Costs and Capital Reserves are also deducted.  It can also be calculated on an after-tax basis by subtracting federal income taxes.
Cash on Cash Return (after taxes)	A rate of return defined as cash flow after taxes divided by total dollars of equity investment.
Cash on Cash Return (before tax)	A rate of return defined as cash flow before taxes divided by total dollars of equity investment.  It is usually assumed to be calculated before taxes unless otherwise specified.
Comparables (comps)	Properties that have been recently sold or leased and are similar to a subject property.  Sale prices of these properties are used to estimate a value for the subject property.  Comparable properties need not be identical to the subject but should be similar and relatively easy to adjust for differences such as the size, age and location of the property in order to arrive at an indicated value for the subject after adjustment.    Also called comparable sales, comparable properties, comps.
CPI adjustment	An adjustment used in leases in which the rent payment is periodically adjusted by a percentage of the increase in the consumer price index (CPI); it is used to help protect the lessor from unexpected increases in inflation.
Debt Service Coverage Ratio	The ratio of annual net operating income divided by the annual debt service (principal and interest).  Lenders usually specify a minimum DCR (e.g. 1.2) that they require the property to meet during the first year of a loan term.	For example, if a property is estimated to have a NOI of $12,000 for a given year and debt service (principal and interest) during that year of $10,000, then the DCR is $12,000 / $10,000 or 1.2.
Debt service	The periodic payment specified in a loan contract that covers the repayment needed to amortize the outstanding debt.  See also amortization.
Demographic data	Information about the human population, especially in reference to changes in size, density, distribution, and characteristics of the population in a specific area.
Depreciable life	The total time period over which the depreciation of an asset may be allocated for tax purposes.  The depreciable life for tax purposes may be different than the actual estimated service life.
Depreciation recapture	When a property is sold, the amount of gain that is a result of prior year depreciation.  It is often taxed at a higher rate than the portion of gain due to ny increase in value.
Development cost	The cost to create a project including direct costs of labor and materials, contractor's overhead and profit, plus indirect costs such as taxes and development loan interest.
Development loan	The loan to cover some or all of the costs of developing a new project.  This may or may not include acquisition of the land.  It is usually repaid by the permanent financing that is received after the project is complete.  The development loan might be contingent on havingt a committment from a lender on the permanent financing.
Direct costs	Expenditures necessary for the labor and materials used in the construction of a new improvement; includes contractor's overhead and profit.  Also called hard costs.  See also indirect costs.
Discounted cash flow analysis (DCF)	In appraisal, any method whereby an appraiser prepares a cash flow forecast (including income from operations and resale) for the interests appraised, selects a discount rate that reflects the return expected for the interest and uses the rate to calculate the present value of each of the cash flows.  The total present value of the cash becomes the value estimate for that interest. Also referred to as discounted cash flow.
Discount rate	A general term representing a compound interest rate used to convert expected future cash flow into a present value estimate.  It is the competitive rate of return applicable to the interest and cash flows analyzed and is identified by adding a descriptor to the rate.  For example, the mortgage interest rate is the mortgage discount rate.  The equity discount rate is the rate used to discount cash flow to the equity investor.  It can be a before or after tax discount rate.
Down payment	An initial sum of money paid by a buyer as equity capital to purchase a property.  The remaining cost is usually financed through debt.
Effective gross income (EGI)	The anticipated income from the operation of a project after adjustment for vacancy and credit loss.  The effective income can be further classified as actual, market and/or economic effective gross income depending on which rent levels were considered when making the calculation.  See also effective gross income multiplier, potential gross income.	For example, a property has 100,000 square feet of leasable space.  Current rental rates are $12.00 per square foot.  Vacancy is expected at 15%, and a collection loss of $20,000 is expected.  The effective gross income is calculated as follows:  100,000 sq. ft X $12.00/sq. ft = $1,200,000.  $1,200,000 X (1 - .15) = $1,020,000.  $1,020,000 - $20,000 = $1,000,000 = EGI
Effective gross income multiplier (EGIM)	The ratio of the sale price, after adjustment for non-realty interests and favorable financing divided by the projected first year effective gross income.  For income producing properties, the EGIM can be derived from comparable sales as one method of estimating a property value in the direct sales comparison approach.  See also effective gross income, potential gross income multiplier, direct sales comparison approach.	For example, the value of an apartment building that produces an annual effective gross income of $400,000 is being estimated.  The EGIM's of comparable apartment buildings range from 3.24 to 4.1.  The indicated value range for the subject property would then be $1,296,000 to $1,640,000.  ($400,000 x 3.24 = $1,296,000,  $400,000 x 4.1 = $1,640,000)
Effective rent	The amount of periodic rent (level annuity)  that is equivalent to present value of the amount specified in a lease after considering rent concessions such as free rent.  It is often used as a way to compare leases with different terms.
Equity	The owner's capital investment in a property; the property value less the balance of any debt as of a particular point in time. Equity is equal to the property value if there is no debt on the property.	For example, a property is purchased for $100,000.  A loan equal to $70,000 is used to purchase the property.  The remaining balance, $30,000 is provided by the buyer.  The equity in the property then equals $30,000.
Equity build-up	The periodic addition to equity caused by the gradual reduction in the mortgage balance as a result of periodic principle repayment provided for in a loan repayment contract plus any increase (less any decrease) in the value of the property.
Equity discount rate	A rate of return required on the equity capital; the equity investor's internal rate of return based on expected before-tax cash flows and the investor's original equity.  It is used as the discount rate in a discounted cash flow analysis to estimate the present values of the before-tax cash flows (from operation and resale) to arrive at a value estimate for the equity.  The equity yield rate reflects the effect of financing on the investor's rate of return. See after-tax equity yield rate, before-tax equity yield rate.
Expense stop	In a lease, a dollar amount (usually expressed on a per square foot basis) above which the tenant agrees to pay certain operating expenses (reimbursible expenses); used to help protect the lessor from unexpected increases in expenses from inflation or other factors.  The amount paid by the tenant is said to "pass through" to the tenant.
Fair value	A specific value definition used by accountants when classifying loan losses.  The definition is as follows:  "The fair value of the assets transferred is the amount that the debtor could reasonably expect to receive for them in a current sale between a willing buyer and a willing seller, that is, other than in a forced or liquidation sale.  Fair value of assets shall be measured by their market value if an active market for them exists.  If no active market exists for the assets transferred but exists for similar assets, the selling prices in that market may be helpful in estimating the fair value of the assets transferred.  If no market price is available, a forecast of expected cash flows may aid in estimating the fair value of assets transferred, provided the expected cash flows are discounted at a rate commensurate with the risk involved."  SOURCE:  Financial Accounting Standards Board, "Statement of Financing Accounting Standards No. 15
Federal income taxes	Taxes issued by the federal government on ordinary income; depending on current tax laws, cash flows from operating and selling a property may be taxable at the federal income tax rate to some extent.  See taxable income.
Fee simple estate	Absolute ownership of real estate that is unencumbered by any other interest or estate and is subject to the limitations of eminent domain, escheat, police power and taxation.  A fee simple estate can be evaluated by the present value of market rents.
Free rent	A rent concession that grants occupancy for a certain amount of time with no cost to the tenant; used to initially sign a new tenant on a lease.
General vacancy	General  vacancy rate is often used in projections of income to specify the minimum that the vacancy rate will be in any year regardless of any vacancy from other sources such as lease up vacancy and lease turnover vacancy.
Going-in capitalization rate	The overall capitalization rate found by dividing first year's net operating income by the present value of the property.  When the term capitalization rate is used without a prefix, it is assumed to be a going-in capitalization rate.  See also terminal capitalization rate.	For example, a property produces a net operating income (NOI) of $10,000 during the first year of operation.  The value of the property is estimated to be $100,000.  Therefore, the going-in capitalization rate would equal 10% ($10,000/$100,000).  A second (subject) property may produce a first year NOI of $9,000.  If other comparable properties also indicate going-in cap rates of 10%, the value of the subject property could be estimated at $90,000 ($9,000/.10).  See also capitalization rate.
Gross income multiplier	See gross rent multiplier.
Gross leasable area (GLA)	The total floor area of a building that is designed for the occupancy of tenants.  It does not include common areas but does include basements.  See also gross building area, gross living area, net leasable area.
Gross lease	A lease that specifies that the landlord is responsible for the payment of all operating expenses.  The lease, however, may contain expense increase passthrough provisions.  See also expense stop, net lease.
Gross Operating Income	The Gross Operating Income is income collected from the operation of a property after accounting for vacancy and credit losses, but before deductions for operating expenses.
Gross Rent Multiplier	A ratio between the Property Value and the Gross Scheduled Rent often used to estimate the value of an income producing property. NOTE: If the GRM is set to include the Miscellaneous Income, then the calculations in this section will not reflect this.  Also referred to as a Gross Income Multiplier.
Gross Scheduled Income	The Gross Scheduled Income is defined as the maximum income for the property.  The property is assumed to be 100% occupied (i.e. no vacancies or credit losses) and all miscellaneous income would be collected as well.
Holding period	The term of ownership or expected ownership of an investment.  In appraisal, the holding period used reflects the appraiser's estimate as to what the typical expected holding period would be for a particular property.  Also referred to as the projection period.
Interest-only loan	A non-amortizing loan in which payments of interest are made at specified times throughout the life of the loan and the principal is paid in a lump sum at the maturity of the loan.
Internal rate of return (IRR)	A rate of return that discounts all expected future cash flows to a present value that is equal to the original investment.  An IRR can be calculated for any defined cash flows, e.g., for the whole property or for just the equity position.  See also adjusted internal rate of return, discounted cash flow analysis, before tax IRR and after tax IRR.
Investment value	The value of a property to a particular investor.    This may differ from the market value which is based on a typical or most likely investor.
Land to building ratio	The ratio of the land value to the building value.
Lease liability	A liability that the lessee must record on their balance sheet to reflect the liability to make future lease payments.  The liability will decline over time as the lease payments are made.  See also right-of-use asset.
Leased fee estate	An ownership interest in the real estate held by a landlord who has transferred the right of occupancy to a property through the execution of a lease.  The landlord retains the right to receive rental payment throughout the term of the lease and the right to possess the property at the termination of the lease.  The leased fee estate can be valued as the present value of the lease income plus the right to the reversion at the end of the lease.  The discount rate used to value the leased fee estate may be higher or lower than the discount rate used to value the fee simple estate depending on the risk associated with the lease, e.g. characteristics such as the credit worthiness of the tenants and terms of the lease should be considered.  Care must also be taken when using the cost approach to value a leased fee estate.  The cost approach always gives a fee simple value.  See also fee simple estate, leasehold estate, sandwich leasehold estate, sub-leasehold estate.
Lessee	An entity that has been granted the right to use and occupy a property as the result of the execution of a lease agreement; a tenant.
Leaseup vacancy	Vacancy that occurs until the lease begins on a space.
Leverage	The use of borrowed funds in the purchase of an investment.  If the addition of the mortgage increases the return to the equity, (equity dividend rate or equity yield rate), the addition of the mortgage has resulted in positive leverage.  If the addition of the mortgage decreases the return to the equity, the addition of the mortgage has resulted in negative leverage.
Limited partner	A passive investor in a limited partnership whose liability is limited to the initial contribution of capital plus any unpaid contributions that must be made in the future.  See also limited partnership.
Limited partnership	An ownership arrangement in which general and limited partners are included as equity investors in a real estate project; general partners are responsible for the management of the partnership and have unlimited liability in regard to the ownership agreement.  Limited partners' liability is limited to the initial contribution of capital plus any unpaid contributions that must be made in the future.  Losses from the property are passed through to all partners and may be used to offset other passive income for tax purposes.  Joint ventures are often structured as a limited partnership for legal and tax purposes.
Listing price	The asking price at which a property is listed for sale; it does not necessarily equal the market value or the sale price.
Loan balance	The amount of principal left to be paid on a loan at a specified period of time; it equals the present value of future payments discounted at the contract rate of the loan.
Loan term	The length of time over which a loan must be paid off, as specified in a loan contract.  The loan term can be shorter than the amortization period of the loan.  For example, the loan could be amortized over 25 years but the loan balance (balloon payment) due after 10 years.
Loan to Value (LTV) Ratio	A ratio between the remaining debt and the current value of the underlying real estate property.
Management fee	A fee paid for the administration and supervision of a property; typically considered a variable operating expense.  See also property management fee.
Marginal tax rate	The ordinary income tax rate charged on the last dollar of income; the tax rate used when making investment decisions.
Market area	A geographic area or political jurisdiction in which similar property types compete on an economic basis for potential buyers, users or patrons.
Market price	The amount actually paid, or to be paid, for a property in a particular transaction.  Market price differs from market value; it is an accomplished historical fact, whereas market value is and remains an estimate.  Market price involves no assumption of information or prudent conduct by the parties, or absence of undue stimulus or of any other condition basic to the market value concept.
Market rent	The rental income that a property would command if exposed for lease in a competitive market.
Market value	The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.  Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1.  buyer and seller are typically motivated;  2.  both parties are well-informed or well-advised, and acting in what they consider their best interests;  3.  a reasonable time is allowed for exposure in the open market;  4.  payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 5.  the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Modified internal rate of return	A return that assumes cash flows each year can be reinvested at a specified reinvestment rate.  The reinvestment rate is usually lower than the internal rate of return and is the rate that cash flows can be reinvested each year at minimal risk until the property is sold.
Mortgage	A legal document in which real estate is named under certain conditions as the security or collateral for the repayment of a loan.
Net Income Multiplier	The ratio of the price or value of a property divided by its net operating income; the reciprocal of the overall rate.	For example a property is purchased for $12,000,000.  The first year net operating income equals $1,000,000.  The net income multiplier equals $12,000,000/$1,000,000 = 12.  The overall rate (Ro) would equal 1/12 = 0.083.
Net leasable area	The floor space that may be rented to tenants in a building. Depending on the agreed terms of a particular lease, the rental payments are usually based on the net leasable area of the leased premises.
Net lease	A lease in which the tenant pays expenses such as property taxes, insurance, and maintenance.  Sometimes referred to as a net-net-net lease.  See reimbursible expenses.
Net-net-net lease	A lease in which the tenant pays property taxes, insurance, and maintenance.  See also net lease, lease.
Net Operating Income	The income from a property after operating expenses have been deducted but before deducting debt service and taxes.
Net present value (NPV)	The discounted value of all future cash flows minus the initial cash outlay.  A net present value greater than zero indicates that the return exceeds the discount rate used to calculate the NPV.  See also discounted cash flow analysis, internal rate of return.
Operating expenses	Expenditures necessary to maintain the real property and continue the production of income; includes both fixed expenses and variable expenses, but does not include debt service, depreciation, or capital expenditures.  Examples include property taxes, insurance, maintenance, utilities, insurance and marketing.
Operating Expense Ratio	Defined as the relationship between the Total Operating Expenses and the Gross Operating Income.
Original cost	The actual cost of a property to its present owner; may differ from construction cost if the current owner did not construct the property.  See replacement cost.
Overall discount rate	The discount rate that is applied to NOI and the estimated resale price before considering financing and taxes to calculate the present value.    Sometimes referred to as a free and clear yield because it does not consider financing.
Parking ratio	The amount of parking in relation to the size of the property typically shown as number per 1,000.	For example, a building with 50,000 sf and 150 spaces would have a parking ratio of 150 / 50 or 3 per 1000 denoted as 3:1,000
Passive loss rules	Tax rules that determine wither an investor can deduct tax losses from an investor's other income or the losses must be carried forward to offset future income or gains from sale of the property.
Percentage rent	A type of rent that is based on a percent of sales from the property, usually associated with a guaranteed base (minimum) rent.
Positive leverage	A situation in which the rate paid on a mortgage is less than the rate generated by an investment on an unlevered basis.
Preferred return	In a joint venture, the limited partners may be entitled to receive a specified rate of return, usually based on an IRR, after which the general partner receives a greater proportion of the cash distributions then they would receive based on their equity contribution.  See promote.
Present value (PV)	The current value of a payment or series of future payments found by discounting the expected payments by a desired rate of return in order to compensate for the time value of money.
Promote	In a joint venture, after the limited partners have received their preferred return, the general partner may receive a higher proportion of the cash flow distributions than a pro-rata share based on their equity contribution.  The higher proportion is referred to as a promote.  Se preferred return.
Property tax	An ad valorem tax issued by the government based on the assessed value of property; a government levy based on the assessed value of privately owned property.	For example, a tax of $0.60 per $100 of value would result in a tax of $300 for a $50,000 home ($50,000/$100 x 0.60).
Reimbursable Expenses	Those expenses that the tenant must reimburse the landlord for once they exceed a specified amount specified in the lease.
Reinvestment rate	A rate at which cash flow received during the operating years of an investmetn can be reinvested until the project is sold.  It is usually assumed to be a rate that can be earned without taking on much risk.  See also "safe rate."
Rent roll	A report prepared periodically that lists units occupied, the tenant occupying each space, the rent paid for each space, and possibly other terms of each lease contract such as term of lease and specifications for overage rents; sometimes required by lenders.
Rentable area	This is the area used to calculate rent.  It will generally include a pro-rata share of common areas,  lobbies, stairwells, elevators, public corridors, public washrooms, and maintenance rooms.  See also net leasable area.
Rent-up period	The time period during which an income property is expected to lease up to a level of stabilized occupancy.  Stabilized occupancy assumes rental achievement at market levels as well as physical occupancy at stabilized levels.
Repleacement cost	The cost to create a building that has the same utility to users as the original building plus the cost of acquiring the land at market value.  The replacement cost may be more or less than the market value of the property (land and building) depending on market conditions.
Replacement reserves	An account that is set up to put aside some of the cash flow from an investmetn each year until needed to cover the cost of future capital expenditures.
Resale	Sale of a property at the termination of the holding period.  The resale price can be estimated by a growth rate or by a terminal cap rate applied to the NOI occurring the year following the holding period.  It is sometimes called the "reversion."
Resale Net Proceeds	The amount the selling owner receives upon a sale of a property after paying all transaction costs, remaining debt and if required income taxes.
Right-of-Use Asset	The amount that the lessee must record on their balance sheet under the accounting standards (ASC 842).  In general, the initial balance is the present value of the contract lease payments.  The asset is amortized over the lease term.  See also lease liability.
Safe rate	The rate of return that can be obtained on a risk-free or relatively risk-free investment; e.g. the rate on U.S. treasury bills.  It is sometimes used when calculating a modified rate of return.
Sale-leaseback	A financing technique by which the owner sells a property and subsequently rents it from the buyer for continued use.
Sensitivity analysis	The process of determining how a change in one of the inputs such as market rents on lease renewals will impact one of the calculations such as the after tax IRR.  It is a way of isolationg the impact of a single factor on an investment.
Soft costs	Construction expenses for items other than labor and materials; e.g., financing costs, taxes, administrative costs, contractor's overhead and profit, legal fees, interest payments, insurance costs during construction,  and lease-up costs.
Straight-line rent	The amount of rent that would be paid on a lease if the total contract rent under the lease was spread out in equal monthly payments.  Under the accounting standards (ASC 842) tenants might have to recognize their lease expense on a straight-line basis.
Structural vacancy	Sturctural vacancy refers to vacancy that normally occurs in a market because of the natural turnover of tenants.
Subject property	In appraisal, the property being appraised.
Tax depreciation	The loss in value of a building due to wear and tear that is allowed to be subtracted from income and sale proceeds under tax law.  It is generally unrelated to actual sear and tear.  See depreciable life.
Tax liability	The dollar amount of taxes owed for a specific time period.  The tax liability from operations equals the taxable income multiplied by the appropriate marginal ordinary income tax rate.  The tax liability from sale of a property equals the capital gain multiplied by the appropriate marginal ordinary income tax rate.  See also after-tax cash flow, taxable income, capital gain, adjusted basis.
Taxable income	The portion of income that is taxable from operations and resale of the property.  Taxable income can differ significantly from the cash flow generated by the property due to depreciation and interest deductions.
Tenant	The occupant of a building who has been given the right to possess the building or tenant space through the execution of a lease; the lessee.
Tenant improvements	The interior finished components of a tenant space that may be installed either by the lessor or lessee.
Terminal Capitalization Rate	A capitalization rate that is used to estimate the resale price of a property at the end of an investment holding period.  It is usually applied to the net operationg income one year after the holding period which is the first year of net operating income for the buyer.  It is usually slightly higher than the going in capitalization rate because it includes a risk premium to reflect the undertainty of estimating future NOI and because the property will be older and may not have as much future growth in NOI.  But the terminal capitalization rate also depends on expectations for future interest rates and expectations for income growth.
Total Operating Expenses	Amount required to maintain and operate a property.  Examples are insurance, property taxes, maintenance, utilities, property management fees, etc.  Debt service and depreciation are excluded.  See operating expenses.
Turnover vacancy	Vacancy that occurs when an existing lease expires until a new lease starts on the space.
Usable area	The area that the tenant can actually use.  It does not inclued common areas,  lobbies, stairwells, elevators, public corridors, public washrooms, and maintenance rooms.
Vacancy allowance	In the income approach, a deduction from potential income for current or expected future space not rented due to time to initially lease up the space or tenant turnover.
Vacancy rate	Vacancy can be calculated on a physical or financial basis.  E.g., 1. The ratio of the area of space that is not rented divided by the total leasable area.  2. The ratio of the rent that could be collected from vacant space if it was rented divided by the total rent the building is capable of generating.