Real Estate

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Class A

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Class A: Top quality buildings, often located in the Central Business District (CBD), new, modern, best amenities

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Class B

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Class B: Less desirable location than Class A buildings, typically older, smaller, and provide lessamenities to tenants

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Class C

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Class C: everything else that is not classified as a Class A or B, oldest, rundown buildings often in needof renovation/rehab, few to no amenities, provide the cheapest rent

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NNN

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Triple Net (NNN): A lease where the tenant reimburses the Landlord for its pro rata share of expenses.Typically includes CAM, insurance, and property tax. Often used for multi-family and retail leases

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FSG

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Full Service Gross: A lease where the landlord pays for all of the expenses. Typically used for officeleases.

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Modified Gross

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Modified Gross: A lease where the landlord and the tenant split the expenses negotiated in the lease.Typically used for office and industrial leases.

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Cap Rate

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Cap Rate: Used to value and compare properties based on NOI. A high cap rate is in line with a propertywith high risk and has low reliability in the cash flow streams of the property. On the other hand, a lowcap rate is for properties with a high purchase price because buyers are willing to accept lower returnsin order to acquire a property with more predictable cash flow streams.

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Price Per Foot

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Price Per Foot: This is another way to discuss a purchase price or rental rate. By determining the valueof a lease or property on a per foot basis, you can better compare properties or leases in an area thatmay not be of the same size.

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Acre

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Acre: A unit of measurement; 1 Acre = 43,560 square feet

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Coverage Ratio

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Coverage Ratio: The ratio that refers to the amount of debt, and the borrower’s ability to pay back therequired payments on a loan to a lender. A low ratio signifies an increased level of risk to the lenderbecause the borrower many not have enough NOI to repay the loan.

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FAR

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Floor Area Ratio (FAR): The ratio of a building’s above-grade gross floor area (both vertically andhorizontally) to the area of the lot that the building is built on.

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Frontage

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Frontage: The space of a property that faces the main street or front entrance of the building. Rentablespace that has frontage typically has higher rents associated with the space. Increased visibility canoften correlate to increased foot traffic or attractiveness for a business or space.

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Traffic Count

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Traffic Count: The number of cars that pass by a location during a given time period. An increasedlevel of traffic can mean that the location has better visibility.

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Clear Height

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Clear Height: This is the maximum height that a vehicle can be in order to fit through an entrance orunder a bridge or other form of clearance.

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Dock High

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Dock High: The loading docks found in retail spaces or in industrial properties that allow trucks to backup directly to the property, and are the appropriate height to unload/load its cargo or whatever it iscarrying.

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Grade Level

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Grade Level: Where the parking lot or street is at the same level as the ground floor of the property.

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Parking Ratio

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Parking Ratio: A ratio given usually based on per 1,000 SF. For office leases, the tenant usually receivesa certain number of parking spaces based on the number of SF they are leasing. A city may require acertain parking ratio as part of the zoning laws.

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Multi-Tenant

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Multi-Tenant: When there are more than one tenant occupying a property.

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Single Tenant

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Single Tenant: When a property is occupied by one tenant.

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Zoning

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Zoning: The laws set by the city that determine what type of use a certain piece of property can beutilized for. As a property owner, there is a process to re-zone your property if you want to change whatis allowed on your property.

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General Plan

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General Plan: A plan designed by local governments that determines what the land in the city or countyshould be designated as. This process can aid in the planning process as cities map out futuredevelopment and expansion.

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Entitlements

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Entitlements: The legal method of obtaining approvals for the right to develop a property for a particularuse. The process is complicated, time consuming, and costly. However, knowing what you are able todo and can’t do with a property is integral in determining a project’s feasibility.

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Easements

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Easements: The right to do “something” on a property. Easements are listed on the Title, and should beidentified during the due diligence process. It is important to know if there are an easements on theproperty you are going to acquire, because these can have an impact on your strategy for yourinvestment. A utility easement from the city can have an impact on potential redevelopment plans youmay have for the property. An easement a neighbor has to cross your property, such as a driveway, canalso impact the strategy for your investment.

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Permit

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Permits: A document that allows someone the ability to do “something”.

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Fees

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Fees: Payments that are charged based on a service that is provided. Management fees can be paid to a management company, lender fees can be paid to a bank, legal fees can be paid to a lawyer, etc.

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LEED

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LEED: Leadership in Energy and Environmental Design; LEED certification means that a building isenergy efficient based on metrics established by LEED. Certifications are Silver, Gold, and Platinum

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ADA

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ADA: Americans with Disabilities Act. This act, in terms of real estate, requires property owners tomake their property accessible to those with physical handicaps. This is typically achieved throughramps, elevators, and specified parking spaces.

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Title 24

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Title 24: A California law that went into effect in 2014 that requires more strict energy standards toincrease building efficiencies.

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Prop 13

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Prop 13: A California tax law that limits the increase on property taxes to 2% maximum per year.

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Mixed Use

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Mixed Use: A property is considered mixed use if it utilizes more than one asset type (office, retail,industrial, multifamily, hotel) on the single property.

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GMAX

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Guaranteed Maximum (GMAX): A type of contract with a contractor that specifies that the contractorwill receive the maximum amount of the contract, and that there cannot be any additional fees tackedonto the fees at the end of a project.

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Fixed Fee

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Fixed Fee: A contract that contains a flat fee that does not change.

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Cost Plus

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Cost Plus: A contract where the contractor charges the amount of all the costs associated with theproject, and also has room to add additional fees if materials or other unforeseen changes occur thatwere not previously budgeted, within reason.

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Change Order

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Change Order: A change order is utilized when something needs to be changed in a project. Due tounforeseen circumstances, real estate projects are often subject to change after they get underway, andthis change is facilitated and approved through a change order.

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HVAC

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HVAC: Heating, Ventilation, and Air Conditioning

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Package Units

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Package Units: Units that provide heating and air conditioning to a tenant space.

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Central Plant

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Central Plant: A centralized unit that provides heating and cooling systems throughout an entireproperty’s building space.

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Off Site

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Off Site: The area not located on the property.

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On Site

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On Site: Located within the boundaries of the property lines.

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CBD

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CBD: Central Business District. Therefore it is typically located in the center of a city, or where thecenter of business is in that city. Usually the downtown area with the office high-rises. Core investorsare the type of investors that are usually the most interested here due to the stable cash flow streams.

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DSCR

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DSCR: Debt Service Coverage Ratio. Cash flow available for debt service (NOI) / Annual debt service.The ratio of cash available for debt servicing. It is a measurement used by lenders to ensure there isenough available cash to meet the required debt service on a loan. If the amount of cash drops belowthe required DCR, there is a risk of default. However, lenders today lean more towards the debt yield.

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Mark-to-Market

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Mark-to-Market: “Mark to market” is when a landlord raises or lowers rent to bring the rents to, orcloser to, the current rent in the property’s sub-market. Can also be applied to real estate valuations.

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Amortization

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Amortization: Amortization is the timetable referenced within a constant calculation to determine theprincipal repayment portion that comes from a debt service payment. It’s important because it definesa schedule for repayment. Usually requires part of the principal to be returned with each payment toreduce the repayment risk.

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PML

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PML: Probable/Possible Maximum Loss. PML reflects the seismic status of the property, and how itwill withstand in an earthquake. The PML is also a reflection of earthquake risk, and can impact theability to obtain debt from a lender.

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Terminal Value

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Terminal Value: The exit value in a cash flow analysis. It is important to an underwriting because theexit value is one of two key drivers of returns on a real estate investment.