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20 Commercial Real Estate Terms You Need to Know

Posted by RealNex on Jul 6, 2020 8:00:00 AM

If you’re just getting started in commercial real estate, or even if you’ve been in commercial real estate for a while, you’ve no doubt realized that the industry definitely has its own lingo. The CRE vernacular can sometimes be overwhelming, and it can be tough to learn how to navigate through all of the different terms. 

Perhaps you’ve heard a number of commercial real estate terms before, but when it comes time to talk to someone else in the industry, you still feel somewhat uninformed. With this in mind, we’ve put together a list of 20 key commercial real estate terms that you need to know. 

Commercial Real Estate Terms to Know

Acuity Spectrum. A range of care that encompasses the various categories within the senior living sector. The spectrum usually ranges, in order of increasing acuity, from independent living to assisted living to memory care to nursing care. 

Building Core. A main structural component, typically made of concrete, that goes the entire vertical length of a building, and houses elevators, stairwells and more. 

Net Operating Income. Also known as NOI, the net operating income is a simple calculation that equals your gross rental income minus your expenses. 

Building Classification. Commercial buildings are separated into 3 different classes: Class A (usually the newest and highest quality buildings), Class B (typically a little older but still good quality and attractive), and Class C (buildings are older and need updating). 

Option to Buy. Sometimes, tenants want to lease with the option to purchase the property. This can be the case in a single-tenant or multi-tenant building. In these instances, the contract should specify the terms under which a purchase can be made. 

Common Area Maintenance Fees. Also known as CAM Fees, these fees include all the costs of operating the commercial property, including all fees spent on maintaining shared or common areas, such as elevators, hallways, lobbies, restrooms, and more. 

Usable Square Footage. The amount of space that is being leased or the footprint that your tenant will take in the building. 

Debt Yield. The ratio of the NOI (Net Operating Income) to the amount of the mortgage loan, expressed in the form of a percentage. 

Earnest Money Deposit. An initial deposit that is paid by the buyer as a show of good faith to the seller. 

Floor Plan. An architectural drawing depicting the layout of a specific floor or room. These drawings are done in 2D and from the vantage point of the top looking down. 

Joint Tenancy. An ownership of real property by two or more people; if one owner dies, their ownership passes on to the surviving owner(s). 

Key Performance Indicator. A metric used to measure the performance of a commercial property, such as cap rate, LTV, Cash on Cash Return, Internal Rate of Return, and more. 

Loan Amortization. The repayment of the principal balance of a loan through periodic payments over time. 

Lock Out. A lock out is a common clause in a CRE loan, and is the period of time after disbursement that the borrower is not allowed to prepay the loan. 

Make Ready Costs. Typically seen on multifamily operating statements, these costs refer to minor repairs and maintenance work to a residential unit in order to make sure that the unit is in sufficient condition before being placed on the market. 

Occupancy Cost. The total cost incurred by a tenant to occupy space in a building, including tenant reimbursement expenses, base rent, parking charges, and more. 

Real Estate Investment Trust. Also known as an REIT, this is a real estate mutual fund, allowed by income tax laws to avoid the corporate income tax. 

Right of First Refusal. Also referred to as a ROFR, this is a contractual clause that enables a third party to step in and purchase or lease a property based on what was negotiated between the owner and a potential lessee. 

Tenant Improvements. Most often seen in office, retail, and industrial real estate, these are physical changes to a lease space to fit the specific needs of the tenant. 

Walkability. The measure of how agreeable a property or an area is to walking. The “Walk Score” is a popular measure of this variable. 

Knowing these CRE terms will not only clarify any misconceptions that you may have about the commercial real estate market, but it will also benefit your business. The right CRE tech can also help to build and improve your business. To learn more about the incredibly powerful and amazingly simple solution that helps to turn your pipeline into profits, contact us today.

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