Understanding Commercial Real Estate Terms A-Z
If you navigate within the world of commercial real estate, it is important to understand the terms that are used in different situations. Here is a beginner’s course to the commercial real estate lexicon.
Broker: A person who represents another person or a company during a buying or selling process.
Build-to-Suit: A property developed specifically for a certain tenant to occupy designed specifically for the needs of that tenant.
Cap Rate: Capitalization rate refers to the ratio of Net Operating Income (NOI) to property asset value. (e.g., A building with a NOI of $10,000 valued at a 5% Cap is worth: 10,000/0.5 = $200,000)
CBD: Central Business District
Common Area Maintenance (CAM): Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants.
Delivery/Delivery Date: The time when a building completes construction and receives a certificate of occupancy.
Full-Service (FS) Rental Rate: A rental rate that includes all operating expenses such as utilities, electricity, janitorial services, taxes, and insurance.
Gross Lease: A lease in which all expenses associated with owning and operating the property are paid by the landlord.
Landlord: The owner of a property that is rented or leased to a tenant.
Landlord Representation: When a broker represents an owner/landlord in a typical lease transaction between an owner/landlord and a tenant.
Lease: A contract that creates the relationship of landlord and tenant.
Lessee: The person renting or leasing the property. Also known as a tenant.
Lessor: The person who rents or leases a property to another.
LOI: Letter of Intent
Modified Gross (MG) Rental Rate: A rental rate that includes some of the operating expenses such as electricity, utilities, taxes, janitorial services, and insurance, but not all.
Net Operating Income (NOI): The net operating income calculation (NOI) is equal to your gross rental income minus your expenses.
Preleased Space: Space that has been leased to a tenant and announced for future development but is not yet under construction.
PM: Property Manager. An individual who oversees all operational aspects of a building.
PSF: Per Square Foot
Punch List: A final checklist of work that needs to be done to a property before the end of construction.
RFP: Request for Proposal
ROI: Return on Investment
RSF: Rentable Square Feet
Second Generation Space: Space that has had a prior tenant and therefore has modifications (such as walls, doors, ceiling treatments, etc.) that can often be used by a subsequent tenant.
Shell Space: A building space that has an unfinished interior and requires improvements.
Sublease/Sublet Space: Space that has been leased by a tenant and is being offered for lease back to the market by that tenant.
Tenant: A person, business, or group that pays rent to an owner or landlord for the right to use/occupy a property or space.
Tenant Representation: When a broker represents a tenant in a typical lease transaction between a tenant and an owner/landlord.
Tenant Improvement (TI): 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.
Triple-Net (NNN) Rental Rate: A rental rate that excludes all operating expenses such as electricity, utilities, taxes, janitorial services, and insurance.
Vacancy Rate: The percentage of physically vacant space divided by the total amount of existing inventory.
Zoning: 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.
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