Glossary of Commercial Real Estate Terms



“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur”. 



— A


The amount of inventory or units of a specific commercial property type that become

occupied during a specified time period (usually a year) in a given market, typically reported

as the absorption rate.

Accumulated cost recovery

Total cost recovery deductions taken throughout the holding period of a property.

Active income

Income from salary, wages, tips, commissions, and activities in which the taxpayer

materially participates. Also see passive income.

Add-on factor

The ratio of rentable to useable square feet. Also known as the load factor and the

rentable-to-useable ratio. Also see efficiency percentage. Formula:

Add-on factor =Rentable square feet

Useable square feet

Add value

Fourth stage of four-stage transaction management process pertaining to a transaction

manager’s planning, effort, and continual contact with key decision-makers, investors, and

users, as well as contact with ancillary professionals. This ongoing process allows for

feedback, establishes a network for problem solving, provides a means to offer additional

services to the client, and enhances the transaction manager’s preparedness for the next


Adjusted basis

The original cost basis of a property plus capital improvements, less total accumulated cost

recovery deductions, and partial sales taken during the holding period.


See annual debt service.

Agglomeration economies

Cost reductions or savings that come about from efficiency gains associated with the

concentration or clustering of firms/producers or economic activities and the formation of a

localized production network.


The repayment of loan principal through equal payments over a designated period of time

consisting of both principal and interest.

Annual debt service (ADS)

The total amount of principal and interest to be paid each year to satisfy the obligations of a

loan contract.

Annual percentage rate (APR)

The true annual interest rate payable for a loan in one year taking account of all charges

made to the borrower, including compound interest, discount points, commitment fees,

mortgage insurance premiums. It also takes into account the time at which the principal is

repaid (especially when payments of principal are made in installments throughout the year,

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Annual percentage rate (APR) continued

but interest is charged at the beginning of the year), but not the actual expenses incurred

by the lender in making the loan and recharged to the borrower. (Encyclopedia of Real

Estate Terms 2nd Edition, Damien Abbott)


Regular fixed payments or receipts over a designated period of time.


An investment’s increase in value.

Appreciation potential

The possibility or probability that a real estate investment will increase in value during the

holding period.

Assessed value

The value of real property established by the tax assessor for the purpose of levying real

estate taxes.

Average annual effective rate

The average annual effective rent divided by the square footage.

Average annual effective rent

The tenant’s total effective rent divided by the lease term.

Averaging method

A simple technique used to forecast next period’s/year’s vacancy rate by averaging previous

years’ vacancy rates; especially effective where vacancy rates have remained relatively flat

or show little variability over time.


Balloon payment

The final payment of the balance due on a partially amortized loan.

Base (in lease terminology)

A face, quoted, dollar amount representing the rate or rent in dollars per square foot per

year and typically referred to as the base rate.

Base rent

The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face,

quoted, contract amount of periodic rent. The annual base rate is the amount upon which

escalations are calculated.

Basic employment

Employment that is considered to be export-oriented or export-driven, associated with

activities that generate income from the sales of products and services in markets outside

the local economy.


The total amount paid for a property, including equity capital and the amount of debt


Before-tax investment value

The sum of the present values of the mortgagor and mortgagee of property.

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Break-even point

The stage at which an investment produces an income that is just sufficient to cover

recurring expenditure. For an investment in real property, the point at which gross income

is equal to normal operating expenses, including debt service (the stage at which the next

cash flow becomes positive). Also known as the default point. (Encyclopedia of Real Estate

Terms 2nd Edition, Damien Abbott)


The sales threshold over which percentage rent is due. It is calculated by dividing the

annual base rent by the negotiated percentage applied to the tenant’s gross sales.

Business risk

The uncertainty associated with the possible profit outcomes of a business venture.

Buy/rent threshold

The point at which there is a recognizable shift of expenditure allocations away from owneroccupied

housing and to the rental housing market (or vice-versa) as a result of changing

market conditions.

— C


See common area maintenance.

CAM cap

The maximum amount for which the tenant pays its share of common area maintenance

costs. The owner pays for any CAM expenses exceeding that amount.

Cap rate

See capitalization rate.

Capital expenditures

Property improvements that cannot be expensed as a current operating expense for tax

purposes. Examples include a new roof, tenant improvements, or a parking lot—such items

are added to the basis of the property and then can be depreciated over the holding period.

Distinguished from cash outflows for expense items such as new paint or plumbing repairs

(operating expenses) that can be expensed in the year they occur. Also see operating


Capital gain

Taxable income derived from the sale of a capital asset. It is equal to the sales price less

the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of

straight-line cost recovery.

Capital market

The supply and demand for resources to invest in real estate and other investments.

Capitalization rate

A percentage that relates the value of an income-producing property to its future income,

expressed as net operating income divided by purchase price. Also referred to as cap rate.

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Capital tax

Any tax on a change in capital value (including capital gains tax, estate tax, or inheritance

tax); as distinguished from a tax on income. (Encyclopedia of Real Estate Terms 2nd

Edition, Damien Abbott)

Cash flow

The net cash received in any period, taking into account net operating income, debt service,

capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.

Cash flow after tax/es (CFAT)

For properties, it is the result of first calculating the net operating income, less mortgage

and construction loan interest, less cost recovery for improvements and personal property,

less amortization of loan points and leasing commissions to arrive at real estate taxable

income. Next, real estate taxable income is multiplied by the applicable marginal tax rate

to result in the tax liability (savings). Then, from the net operating income, annual debt

service is subtracted to equal the cash flow before taxes (CFBT). Finally, the cash flow after

taxes (CFAT) is calculated from the CFBT, less the tax liability (savings), plus investment

tax credit. The Cash Flow Analysis Worksheet can be used to calculate a property’s gross

operating income, net operating income, real estate taxable income and tax liability or

(savings), CFBT, and CFAT.

Net operating income

– Interest

– Cost recovery

– Amortization of loan points

Real Estate taxable income

× Investor’s marginal tax rate

Tax liability (savings)


Net operating income

– Annual debt service

Cash flow before taxes

– Tax liability (savings)

Cash flow after taxes

Cash flow before tax/es (CFBT)

For properties, it is the result of calculating the effective rental income, plus other income

not affected by vacancy, less total operating expenses, less annual debt service, funded

reserves, leasing commissions, and capital additions. The Annual Property Operating Data

form can be used to calculate a property’s effective rental income, gross operating income,

total operating expenses, net operating income, and cash flow before taxes.

Cash flow model

The framework used to determine the cash flow from operations and the cash proceeds

from sale.

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Cash-on-cash rate

A return measure that is calculated as cash flow before taxes divided by the initial equity


Cash proceeds from sale

The sales price less sales costs, mortgage balance, and tax liability on sale. Also known as

sales proceeds after tax.

Central place theory

A location theory that accounts for the size, distribution, and organization of settlements,

places, market areas, and establishments in a competitive and interdependent urban

system, to explain differences in the locational tendencies and preferences of businesses as

they seek to maximize market accessibility, sales, and profits.


See cash flow after tax.


See cash flow before tax.


An urban settlement or system containing various functions, agents, institutions, and

components which interact and work together to satisfy the wants and needs of its

inhabitants (as well as a portion of the population in surrounding rural areas).

Class life

The useful economic life of an asset set by the Internal Revenue Service.


Third stage of four-stage transaction management process pertaining to bringing the parties

together and consummating an agreement. The acronym CLOSE represents the

contingencies, legal instruments, obstacles, signatures, and execution involved in the close


Commercial real estate

Any multifamily residential, office, industrial, or retail property that can be bought or sold in

a real estate market.

Common area

For lease purposes, the areas of a building (and its site) that are available for the nonexclusive

use of all its tenants, such as lobbies, corridors, and parking lots. (Real Estate

Information Standards)

Common area maintenance (CAM)

Charges paid by the tenant for the upkeep of areas designated for use and benefit of all

tenants. CAM charges are common in shopping centers. Tenants are charged for parking

lot maintenance, snow removal, and utilities.

Community center

A community center is a retail property type that typically offers a wider range of apparel

and other soft goods than the neighborhood center does. Among the more common

anchors are supermarkets, super drugstores, and discount department stores. Community

center tenants sometimes contain off-price retailers selling such items as apparel, home

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Community center (continued)

improvement/furnishings, toys, electronics, or sporting goods. The center is usually

configured as a strip, in a straight line, “L”, or “U” shaped. Of the eight center types,

community centers encompass the widest range of formats. For example, certain centers

that are anchored by a large discount department store refer to themselves as discount

centers. Others with a high percentage of square footage allocated to off-price retailers can

be termed off-price centers.

Comparative advantage

The principle that cities or regions tend to produce those items or support those activities

for which they have the greatest advantage over other areas as defined by the factors of

production, demand, supporting industries, and quality of life considerations, as defined in

relation to human, financial, and physical resources, and opportunity costs—costs expressed

in terms of opportunities foregone.

Competition (retail)

A market condition or setting in which numerous firms compete for a share of the retail

market in a given geographic area; a term which is also used to denote rivals or


Compound interest

Interest computed on the original principal and accumulated interest.


A type of calculation in which interest earned is reinvested and earns additional interest.

Confidence range method (95%)

A statistical method of estimating a range of vacancy rates with a 95% confidence such that

the expected vacancy rate for the next time period falls within that range (using the sample

mean vacancy rate and corresponding standard deviation as input).

Contract rent

The total rental obligation, expressed in dollars, as specified in a lease. Also known as base

rent. (Real Estate Information Standards)


The actual dollar amount paid for a property or the amount needed to build or improve it at

a specified time in the future.

Cost approach

A method of determining the market value of a property by evaluating the costs of creating

a property exactly like the subject.

Cost approach improvement value

The current cost to construct a reproduction of, or replacement for, the existing structure

less an estimate for accrued depreciation from all causes. [Appraisal Institute]

Cost of capital

See weighted average cost of capital.

Cost of occupancy

Expenditures that are required to assume and maintain occupancy of a space. Such

expenditures include rent and/or mortgage payments, and recurring costs, such as real

estate taxes, repairs, operating expenses, and other outgoings directly resulting from the

use of the property. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)

Cost recovery

An annual deduction based on the class life of an asset.

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Cost recovery recapture

According to the Taxpayer Relief Act of 1997, for properties sold after May 6, 1997, a

noncorporate taxpayer will have to recapture, or pay taxes on, any straight-line cost

recovery taken during the holding period, to the extent there is any gain.

Cross-over chart

A visual representation of the relationship between the costs of leasing and owning at

varying discount rates.

Cross-over (office use) demand

Industrial space that is used as office space in order to lower the rental rate of a property.

Also known as flex space.

Customer-spotting approach

An approach to estimating the retail trade area (and sales/revenue potential) for a given

establishment or center based on the location of existing customers via point-of-sale

information (by obtaining customer address or zip code data) or customer surveys (by

interviewing customers as they enter the store); data which can later be mapped to

determine the extent of the trade area.

— D


Refers to information collected and presented in a form that facilitates processing and


Data dispersion

The amount or degree to which data points in a series are spread or dispersed about their

mean (also referred to as variation about the mean).

Debt-coverage ratio (DCR)

Ratio of net operating income to annual debt service. Expressed as net operating income

divided by annual debt service.


The loss of utility and value of a property.


The volume or quantity of a product or service purchased, or willing to be purchased, in

relation to price.

Demand factors

Elements or forces that influence the demand for goods and services in a given market



Characteristics of human populations as defined by population size and density of regions,

population growth rates, migration, vital statistics, and their effect on socio-economic



The loss of utility and value of a property.

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Desktop GIS

GIS software programs that support a wide variety of functions, queries, and mapping

capabilities for personal computer-based applications, geared toward visual presentation

and descriptive analyses of geo-coded data.

Differential cash flow

The difference that results when the cash flows from one alternative are subtracted from the

cash flows from another alternative.

Direct survey method

The use of personal interviews with key personnel in all major firms within a given

community to determine the percentage of a firm’s revenues obtained from sales made

outside the local economy for the purpose of estimating firm-specific basic employment and,

by aggregation, the total basic employment in that community; a method that is known to

be costly and time consuming.

Disaggregating demand

The process of separating and identifying the various forces and factors which affect the

demand for a given property type in a given market or the differentiation of demand by

category (in reference to tenure, household income, and geographic submarket).

Disaggregating supply

The process of separating and identifying the various forces and factors which affect the

supply of a given property type in a given market or the differentiation of supply by

category (including leased versus owned, unit type, price, and geographic submarket).

Discount rate

The percentage rate at which money or cash flows are discounted. The discount rate

reflects both the market risk-free rate of interest and a risk premium. Also see opportunity


Discounted effective rent

The cash flows over the term of the lease, discounted to the present value.


The process of reducing the value of money received in the future to reflect the opportunity

cost of waiting to receive the money.

Displaced sales

Sales that result from purchases made by customers who are not located in the subject

service area (represents a revenue gain for retail establishments as sales are generated

from consumers who reside outside the local trade area).


A method of reducing risk by investing in unrelated (uncorrelated) assets.

Drain information

Information (substantiated and rumored) regarding inventory that is to be removed from

the market by the forecast period.

Drive-time approach

An approach to estimating the trade area (and sales/revenue potential) for a given retail

establishment or center based on the central place theory concept of range and how far

people are willing to travel to obtain retail goods as defined by drive time or mileage.

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Due diligence

The process of examining a property, related documents, and procedures conducted by or

for the potential lender or purchaser to reduce risk. Applying a consistent standard of

inspection and investigation one can determine if the actual conditions do or do not reflect

the information as represented.

Dynamic system

A complex and ever-changing or evolving set of diverse and interrelated entities and agents

which are organized into a coherent and working totality which serves multiple and/or

common purposes or objectives. Also see system and market dynamics.


Economic base

Those economic activities or sectors in a local or regional economy that account for a certain

share of the area’s income that is generated from exports of goods and services.

Economic base analysis

Inquiries that focus on the extent to which changes in basic employment (export-oriented

activities and associated wage-income) affect the economic, employment, and population

growth of a local or regional economy.

Economic base multiplier

A measure that provides a rough estimate of how changes in basic employment will affect

total employment in a given region (all other things being equal); defined as the ratio of

total employment to basic employment.

Economic characteristics

Attributes of the workforce, including production and employment activities.

Economic obsolescence

The reduction in a property’s value due to external circumstances such as legislation or

changes in nearby property use.

Economic sectors

Branches or divisions of a local or regional economy in which particular activities take place.


An amount after a base amount has been adjusted for concessions, allowances, and costs.


A measure of the capacity or effectiveness of space to produce the desired results with a

minimum expenditure of time, money, energy, and materials.

Efficiency percentage

The relationship of useable area to rentable area on a given property. Also see add-on

factor, load factor, and rentable-to-useable ratio. Formula:

Efficiency % = Useable square feet

Rentable square feet

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Employment ratios

The percentage of total employees (at the firm or industry level) that are office space users.

Environmental conditions

Features or state of the physical environment and the surroundings, factors, or forces which

influence or modify that environment.

Environmental hazards

Any physical or natural condition or event which possesses a risk to humans.

Environmental impacts

The repercussions of an activity or specific land use on the physical/social environment as a

consequence of emissions, waste disposal, water and power useage, etc.

Equilibrium point

The price at which the quantity supplied equals the quantity demanded.

Equity lease

A type of joint venture arrangement in which an owner enters into a contract with a user

who agrees to occupy a space and pay rent as a tenant, but at the same time, receives a

share of the ownership benefits such as periodic cash flows, interest and cost recovery

deductions, and perhaps a share of the sales proceeds.

Equity yield rate

The return on the portion of an investment financed by equity capital.


Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or

business or held as an investment can be exchanged tax-deferred. Under a fully qualified

Section 1031 exchange, real estate is traded for other like-kind property. All capital gains

taxes are deferred until the newly acquired real estate is disposed of in a taxable

transaction. The underlying philosophy behind the deferral of capital gains taxes is that

taxation should not occur as long as the original investment remains intact in the form of

(like-kind) real estate (like-kind refers to real property as such, rather than the quality or

quantity of property).


A phase of the real estate or business cycle characterized by the dramatic short-term

increase in the supply of available units in a given market (due to economic growth and

increasing construction activity) as a response to increasing and/or pent-up demand and

rising price levels.

Expected value (EV)

The sum of the weighted averages of all possible outcomes of a probability distribution.

Probability distribution is the collection of all possible outcomes for an event and their

corresponding probabilities of occurrence. The probabilities of occurrence for each possible

outcome are used as the weights. The sum of each possible value multiplied by its

probability of occurrence equals the EV of the outcome. EVs can be calculated for any type

of outcome the investor chooses to analyze: net operating incomes, after-tax cash flows,

and rates of return (IRRs). An example of calculating the EV of the IRR for an investment


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Expected value (EV)

Scenario IRR% Probability Weighted Average

Best-case 17.0 0.10 1.70

Most-likely case 14.6 0.80 11.68

Worst-case 13.2 0.10 1.32

Sum = 1.00 EV = 14.70

Expenditure patterns

The tendencies or propensities of individuals/households to spend disposable income on a

given good or service in comparison to other goods and services (typically defined as a

percentage of disposable income) in relation to income level or range and/or other

demographic or socio-economic characteristics.

Expense stop

The level (or maximum amount) up to which the landlord will pay certain operating

expenses. Amounts above the stop are the responsibility of the tenant.

External economies

Savings or cost-cutting allowances realized by firms or industries within a given city that are

primarily due to the advantages of sharing production inputs, information, and

infrastructure and/or possibly linked to a city’s comparative advantage to support a given


External obsolescence

A form or source of accrued depreciation considered in the cost approach to market value.

The loss of value is because of external forces and change. For example, a new mall causes

traffic and congestion, negatively affecting residential property values nearby, or a motel is

no longer viable because a highway is rerouted, or another example would be depressed

market conditions.

— F

Factors of production

The rudimentary components of any production process or system consisting of: land and

land-based resources (including raw materials); capital, which includes real capital such as

machinery, facilities, and infrastructure and financial capital to start or expand businesses;

labor or human input (as defined in terms of labor hours or quality/productivity); and

technology which includes production know-how and methods, as well as management and

operations skills.

Fair value of an asset (or liability)

The amount at which the asset (or liability) could be bought (or incurred) or sold (or

settled) in a current transaction between willing parties, that is, other than in a forced or

liquidation sale. (Real Estate Information Standards)

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Fashion/specialty center

This type of retail center is composed mainly of upscale apparel shops, boutiques, and craft

shops carrying selected fashion or unique merchandise of high quality and price. These

centers need not be anchored, although sometimes restaurants or entertainment can

provide the draw of anchors. The physical design of the center is very sophisticated,

emphasizing a rich décor and high-quality landscaping. These centers usually are found in

trade areas having high-income levels.

Feasibility analysis

The process of evaluating a proposed project to determine if that project will satisfy the

objectives set forth by the agents involved (including owners, investors, developers, and


Financial leverage

The use of borrowed funds to acquire an investment.

Financial risk

The possible change in an investment’s ability to return principal and income.

Fixed expenses

Costs that do not change with a building’s occupancy rate. They include property taxes,

insurance, and some forms of building maintenance.

Fixed lease

A lease in which the lessee pays a fixed rental amount for the duration of the lease.

Flex space

Space that is flexible in terms of what it can be used for (for example, space that could be

utilized for industrial or office activities). Also see cross-over (office use) demand.


An estimate or prediction of a future condition or outcome.

Forecast period

An upcoming time period of interest in which a forecast is to be made.

Formal (or geographic) data

Information/data collected and presented by formal region. Also see formal region.

Formal region

A region identified by political jurisdiction or on the basis of the presence or absence of one

or more distinguishing features or characteristics.

Free rent

See rent concessions.

Fully amortized mortgage loan

A method of loan amortization in which equal periodic payments completely repay the loan.

Functional components

Factors which determine how a location or site functions.

Functional data

Information/data collected and presented by functional region. Also see functional region.

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Functional feasibility

Considerations made in the site selection process which assist in the evaluation of site

potential as defined in terms of the practicality of a site, the best site for a given use, or the

determination of a site’s best use, through the examination of linkages, competition,

demographics, and market conditions.

Functional obsolescence

A form or source of accrued depreciation considered in the cost approach to market value.

The reduced capacity of a property or improvements to perform their intended functions due

to new technology, poor design, or changes in market standards.

Functional region

A region delineated in terms of linkages or economic interactions that are typically

organized as a trade area about a dominant location, center, or economic activity.

Future value (FV)

The amount to which money grows over a designated period of time at a specified rate of



See future value.

— G

Gap analysis

An evaluation of the difference in the demand and supply of space (measured in terms of

square footage) for a particular type of commercial property in a given market area where

gaps are expressed as the amount of square footage demanded less the amount of square

footage available in a given time period. Note that if demand exceeds supply, the gap will

be positive. A positive gap indicates that potential opportunities exist for successful

commercial real estate transactions. However, transactions might be avoided when supply

exceeds demand (or when a negative gap occurs), as there is an oversupply of available

space in the market.

General market area gap analysis

A gap analysis that is carried out for a city or several cities (simultaneously) to identity one

or more general market areas where a positive gap exists for a particular type of

commercial real estate. Also see gap analysis.

General market factors

Factors influenced by the demographic, economic, and locational characteristics and the

organizational aspects of a market.

Generic space

Commercial space that can be used for a variety of purposes, such as multiple-use office


Geographic Information System(s) (GIS)

System(s) (usually computer-based) used for capturing, handling, storing, retrieving,

managing, manipulating, and displaying geographic information or geo-coded data.

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Geographic submarket

The total number of households or housing units within a given area as defined by tenure,

income, and other socio-economic attributes that are known to exist or estimated to be

within specific geographic units or divisions (for example, in various census tracts).


The condition of being or becoming globalized. A concept used to recognize crossjurisdictional

interdependencies and the continuing integration of local, regional, and

national economies which now form a larger economic and production system that is

worldwide in scope and application; a trend that has greatly affected local economic change

and real estate values.

Government incentives

Concession given or measures taken by local or regional government to attract firms or

investment dollars to a given locality for the purposes of promoting economic growth and

encouraging development.

Gravity model

A model that is used to account for a wide variety of flow patterns in human/economic

systems, based on Newton’s gravity equation which defines gravity or the flow potential

(between two sites or locations) as directly proportional to the product of their masses (or

size) and inversely proportional to the square of the distance between them: gravity =

(mass × mass) ÷ distance2.

Gross area

The entire floor area of a building or the total square footage of a floor.

Gross leasable area (GLA)

The total floor area designed for tenant occupancy and exclusive use, including basements,

mezzanines, and upper floors, and it is measured from the center line of joint partitions and

from outside wall faces. GLA is that area on which tenants pay rent; it is the area that

produces income.

Gross lease

A lease in which all expenses associated with owning and operating the property are paid by

the landlord. Also see net lease.

Gross operating income

The total income generated by the operations of a property before payment of operating

expenses. It is calculated from potential rental income, plus other income affected by

vacancy, less vacancy and credit losses, plus other income not affected by vacancy. The

Annual Property Operating Data form or the Cash Flow Analysis Worksheet can be used to

calculate a property’s gross operating income.

Gross rent multiplier (GRM)

A method investors may use to determine market value. This method calculates the market

value of a property by using the gross rents an investor anticipates the property will

produce at end of year 1 multiplied by a given factor (known as the gross rent multiplier

extracted from the marketplace).

Ground lease

A lease of the land only. Usually the land is leased for a relatively long period of time to a

tenant that constructs a building on the property. A land lease separates ownership of the

land from ownership of buildings and improvements constructed on the land.

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Growth patterns

In reference to the patterns of urban or population growth in a geographic market, an

important consideration in retail trade area analyses as growth patterns are known to affect

sales/revenue potential within a market given the tendency of retail to follow population

movement and income concentrations over time.


Heavy utility needs

In reference to location-decision considerations made in relation to the energy or power

requirements of a firm/user in the assessment of the feasibility of a location to support a

given activity.


Protecting oneself against negative outcomes.

High order good

A good or service requiring a high threshold population before it is offered to a market.

Such a good or service requires a large number of consumers to support its business and

requires a larger trade area than a low order good. Also see lower order good.


Economic sectors and activities oriented toward the creation and production of hightechnology

products and the use of advanced designs, techniques, or devices in fields like

electronics, optics, lasers, aerospace, computers, semiconductors, and telecommunications.

Highest and best use

The reasonably probable and legal use of vacant land or an improved property, which is

physically possible, appropriately supported, financially feasible, and that results in the

highest value. [Appraisal Institute]

Highest and best use (financial) analysis

A determination of the highest and best use of one or more sites (either vacant or as

though vacant) or properties as improved by examining the profitability of all possible use

scenarios (including renovation, rehabilitation, demolition, and replacement).


A housing unit or residence at a given location that is occupied by one or more persons

(that is, a social unit comprised of one or more individuals living together in the same

dwelling or place).

Household population

The total number of households in a given geographic market or submarket as defined by

specific demographic and socio-economic characteristics.

Housing demand

The total number of housing units demanded in a given market, defined as occupied

household units divided by one minus the vacancy allowance for that market (where

demand is affected by the rate at which new households are being added to the market,

allowing for a normal level of vacancy).

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— I


Unstable or nonsustainable conditions which arise out of a market disequilibrium or the lack

of balance between the forces of supply and demand in any or all subcategories of

commercial properties in one or more geographic submarkets over a given time period.

Imperfect market

A market in which product differentiation exists, there is a lack of important product

information, and certain buyers or sellers may influence the market. Commercial real estate

is bought and sold in an imperfect market.


The process by which a given geographic area absorbs new individuals/households from

locations outside that area (an influx of individuals/households to a given area).

In-the-door approach

An approach to estimating the trade area (and sales/revenue potential) for a given retail

establishment or center based on observed flow patterns or traffic counts, where estimates

are obtained for both the percentage of traffic that stops or patronizes that

establishment/center and the percentage of people coming in-the-door who make a


Income capitalization approach

A method to estimate the value of an income-producing property by converting net

operating income into a value. The cap rate is divided into the net operating income to

obtain the estimated value. Value = net operating income ÷ capitalization rate

Index lease

A lease in which the rental amount adjusts accordingly to changes and/or movements in a

price index, commonly the consumer price index.

Industrial gap

The difference between the demand for an industrial property and the supply of that

property in a given market or area.

Industrial location decision-making

A decision-making process that involves the examination and evaluation of alternative

locations or sites for a particular industrial activity based on location/site feasibility

characteristics; great importance is placed on the national or regional location decision

(usually narrowing the location decision to a handful of cities or localities), with less

importance given to the local site selection process.

Industrial property

Commercial properties that are used for the purposes of production, manufacturing, or


Industrial service area

The geographic area within a market that contains either an acceptable number of

employees (and meets necessary labor requirements), or the necessary service and

resources needed to support a given industrial activity or facility.

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Initial investment

The outlay of cash needed to acquire an investment.

Input-output modeling

A mathematical approach to the description of a local or national economy, which takes

explicit account of the flows and linkages within and between economic sectors.

Recognizing that output (products and services) from one sector may require production

inputs for other sectors, used to estimate sector- and region-specific multipliers for the

purpose of analyzing the direct and indirect impacts of a given change in a particular sector

or region.

Insurable value

The value of the portions of the property that are physically destructible.

Intangible characteristics

Attributes that are not directly measurable or quantifiable, and therefore must be expressed

in a qualitative or abstract manner.

Interest-only loan

A method of loan amortization in which interest is paid periodically over the term of the loan

and the entire original loan amount is paid at maturity.

Internal growth

The rate at which a base population or the number of new households is changing due to

natural increase (births less deaths) and time (the aging and maturation of that population),

as children are born, grow up, and form families and households of their own.

Internal rate of return (IRR)

The percentage rate earned on each dollar that remains in an investment each year. The

IRR of an investment is the discount rate at which the sum of the present value of future

cash flows equals the initial capital investment.

Internal rate of return method

A comparison method that calculates the internal rate of return of the differential cash flow

between any two investment alternatives, then compares that rate with the user’s

opportunity cost. Also see internal rate of return.


The supply or stock of a given commodity or a listing thereof.


Limiting current consumption in favor of future consumption.

Investment value

The value to a specific investor, based on that investor’s requirements, tax rate, or



See internal rate of return.

IRR of the differential

The internal rate of return on the difference between the cash flows for any two investment

alternatives. Also see internal rate of return method and differential cash flow

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— J

No glossary terms are available.

— K

Key federal laws

With respect to the handling of hazardous materials, they are important laws or statutes

enacted to enforce the responsible handling of materials to minimize the danger to human

beings and/or the environment.


Labor pool

A body or core group of workers (employed and employable) that make up the local labor



The lessor or owner of the leased property.

Landlord-paid tenant improvements (LPTI)

The total cost (outlay) of necessary tenant improvements paid by the landlord netted

against any contribution made by the tenant.

Land sale-leaseback

The same concept as a sale-leaseback, but only the land is sold and leased back using a

ground lease.

Leakage (retail)

Purchases made in other service areas by consumers located within the subject area

(representing a loss of revenue for retailers located within the trade area in which those

consumers reside).


A contract that creates the relationship of landlord and tenant. A contractually binding

agreement that grants a right to exclusive possession or use of property, usually in return

for a periodic payment called rent. (Encyclopedia of Real Estate Terms 2nd Edition, Damien


Lease buyout

The process by which a landlord, tenant, or third party pays to extinguish the tenant’s

remaining lease obligation and rights under its existing lease agreement.

Lease terminology

Terms commonly used in reference to a lease.

Leased fee

In exchange for permitting a tenant to use the property, the owner/lessor has the right to

receive rental income and the right to repossess the property upon termination of the lease.

Leased fee interest

The value (to the owner) of the rental payments plus the value of the property at the end of

the lease term (reversionary interest).

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Leasehold estate

In exchange for rent, the tenant has the right to occupy and use the property for the

duration of the lease.

Leasehold interest

The value (to the tenant) of the lease. The value of the leasehold interest is determined by

present value of the difference between market rent and the contract rent.


A means of obtaining the physical and partial economic use of a property for a specified

period without obtaining an ownership interest.


The person renting or leasing the property. Also known as a tenant.


The person who rents or leases a property to another. Also known as a landlord.


The use of borrowed funds to finance a portion of the cost of an investment.

Lifestyle characteristics (psychographics)

Intangible characteristics of a local economy that define and shape the quality of life

element and the social and cultural identity of the local population.


The cost to transport goods, services, or people to and from a site measured in time,

distance, and inconvenience.

Liquidation value

The likely price that a property would bring in a forced sale (foreclosure or tax sale). Used

when a sale must occur with limited exposure time to the market or with restrictive

conditions of sale.


The ability to convert an investment into cash quickly without loss of principal.

Load factor

The ratio of rentable area to useable area. The load factor is a gauge by which a user can

evaluate different sites with comparable rents. It is also known as the add-on factor.


Load factor = Rentable square


Useable square feet

Loan balance

The amount of money remaining to be paid on an amortizing loan at a given time.

Loan or mortgage value

That portion of the value of real property recognized by the lender when used to secure a


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Loan point

A charge prepaid by the borrower upon the origination of a loan. One point equals one

percent of the loan amount.

Loan-to-value ratio (L/V)

The amount of money borrowed in relation to the total market value of a property.

Expressed as the loan amount divided by the property value.

Location analysis

The process of evaluating whether a general location meets the requirements of being both

possible and practical as defined on the basis of technical and functional components.

Location quotient

An index, defined in ratio form that compares the proportion of a local activity to the

proportion of that activity found at some larger geographic scale, such as the nation.

Location quotient method

A method for estimating a community’s economic base multiplier using basic employment

estimates obtained from estimated location quotients (under various simplifying


Lower order good

A good or service requiring a low threshold population to be offered. A good or

service is considered to have a low threshold if it does not require a large number of

consumers to support its business and thus requires a small trade area. Also see high order


— M


Generally used in reference to matters of economy or economic factors and forces portrayed

or operating at the macro-level (as opposed to micro-level), used synonymously with

national economy.


The ability to monitor the performance of an investment and make changes as needed.

Managing risk

The steps taken by an investor or manager to control or reduce investment risk.

Mapping GIS software

Computer-mapping programs that perform any of a wide variety of map-making tasks (for

both on-screen and file-oriented use).


The ability to sell or lease a property quickly. Marketability deals with the appeal and

demand for a property, good, or service.

Market area

A geographical area in which supply and demand operate to influence the course of

industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).

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Market adjustments

A change in market parameters or conditions brought about in response to one or more

market signals (including price changes from shifts in supply and demand); typically

characterized as cycles, fluctuations, or trends (categories that differ in terms of cause,

duration, and impact on commercial real estate markets).

Market analysis

The process of examining market supply and demand conditions, demographic

characteristics, and opportunities; identifying alternative locations/sites that meet specific

objectives or satisfy various criteria; and assessing the financial feasibility of those

locations/sites to facilitate decision making regarding the commercial potential or suitability

of various locations/sites to support a given activity or use.

Market data

Information/data collected and displayed for a given market or by market area.

Market data approach

A method of determining the property’s value by analyzing recent sales or rental prices of

comparable properties.

Market dynamics

In reference to changing market conditions and the underlying processes responsible for

creating change and defining/redefining interrelationships amongst components in an

economic system (consider the change in price levels of a given commodity as an outcome

of the forces and interplay of supply and demand).

Market feasibility

Pertaining to the evaluation or selection of a site or an analysis of a site’s highest and best

use. Also see feasibility analysis.

Market gap

The demand for space minus the supply of space for a specific type of commercial property

in a given real estate market. Also see general market area gap analysis.

Market opportunities

Advantageous circumstances in a market which facilitate a given action or outcome that is

generally viewed as favorable from a money-making standpoint.

Market pricing

The pricing of commodities (including rental rates of various types of commercial properties)

as determined by the forces and factors of influence operating in a market.

Market risk

The possibility that downward market trends will reduce an investment’s market value.

Market share

Refers to the percentage of total sales in a retail category that each competing outlet is

expected to capture based on current patterns and trends in the market.

Market strategy

A course of action defined with respect to a particular real estate market phase. For

example, consider the market strategy of avoiding real estate transactions when there is an

oversupply of space available in the market.

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Market value

The most probable price that a property would bring in a competitive and open market

under fair sale conditions. Market value also refers to an estimate of this price.


Second stage of four-stage transaction management process pertaining to gathering and

evaluating property information to unite the investor and user. The acronym MATCH

represents the activities to market, analyze, target, compare, and highlight during the

match stage.


A measure of central tendency (for a distribution of values) defined as the average value of

a variable in a sample and calculated by adding together all the values observed in a data

set and dividing by the number of values observed.


Defined as the middle value of a data set (or sample) when the values are arranged in order

(by size ranking, in ascending or descending order). Note that for an odd number of values

in an ordered data set, the median is identified as the value which divides the data set into

two data sets of equal size on each side of the median or middle value. For an even

number of values arranged in order, the median is found by simply calculating the value

mid-way between the two middle values. Note that the position of the median value of an

ordered data set containing n observations may be found by using the formula: position of

the median = n/2 + 1/2.

Metropolitan Statistical Area (MSA)

Generally, the area in and around a major city. The Office of Management and Budget

(OMB) defines an MSA as having one of the following characteristics: a city with a

population of at least 50,000, or an urbanized area with a population of at least 50,000 with

a total metropolitan population of 100,000.

Mid-month convention

A requirement of the Tax Reform Act of 1984 that taxpayers use the 15th of the month to

establish the date of acquisition and date of disposition when calculating cost recovery

deductions. This act applies to real estate placed in service after June 22, 1984 (with the

exception of low-income housing).

Minimum requirement

The observed minimum proportion of employment in a given economic sector for

communities within a given size range, assumed to be that employment/activity level that is

necessary to serve the needs of a community that falls within a predetermined size range

(the minimum amount of nonbasic employment necessary to support a typical mix of

industry for a population base of a given size range).

Minimum requirements method

A method for estimating a community’s economic base multiplier using basic employment

estimates that are obtained by comparing employment levels by economic sector to the

identified minimum requirement.

Moving allowance

A specified dollar amount paid by the owner to cover, in part or in whole, tenant moving

expenses. Also known as owner’s moving expense.

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Moving expenses

The cost incurred by the tenant to move into the new space. The landlord may pay a

portion or all, depending on what is negotiated in the lease. Also see moving allowance.

Multifamily housing

Housing units that accommodate more than one family or household.

Multiple-use office space

Office space that can be used for a variety of purposes; sometimes referred to as generic

office space.

— N


A component of the T-bar that represents the number of periods over which the investment

is held.

Negative leverage

Borrowed funds are invested at a rate of return lower than the cost of funds to the


Neighborhood center

This center is designed to provide convenience shopping for the day-to-day needs of

consumers in the immediate neighborhood. According to ICSC’s SCORE publication, a

supermarket anchors half of these centers, while about a third have a drugstore anchor.

Stores offering pharmaceuticals and health-related products, sundries, snacks and personal

services, support these anchors. A neighborhood center is usually configured as a straightline

strip with no enclosed walkway or mall area, although a canopy may connect the


Net lease

A lease in which the tenant pays, in addition to rent, all operating expenses such as real

estate taxes, insurance premiums, and maintenance costs. Also see gross lease.

Net operating income (NOI)

The potential rental income plus other income, less vacancy, credit losses, and operating


Net present value (NPV)

The sum of all future cash flows discounted to present value and netted against the initial


Neutral leverage

An investment situation in which the cost of borrowed funds is exactly equal to the yield

provided by the investment.


See net operating income.

Non-basic employment

Employment that is considered to be of the nonexport-oriented variety: employment not

associated with export-oriented activities. Nonbasic employment is best characterized by

industries and activities that produce goods and services exclusively for local use or


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Non-household population

That portion of the total population that is not considered to be part of the local residential

housing market; composed of individuals living in dormitory-like facilities (including military

bases) or institutional settings (such as students in residence halls).


See net present value.

— O


In reference to the inadequacy, disuse, outdated, or nonfunctionality of facilities,

infrastructure, products, or production technologies due to effects of time, changing market

conditions, or decay (a factor considered in depreciation to cover the decline in value of

fixed assets due to the invention and adoption of new production technologies, or changing

consumer demand).

Occupancy cost

The actual dollars paid out by the tenant to occupy the space. It can be expressed in either

pre-tax or after-tax dollars.


Low-rise – Fewer than seven stories high above ground level.

Mid-rise – Between seven and twenty-five stories above ground level

High-rise – Higher than twenty-five stories above ground level. [BOMA]

Office gap

The difference between the demand for office space and the supply of office space by

property type, submarket, sector, or user classification in a given geographic market.

Office property

A commercial property type used to maintain or occupy professional or business offices.

Such properties typically house management and staff operations. The term office can refer

to whole buildings, floors, parts of floors, and office parks. Office space that can be used for

a variety of purposes is sometimes referred to as generic office space. Office properties

may be classified as Class A, B, or C. Class A properties are the most functionally modern.

Properties Classed B and C in the same market typically command lower rents because they

are older and in need of modernization. They may not be as efficient or desirable as Class A

properties because their design or condition causes functional problems.

Operating expense stop

A negotiable amount at which the owner’s contribution to operating expenses stops. It also

can be stated as the amount above which the tenant is responsible for its pro rata share of

operating expenses.

Operating expenses

Cash outlays necessary to operate and maintain a property. Examples of operating

expenses include real estate taxes, property insurance, property management and

maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do

not include capital expenditures, debt service, or cost recovery.

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Opportunity cost

The cost of selecting one alternative is the benefit foregone from the next best alternative.

Also see discount rate.

Original basis

The total amount paid for a property, including equity capital and the amount of debt



The process by which a given geographic area expels or loses individuals/households to

locations outside that area (an outflux of individuals/households from a given area).

Outlet center

A retail property type usually located in rural or occasionally in tourist locations, outlet

centers consist mostly of manufacturers’ outlet stores selling their own brands at a discount.

These centers are typically not anchored. A strip configuration is most common, although

some are enclosed malls, and others can be arranged in a village cluster.

Overage rent

See percentage rent.


In reference to commercial real estate, oversupply is a stock or supply of a given

commercial property type that is greater than that which can be cleared under prevailing

prices levels and market conditions (for example, excess supply). Also, a phase of the real

estate market cycle denoting that period of time in which commercial real estate markets

become saturated with units due to overbuilding.

Owners moving expense

See moving allowance.


A means of obtaining the full economic use of a property for an unspecified period by

obtaining an ownership interest.

— P

Partially amortized mortgage loan

The payments do not repay the loan over its term and thus a lump sum (balloon) is required

to repay the loan.

Participation mortgage

A loan secured by real property, with a stated interest rate that also provides for a share to

the lender in annual net cash flow, gain on sale, or proceeds from refinancing the property.

(Real Estate Information Standards)

Passive income

Income from rental activity, limited business interests, or other activities in which the

investor does not materially participate.

Passive losses

Losses from the ownership of passive investments.

Payment (PMT)

A periodic amount paid or received for two or more periods.

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Percentage lease

A lease in which the rent amount is based on a percentage of gross sales (monthly or

annually) made by the tenant.

Percentage rent

The additional rent (over a base amount) that is paid by tenants to owners on tenant sales

over a specified dollar amount. It is frequently found in retail leases. Also known as

overage rent.

Perfect market

A market in which the products are homogenous, there is complete information, and no

buyers or sellers may influence the market.

Physical depreciation or deterioration

A form or source of accrued depreciation considered in the cost approach to market value.

The physical decay or deterioration of a property that may result from breakage, deferred

maintenance, effects of age on construction material, and normal wear and tear. (Barron’s

Dictionary of Real Estate Terms)

Physical limitations

Limitations imposed by the physical size, shape, or characteristics of a property or its level

of development.

Pipeline information

Information (substantiated and rumored) regarding new inventory that is in the process of

being added to the market by a specified forecast period.

Planned additional inventory

In reference to commercial real estate, it is the supply or stock of a specific type of

commercial unit or the amount of space that will be available in an upcoming forecast

period from expansions, conversions (in), and new construction.

Planned removed inventory

In reference to commercial real estate, it is the supply or stock of a specific type of

commercial unit or the amount of space that will not be available in an upcoming forecast

period due to demolitions and conversions (out).


See payment.

Population/expenditure approach

An approach to estimating the trade area (and sales/revenue potential) for a given retail

establishment or center based on the minimum area (or threshold population) that would be

required to sustain a business, by calculating the population necessary to support total

square footage of both existing and proposed space for a specific-use and

determining/mapping the extent of the trade area based on population density.

Population growth

The rate at which a given population base in a given geographic area is growing (positive or

negative) in relation to the forces of internal growth, in-migration, and out-migration; a

factor that is widely acknowledged as having the greatest impact on the demand for


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Population migration

The movement and relocation of people from one place of residence to another in response

to social and economic factors and forces; a long-term trend that can be expected to affect

local economies and real estate values.

Portfolio income

Income from interest, dividends, royalties, or the disposition of property held for


Positive leverage

Borrowed funds are invested at a rate of return higher than the cost of the funds to the


Potential rental income

The total amount of rental income for a property if it were 100 percent occupied and rented

at competitive market rates.

Power center

This retail center is dominated by several large anchors, including discount department

stores, off-price stores, warehouse clubs, or category killers—stores that offer tremendous

selection in a particular merchandise category at low prices. The center typically consists of

several freestanding (unconnected) anchors and only a minimum amount of small specialty


Present value (PV)

The sum of all future benefits or costs accruing to the owner of an asset when such benefits

or costs are discounted to the present by an appropriate discount rate.

Present value method

A comparison technique that compares the present values of the cash flows for any two real

estate alternatives. The best user alternative is based on the lower present value amount.

It is not the same as net present value.

Prestige and property classes

In reference to the recognition that various levels of status may be assigned to commercial

properties as defined by user needs, the quality of a property and its amenities in relation to

site factors, and its general location, suggesting the division of properties into distinct



The dollar amount that was offered, asked, or actually paid for a property.

Primary source data

Information obtained directly from field observations and survey instruments (by observing

or monitoring a phenomenon or site firsthand), typically involving quantitative

measurement and/or qualitative assessment of that which is observed or monitored.


The portion of a loan payment used toward reducing the original loan amount.

Probabilities and expected value

A quantifiable method of risk analysis. This method assigns probabilities to specific, possible

investment outcomes, calculates an expected outcome for the investment based on these

probabilities, and measures the likelihood that actual results will differ from the expected

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Probabilities and expected value (continued)

outcome. This method of risk analysis can be applied directly to real estate investments. It

also can be used in conjunction with the forecasts generated through sensitivity analyses.

This technique requires that probabilities be assigned to possible outcomes. Probabilities on

the best-case, most-likely, and worst-case scenarios can be assigned to the resulting

expected values for the return. Variances also can be computed using the assigned



Any economic activity that alters, enhances, or transforms a product or material, thereby

increasing the value of that product or material by changing its physical form and/or


Property data

Property/site-specific information obtained from primary and secondary sources.

Property market

The supply and demand for ownership interests in property.

Property-specific factors

Factors influenced by the site-specific and technical characteristics of a property or parcel

including its layout, limitations, orientation, physical features, and ability to comply with

government imposed zoning and land-use restrictions.

Property type

The classification of commercial real estate based on its primary use. The four primary

property types are: retail, industrial, office, and multi-family residential.

Proprietary data

Information obtained (usually at a cost) from private sources or firms that hold the

exclusive rights to manufacture and distribute information created for specific commercial

applications, supplying business, sales, and market-potential data and other information

services to a targeted audience.

Purchasing power risk

The variability in the future purchasing power of income received from an investment.


See present value.

— Q


First stage of four-stage transaction management process pertaining to the process of

gathering and evaluating information to measure a client’s readiness, willingness, and ability

to consummate a transaction. The acronym QUALIFY represents the considerations of

quantify, usage, authority, latitude, intention, financial, and yield involved in the qualify


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Quality of life

The psychological and individual aspects of social well-being as perceived and experienced

by people in reference to a given geographic area, which reflect a state of mind or position

on the prevailing quality of existence in relation to various socio-economic and

environmental conditions and/or amenities known to be associated or found within that


— R


The maximum distance consumers are willing to travel to purchase a good or service from a

given establishment or location. Hence, the boundary or outer limits of the market area

circumscribed about a location at which a good or service may be purchased can be easily

identified having knowledge of the range.

Rate of return

The percentage return on each dollar invested. Also known as yield.

Real estate

See commercial real estate.

Real estate cycles (phases)

The regularly repeating sequence of economic downturns and upturns and associated

changes in real estate market transactions tied to market dynamics and changing macroeconomic

conditions, whose phases include (in order) recession, recovery, expansion, and


Real estate fluctuations

Short-term variations in real estate prices or rents (usually lasting anywhere from one day

to a few months) caused by natural hazards (such as tornadoes, hurricanes, floods,

earthquakes, and wildfires) or boosts or shocks to the local economy (such as the entry or

exit of major employers).

Real estate investment trust (REIT)

An investment vehicle in which investors purchase certificates of ownership in the trust,

which in turn invests the money in real property and then distributes any profits to the

investors. The trust is not subject to corporate income tax as long as it complies with the

tax requirements for a REIT. Shareholders must include their share of the REIT’s income in

their personal tax returns. (Barron’s Dictionary of Real Estate Terms and Encyclopedia of

Real Estate Terms 2nd Edition, Damien Abbott)

Real estate trends

Long-term movements or tendencies in the demand for commercial real estate (which can

typically last for years or decades), usually tied to macro-economic or business cycles.


A period of reduced economic activity or a general economic downturn marked by a decline

in employment, production, sales, profits, and weak economic growth that is not as severe

or prolonged as a depression. As a result, sales in real estate markets are slow, property

values and price levels are flat or decreasing, and there is virtually no construction of new

stock given excess supply of units in most real estate markets.

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A period of increasing economic activity or a general economic upturn, typically following a

stabilization of key sectors and industries, marked by increasing sales and recovering prices

in real estate markets as a direct result of an external shock (for example, a favorable tax

code revision) or an increase in demand for commercial real estate which, in turn, leads to

the absorption of excess space. Little or no construction occurs during the initial stages of

this phase until most of the excess space is absorbed or until reasonable financing

opportunities become available.

Regional center

This center type provides general merchandise (a large percentage of which is apparel) and

services in full depth and variety. Its main attractions are its anchors: traditional, mass

merchant, discount department stores, or fashion specialty stores. A typical regional center

is usually enclosed with an inward orientation of the stores connected by a common

walkway and parking surrounds the outside perimeter.

Regulatory requirements

In reference to land use, they are restrictions or guidelines on development or use of land,

properties, or facilities as defined in accordance with design standards, building construction

requirements, land use plans, occupancy codes, and zoning classifications as determined by

the controlling or governing parties at the municipal or county levels.

Rent concession

A period of free rent given to the tenant by the lessor.

Rentable area

The computed area of a building as defined by the guidelines of Building Owners and

Managers Association (BOMA) and typically measured in square feet, including both

core/structure and useable area. The actual square foot area for which the tenant will pay

rent. It is the gross area of an office building, less uninterrupted vertical space (such as

stairways and elevators). Unlike useable area, rentable area includes common areas such

as lobbies, restrooms, and hallways as well as the measurement of structural columns and

architectural projections.

Rentable-to-useable ratio

Defined as rentable area divided by useable area. Also known as the add-on factor or load

factor. Also see efficiency percentage.

Rent escalators

Items specified in a lease such as base rent, operating expenses, and taxes that may

increase by predetermined amounts at stated intervals or by a constant annual percentage.

Also see index lease and expense stop.

Replacement cost

The estimated cost to construct, at current prices, a building with utility equivalent to the

building being appraised, using modern materials and current standards, design, and layout.

[Appraisal Institute]

Residential property

Single- or multifamily housing units that are used, serve, or are designed as a place of


©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.



Also see community center, fashion/specialty center, neighborhood center, outlet center,

power center, regional center, superregional center, and theme/festival center.

Retail gap analysis

A gap analysis performed specifically on retail floorspace in a given market or trade area.

Retail gravity model

A gravity model used to estimate dollar flows to or the sale/revenue potential of competing

retail establishments in a given geographic market. Also see gravity model.

Retail property

Properties used exclusively to market and sell consumer goods and services.

Retail trade area

Also referred to as service area, is generally defined as the geographic or formal area from

which a sustained patronage is attracted to support a retail center or establishment; the

extent to which is determined by numerous factors including the site characteristics of the

center or establishment, its accessibility, the presence or absence of physical barriers to

movement, and general limitations imposed by driving time, congestion, and


Reversion value

A lump-sum cash benefit that an investor receives or expects to receive upon the sale of an



The probability that actual cash flows from an investment will vary from the forecasted cash


— S

Safe rate

The rate a low risk, liquid investment achieves.

Sale cost

The brokerage commissions and fees, and any additional transaction costs that are incurred

during the sale of the property.


A leasing and financing strategy in which a property owner sells its property to an investor,

then leases it back. This strategy frees capital that otherwise would be frozen in equity.

Sales proceeds after tax

The sale proceeds before tax minus the tax liability on the sale.

Sale(s) proceeds before tax

The sale price minus the sale costs and the mortgage loan balance.

Sales comparison approach

A way to determine market value by comparing a subject property to properties with the

same or similar characteristics.

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.


Sales comparison value

An estimate of value derived by comparing the property being appraised to similar

properties that have been sold recently, applying appropriate units of comparison, and

making adjustments to the sales prices of the comparable based on the elements of

comparison. [Appraisal Institute]

Sales per square foot

Sales revenue generated per square foot of retail floor space.

Sales potential

The possible or expected revenue of a retail outlet as defined by conditions within the

market or trade area and the forces of competition.

Sales price point of indifference

The future reversionary value (sales price) that would make the present cost of leasing

mathematically equal to the present cost of owning a property.

Sales volume

The total amount of sales/revenue generated by a retail outlet or facility in a given time



A subset of a statistical population (typically selected randomly).


The practice of obtaining a sample from a given statistical population.

Sandwich lease

See sublease.

Scale economies

Cost reductions, savings, or advantages that come about from efficiency gains associated

with increasing levels of production output or the increased size of an operation or system

(as the average cost of production falls with increasing output or size).

Secondary source data

Information obtained from second-party or archival sources.


The phenomenon of indirectly investing in real estate markets in ways that minimize risk

(for example, investments made collectively with pooled money or the use of investment

packages/funds, such as mortgage backed securities sold on the secondary financial

market) as opposed to direct investments where investors own property or hold mortgages;

a long-term trend that has had significant impact on real estate values.

Segmentation of formal regions

The compartmentalization or division of formal regions into smaller geographic areas for the

purpose of carrying out a more detailed market area analysis.

Sensitivity analysis

The process of recalculating outcomes under alternative assumptions to determine the

impact of the variable under analysis.

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.


Service area

The geographical area that encompasses/delineates the principal share of clients or

customers served by the tenants of the property (a concept that becomes less applicable as

the service area of the customer base increases).

Sinking fund

A fund designed to accumulate a designated amount of money over a specified period of

time. The periodic amount of money deposited plus compound interest will accumulate to

the designated amount of money over the specified period of time.

Site analysis

The identification and evaluation of a site or sites to satisfy a given use or objective.

Site factors

Site-specific factors, features, conditions, or attributes which are important in the analysis

or evaluation of a location/site (including relative location, visibility, aesthetics, landscaping,

condition of existing structures, regulatory mechanisms, and lot size).

Site selection

The process of determining the best site for a specific use.

Space market

The supply and demand for the use of physical space.

Standard deviation

A measure of the amount of dispersion or variation of data points or values about the mean.

The standard deviation has a very useful property in that 95.4% of the values of a data set

will lie within two standard deviations (plus or minus) of the mean.

Standard Industrial Classification (SIC)

A classification scheme used for general recording purposes by government and industry to

categorize and account for economic and employment activity by sector using a series of

standardized and universally accepted codes.

Statistical descriptions

Drawing a reasonable conclusion or deduction from statistical evidence based on sample

statistics, while attaching a statement as to the likelihood that an assertion made about a

given statistical population is true (in probabilistic terms).

Statistical population

The total set of elements or the collection of all individuals, items, or objects under

consideration in a statistical inquiry. In short, a population is a universe comprising all

members of a specified group.

Step-up lease

A lease in which the rental amount paid by the lessee increases by a preset rate or set

dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge

against inflation and future maintenance or operational expenses.

Street-based mapping

Relatively easy-to-use GIS applications that allow the user to map objects such as

commercial properties or retail establishments by street address.

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.



A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to

another tenant (known as a subtenant) while still retaining a leasehold interest in the

property. Also known as a sandwich lease due to the sandwiching of the original lessee

between the lessor and the subtenant.


A segment or portion of a larger geographic market defined and identified on the basis of

one or more attributes that distinguish it from other submarkets or locations.

Substitute basis

The basis in a property acquired in a qualified Section 1031 Exchange is reduced by

deferred gain and becomes the substitute basis. For example, if the market value of

property given up is $200,000, and the basis in that property was $75,000, then realized

gain equals $125,000. Assume the market value of property acquired through a taxdeferred

exchange is $350,000, then subtracting the unrecognized gain of $125,000 equals

the substitute basis of $225,000. The effect of this adjustment to basis is to build in the

deferred $125,000 gain into the property acquired. If the new property were sold the next

day for $350,000, a $125,000 gain would be reported.

Sunk costs

Investment costs that are committed and cannot be recovered.

Superregional center

A retail property type similar to regional centers, but because of its larger size, a

superregional center has more anchors, a deeper selection of merchandise, and draws from

a larger population base. As with regional centers, the typical configuration is as an

enclosed mall, frequently with multilevels.


The amount of property that will be made available for sale or rent at a given price or rental


Supply factors

Elements or forces that influence the supply of goods and services in a given market.

Supporting industries

Industries that offer goods or services that are necessary as inputs in a production process

or for the transportation and marketing of intermediate or finished products.

Suspended losses

Passive losses that cannot be used in the current year are suspended for use in future years

or at the time of sale.

Synthetic lease

A leasing and financing strategy whereby the terms of the lease under specific Financial

Accounting Standard Board guidelines change the lease obligation from a capital lease

(long-term lease on the company’s balance sheet) to an operating lease (short-term lease

on the company’s balance sheet).


See dynamic system and systems analysis.

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.


Systems analysis

A methodological framework for investigating the structure, components, and functions of a


— T


A chart used to summarize the timing of real estate cash flows.

Tangible characteristics

Attributes that are quantifiable, measurable, factual, or expressed numerically as data or


Target market

Likely users or investors whose needs match the property’s features. Alternatively, when

representing users, the target market is the kind of property that matches your user-client’s


Tax impact

The impact of taxes on investment income and rate of return.

Tax liability

Real estate taxable income multiplied by the tax rate.

Tax savings (annual expense)

Entry on the tenant’s Cash Flow Form. All annual expenses incurred by the tenant are tax

deductible. The tax savings are calculated by multiplying the annual deduction by the

tenant’s tax rate.

Tax savings (capital expenditure)

Entry on the tenant’s Cash Flow Form. It refers to any tax savings associated with any

capital expenditure by the tenant in terms of the site or major, unusual business expenses

incurred to make the new office efficient for the business. The amount of tax savings is

calculated by multiplying the annual deduction amount by the tenant’s tax rate.

Tax shelter

The ability of real estate investments to reduce an investor’s tax liability through the use of

cost recovery.

Taxable income

Adjusted gross income less personal deductions and exemptions.


How an investment is affected by tax laws and codes.

Technical components

Factors that determine whether a location or site is suitable or able to support a given use.

Technical feasibility

In the case of site selection, it is an evaluation of multiple sites to determine which sites

should be considered further based upon their physical limitations, regulatory requirements,

and environmental and legal considerations; whereas in the case of highest and best use, it

refers to the determination of the possible uses of a particular site as based upon technical


©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.



A person or entity who has possession of the property though a lease. A tenant also may

be referred to as a lessee.

Tenant improvements

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.

Tenant-paid tenant improvements (TPTI)

The total cost (outlay) of necessary tenant improvements paid by the tenant netted against

any allowance provided by the landlord.


A designation which distinguishes between the renter versus owner-occupied status of

housing units or households.

Theme/festival center

These retail centers typically employ a unifying theme that is carried out by the individual

shops in their architectural design and, to an extent, in their merchandise. The biggest

appeal of these centers is to tourists; restaurants and entertainment facilities can anchor

them. These centers, generally located in urban areas, tend to be adapted from older,

sometimes historic, buildings and can be part of mixed-use projects. [International Council

of Shopping Centers (ICSC) Shopping Center Descriptions]

Threshold population

The minimum number of people or minimum market area or sales volume necessary to

sustain a business or make it economically viable. Also see high order goods and lower

order goods.


See tenant improvements.

TI allowance from owner

Entry on the tenant’s Cash Flow Form. A specified amount of money the owner will pay for

tenant improvement.

Time value of money (TVM)

An economic principle recognizing that a dollar today has greater value than a dollar in the

future because of its earning power.

Total effective rate

The rate per square foot paid by the tenant over the entire period analyzed. Formula:

Total effective rate = Total effective


Square footage


Total effective rent

The total dollar amount (cash flow) that the tenant actually will pay out over the entire

period analyzed.

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.


Total employment

The total number of actively employed people in the workforce within a given geographic

area at a particular point in time.

Total existing inventory

In reference to commercial real state, it is existing and currently available supply or stock

as represented by the total number of units or total amount of space available of a specific

commercial property type in a given market at a particular point in time.

Total forecast supply

Total existing inventory plus forecast planned additional inventory minus forecast planned

removed inventory for a specific commercial property type in a given market area.

Total supply of commercial real estate

Refers to all existing space vacant or occupied, built, forecasted, or demolished, for a

particular market area for a specific period of time.


See tenant-paid tenant improvements.

Trade area

An area delineated about a central or dominant location, comprising a zone that is

dependent upon production output from that location to meet internal demand, whose

outermost boundaries are defined in terms of the presence or absence of interactions with

that central or dominant location (for example, a localized area over which some specific

activity or transaction takes place). Note that in central place theory context, the terms

trade area and range are used interchangeably. Also see range.

Trade area gap analysis

A gap analysis performed on a specific trade area located within a predetermined market

area or city.

Traffic generators

A business, retailer, or site that draws business to a given location (for example, a large

retail store/anchor in a regional shopping mall that generates traffic for smaller retail shops

located within the mall or nearby).

Transaction management process

A continuous, cyclical four-stage process in which a transaction manager is involved with

qualifying, matching, closing, and adding value for clients. Also see qualify, match, close,

and add value.

Transfer income

Money that is transferred to a local economy from outside sources without the exchange of

any good or service (including social security, welfare and retirement benefits, interest

dividends and rent on investments).


See time value of money.

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.


— U

Urban system (city as a system)

A complex and structured urban environment or system composed of highly diverse,

interacting, and interdependent parts and activities aggregated or organized in such a way

as to serve a common purpose and/or satisfy the needs and wants of people residing in and

dependent upon that system.

Useable area

Rentable area, less certain common areas that are shared by all tenants of the office

building (such as corridors, storage facilities, and bathrooms). Also defined in office

buildings as the area that is available for the exclusive use of the tenant. Useable area =

rentable area × building efficiency percentage.

User criteria

In reference to the identification and classification of properties and the evaluation of

feasibility characteristics of various locations/sites in accordance with the specific needs of

the user as defined by its business requirements, and the use and zoning restrictions in any

given jurisdiction or municipality.

— V


The number of units or space (of a specific commercial type) that are vacant and available

for occupancy at a particular point in time within a given market (usually expressed as a

vacancy rate).

Vacancy allowance

A desirable level of vacancy that is known to facilitate transactions and turnover in a

housing market (for example, a vacancy rate that allows the market to operate smoothly

and efficiently by enhancing household mobility); an index used for estimating housing


Vacancy rate

The percentage of the total supply of units or space of a specific commercial type that is

vacant and available for occupancy at a particular point in time within a given market.


A measurable attribute of a person, place, property, location, or other phenomenon of

interest, whose value may vary from observation to observation.

Variable expenses

Costs, such as utilities, that vary with a building’s occupancy rate.

— W

Weighted average cost of capital (WACC)

The average cost of capital (whether equity or debt), taking into account the relative

proportions of each source of capital. (Encyclopedia of Real Estate Terms 2nd Edition,

Damien Abbott)

©2001 CCIM Institute. All rights reserved. Version 10/01.

©2002 National Association of REALTORS®. All Rights Reserved.


Workstation GIS

Mainframe-oriented or UNIX-based computer-software products, programs, and systems

that are specifically geared toward large-scale applications, requiring large platforms and

advanced programming skills and knowledge.

— X

No glossary terms are available.

— Y


A measure of investment performance that gauges the percentage return on each dollar

invested. Also known as rate of return.

— Z


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.





Now is the time, if you are thinking of selling or purchasing your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County, Pinal County, Arizona / Office  / Retail  / Industrial  / Multi-family /  please call me on my cell 520-975-5207 or e-mail me

Phoenix Commercial Real Estate and Investment Real Estate: Investors and Owner / Users need to really know the market today before making a move in owner user Commercial Properties, Investment Properties and land in Phoenix / Maricopa County, Pinal County / Arizona, as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land  Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial Properties and Investment Properties.

I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group.  I also sold  hundreds millions of dollars’ worth of  Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with  brokers, Investors and Developers. I am also a CCIM and through this origination ( ) I have access to marketing not only in the United States, but also international.  Click here to find out what is a   CCIM:



Are you ready to sell or purchase your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County and Pinal County, Arizona, please call me.


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Phoenix projected as number one US housing market for 2017


Why Phoenix?  This is a very interesting article, you should read it, amazing, there were only 350 K people living in Phoenix in 1950


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2016 Official Arizona Visitors Guide

Visit Arizona

Why Phoenix?  This is a very interesting article, you should read it, amazing, there were only 350 K people living in Phoenix in 1950



Timeline of Phoenix, Arizona history,_Arizona_history


Phoenix, Arizona,_Arizona



Facts of Arizona – year 1848 to 2013

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  1. Interactive Map Of All 10+ Unit Apartment Listings in Metro Phoenix


  1. Interactive  Metro Phoenix Map of New Apartment Construction by Completion Status



Kasten Long Commercial Group tracks all advertised apartment communities, including those advertised by other brokerages.  The interactive map  shows the location of each community (10+ units) and each location is color coded by the size (number of total units). 

Click here for Map of Apartments for Sale (10+units)



Walter Unger CCIM, CCSS, CCLS

I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years.  If you have any questions about Commercial / Investment Properties in Phoenix or Commercial /  Investment Properties in Arizona,  I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us. 


Please reply by e-mail or call me on my cell 520-975-5207


Walter Unger CCIM

Senior Associate Broker

Kasten Long Commercial Group

5110 N 40th Street, Suite 110

Phoenix , AZ 85018

Direct:    520-975-5207  

Fax:       602-865-7461

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