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Abatement:
Often and commonly referred to as free rent or
early occupancy and may occur outside or in addition to the primary term of the lease.
Above Building Standard:
Upgraded finishes and specialized
designs necessary to accommodate a tenant’s requirements.
Absorption:
The rate, expressed as a percentage, at which
available space in the marketplace is leased during a predetermined period of
time. Also referred to as "Market Absorption".
Absorption Rate:
The net change in space available for
lease between two dates, typically expressed as a percentage of the total square
footage.
Ad Valorem:
According to value. This is a tax imposed on
the value of property (references a general property tax), which is typically
based on the local government’s valuation of the property.
Add-On Factor:
Often referred to as the Loss Factor or
Rentable/Usable (R/U) Factor, it represents the tenant’s pro-rata share of the
Building Common Areas, such as lobbies, public corridors and restrooms. It is
usually expressed as a percentage which can then be applied to the usable square
footage to determine the rentable square footage upon which the tenant will pay
rent.
Allowance Over Building Shell:
Most often used in a
yet-to-be constructed property, the tenant has a blank canvas upon which to
customize the interior finishes to their specifications. This arrangement caps
the landlord’s expenditure at a fixed dollar amount over the negotiated price of
the base building shell. This arrangement is most successful when both parties
agree on a detailed definition of what construction is included and at what
price.
Anchor Tenant:
The major or prime tenant in a shopping
center, building, etc.
Annual Percentage Rate (APR):
The actual cost of borrowing
money, expressed in the form of an annual interest rate. It may be higher than
the note rate because it represents full disclosure of the interest rate, loan
origination fees, loan discount points, and other credit costs paid to the
lender.
Appraisal:
An estimate of opinion and value based upon a
factual analysis of a property by a qualified professional.
Appreciation:
The increased value of an asset.
"As-Is" Condition:
The acceptance by the tenant of the
existing condition of the premises at the time the lease is consummated. This
would include any physical defects.
Assessment:
A fee imposed on property, usually to pay for
public improvements such as water, sewers, streets, improvement districts, etc.
Assignment:
A transfer by lessee of lessee’s entire estate
in the property. Distinguishable from a sublease where the sublessee acquires
something less than the lessee’s entire interest.
Attorn:
To turn over or transfer to another money or goods.
To agree to recognize a new owner of a property and to pay him/her rent. In a
lease, when the tenant agrees to attorn to the purchaser, the landlord is given
the power to subordinate tenant's interest to any first mortgage or deed of
trust lien subsequently placed upon the leased premises.
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Balloon Payment:
A large principal payment that typically
becomes due at the conclusion of the loan term. Generally, it reflects a loan
amortized over a longer period than that of the term of the loan itself (i.e.
payments based on a 25 year amortization with the principal balance due at the
end of 5 years). See "Bullet Loan".
Bankrupt:
The condition or state of a person (individual,
partnership, corporation, etc.) who is unable to repay it's debts as they are,
or become, due.
Bankruptcy:
Proceedings under federal statures to relieve a
debtor who is unable or unwilling to pay its debts. After addressing certain
priorities and exemptions, the bankrupt’s property and other assets are
distributed by the court to creditors as full satisfaction for the debt. See
also: "Chapter 11".
Base Rent:
A set amount used as a minimum rent in a lease
with provisions for increasing the rent over the term of the lease. See also
"Escalation Clause", "Operating Expense Escalation" and "Percentage Lease".
Base Year:
Actual taxes and operating expenses for a
specified base year, most often the year in which the lease commences. Once the
base year expenses are known, the lease essentially becomes a dollar stop lease.
Below-grade:
Any structure or a portion of a structure
located underground or below the surface grade of the surrounding land.
Building Classifications:
Building classifications in most
markets refer to Class "A", "B", "C" and sometimes "D" properties. While the
rating assigned to a particular building is very subjective, Class "A"
properties are typically newer buildings with superior construction and finish
in excellent locations with easy access, attractive to credit tenants, and which
offer a multitude of amenities such as on-site management or covered parking.
These buildings, of course, command the highest rental rates in their
sub-market. As the "Class" of the building decreases (i.e. Class "B", "C" or
"D") one component or another such as age, location or construction of the
building becomes less desirable. Note that a Class "A" building in one
sub-market might rank lower if it were located in a distinctly different
sub-market just a few miles away containing a higher end product.
Building Code:
The various laws set forth by the ruling
municipality as to the end use of a certain piece of property and that dictate
the criteria for design, materials and type of improvements allowed.
Building or "Core" Factor:
Represents the percentage of Net
Rentable Square Feet devoted to the building's common areas (lobbies, rest
rooms, corridors, etc.). This factor can be computed for an entire building or a
single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U)
Factor, it is calculated by dividing the rentable square footage by the usable
square footage. See also "Rentable/Usable Ratio".
Building Standard:
A list of construction materials and
finishes that represent what the Tenant Improvement (Finish) Allowance/Work
Letter is designed to coverwhile also serving to establish the landlord's
minimum quality standards with respect to tenant finish improvements within the
building. Examples of standard building items are: type and style of doors,
lineal feet of partitions, quantity of lights, quality of floor covering, etc.
Building Standard Plus Allowance:
The landlord lists, in
detail, the building standard materials and costs necessary to make the premises
suitable for occupancy. A negotiated allowance is then provided for the tenant
to customize or upgrade materials. See also "Workletter".
Build-out:
The space improvements put in place per the
tenant's specifications. Takes into consideration the amount of Tenant Finish
Allowance provided for in te lease agreement. See also "Tenant Improvement
Allowance"
Build-To-Suit:
An approach taken to lease space by a
property owner where a new building is designed and constructed per the tenant’s
specifications.
Bullet Loan:
Any short-term, generally five to seven years,
financing option that requires a balloon payment at the end of the term and
anticipates that the loan will be refinanced in order to meet the balloon
payment obligation. Essentially, should the refinancing not be available, often
due to the property not performing as anticipated, the borrower is "shot" and
the property is subject to foreclosure. An example of this is when a developer
borrows to cover the costs of construction and carry-costs for a new building
with the expectation that it would be replaced by long-term (or "permanent")
financing provided by an institutional investor once most of risk involved in
construction and lease-up had been overcome resulting in an income-producing
property.
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Capital Expenses:
This type of expense is most
often defined by reference to generally accepted accounting principles (GAAP),
but GAAP does not provide definitive guidance on all possible expenditures.
Accountants will often disagree on whether or not to include certain items.
Capitalization:
A
method of determining value of real property by considering net operating income
divided by a predetermined annual rate of return. See "Capitalization Rate".
Capitalization
Rate:
The rate that is considered a reasonable
return on investment (on the basis of both the investor's alternative investment
possibilities and the risk of the investment). Used to determine and value real
property through the capitalization process. Also called "free and clear
return". See "Capitalization".
Carrying Charges:
Costs
incidental to property ownership, other than interest (i.e. taxes, insurance
costs and maintenance expenses), that must be absorbed by the landlord during
the initial lease-up of a building and thereafter during periods of vacancy.
Certificate
of Occupancy:
A document presented by a local
government agency or building department certifying that a building and/or the
leased premises (tenant's space), has been satisfactorily inspected and is/are
in a condition suitable for occupancy.
Chapter 7:
That
portion of the Federal Bankruptcy code that deals with business liquidations.
Chapter 11 is that part of the Federal Bankruptcy code that deals with business
reorganizations.
Chapter 11:
That
portion of the Federal Bankruptcy code that deals with business reorganizations.
Chapter 7 is that part of the Federal Bankruptcy code that deals with business
liquidations.
Clear-Span Facility:
A
building, most often a warehouse or parking garage, with vertical columns on the
outside edges of the structure and a clear span between columns.
Circulation
Factor:
Interior space required for internal office
circulation not accounted for in the Net Square Footage. Based upon our
experience, we use a Circulation Factor of 1.35 x the Net Square Footage for
office and fixed drywall areas and a Circulation Factor of 1.45 x the Net Square
Footage for open area workstations. See also "Net Square Footage and "Usable
Square Footage.
Common Area:
There
are two components of the term "common area". If referred to in association with
the Rentable/Usable or Load Factor calculation, the common areas are those areas
within a building that are available for common use by all tenants or groups of
tenants and their invitees (i.e. lobbies, corridors, restrooms, etc.). On the
other hand, the cost of maintaining parking facilities, malls, sidewalks,
landscaped areas, public toilets, truck and service facilities, and the like are
included in the term "common area" when calculating the tenant's pro-rata share
of building operating expenses.
Common Area
Maintenance (CAM):
This is the amount of Additional
Rent charged to the tenant, in addition to the Base Rent, to maintain the common
areas of the property shared by the tenants and from which all tenants benefit.
Examples include:
snow removal, outdoor lighting, parking lot sweeping,
insurance, property taxes, etc. Most often, this does not include any capital
improvements (see "Capital Expenses") that are made to the property.
Comparables:
Lease
rates and terms of properties similar in size, construction quality, age, use,
and typically located within the same sub-market and used as comparison
properties to determine the fair market lease rate for another property with
similar characteristics.
Concessions:
Cash
or cash equivalents expended by the landlord in the form of rental abatement,
additional tenant finish allowance, moving expenses, cabling expenses or other
monies expended to influence or persuade the tenant to sign a lease.
Condemnation:
The
process of taking private property, without the consent of the owner, by a
governmental agency for public use through the power of eminent domain. See also
"Eminent Domain".
Construction Management:
The
actual construction process is overseen by a qualified construction manager who
ensures that the various stages of the construction process are completed in a
timely and seamless fashion, from getting the construction permit to completion
of the construction to the final walk-through of the completed leased premises
with the tenant.
Consumer Price Index ("CPI"):
Measures
inflation in relation to the change in the price of a fixed market basket of
goods and services purchased by a specified population during a "base" period of
time. It is not a true "cost of living" factor and bears little direct relation
to actual costs of building operation or the value of real estate. The CPI is
commonly used to increase the base rental periodically as a means of protecting
the landlord's rental stream against inflation or to provide a cushion for
operating expense increases for a landlord unwilling to undertake the record
keeping necessary for operating expense escalations.
Contiguous
Space:
(1) Multiple suites/spaces within the same
building and on the same floor which can be combined and rented to a single
tenant. (2) A block of space located on multiple adjoining floors in a building
(i.e., a tenant leases floors 6 through 12 in a building).
Contract
Documents:
The complete set of design plans and
specifications for the construction of a building or of a building’s interior
improvements. Working Drawings specify for the contractor the precise manner in
which a project is to be constructed. See also "Specifications" and "Working
Drawings".
Conveyance:
Most
commonly refers to the transfer of title to property between parties by deed.
The term may also include most of the instruments by which an interest in real
estate is created, mortgaged or assigned.
Core
Factor:
Represents the percentage of Net Rentable
Square Feet devoted to the building’s common areas (lobbies, rest rooms,
corridors, etc.). This factor can be computed for an entire building or a single
floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U)
Factor, it is calculated by dividing the rentable square footage by the usable
square footage."
Cost Approach:
A
method of appraising real property whereby the replacement cost of a structure
is calculated using current costs of construction.
Covenant:
A
written agreement inserted into deeds or other legal instruments stipulating
performance or non-performance of certain acts or, uses or non-use of a property
and/or land.
Covenant of Quiet Enjoyment:
The
old "quiet enjoyment" paragraph, now more commonly referred to as "Warranty of
Possession", had nothing to do with noise in and around the leased premises. It
provides a warranty by Landlord that it has the legal ability to convey the
possession of the premises to Tenant; the Landlord does not warrant that he owns
the land. This is the essence of the landlord's agreement and the tenant's
obligation to pay rent. This means that if the landlord breaches this warranty,
it constitutes an actual or constructive eviction.
Cumulative
Discount Rate:
The interest rate used in finding
present values that when applied to the rental rate takes into account all
landlord lease concessions and then expressed as a percentage of base rent.
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