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ENTERPRISE CAPITAL Commercial Real Estate Mortgages & Advisory Services
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Vocabulary
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AAA best credit rating AA very strong credit rating A strong credit rating Absorption the amount of commercial rental space that the market will use during a period of time (one year). Generally expressed in SF except multi-family which is expressed in units. Adjustable Rate Mortgage interest rate that changes according to an index that is pre-selected. The initial interest rate is lower than that of fixed-rate mortgages, but monthly payments can go up or down Adjustment Interval period of time between changes in the interest rate for an adjustable rate mortgage. Average is 6 months and one year. Amenities in appraisal, non-monetary benefits from property ownership Anchor Tenant a tenant that draws shoppers to the retail center it is located such as a grocery store or department store. Application Fee fee charged by a lender at the time of a loan application. This fee may include the cost of the third party reports, underwriting fees, credit reports, etc. which are incurred during the initial underwriting process. Assigned Lease a common funding technique in which a leasing company exchanges its right to a future lease payment to a funding source for cash upfront. This cash represents the amount of the loan and is equal to the present value of the future lease payments. Also called discount/discounting/discounted lease Assisted Living refers to providing the elderly various services they are not longer able to do independently, such as food preparation and cleaning. This is not the same level of care as a nursing home. Assumability loan which can be transferred to another w/o a change in the terms Average Annual Occupancy - % currently rented units in a building, town, etc. Average Daily Rate Average Rate of a hotel regardless of availability and seasonality BBB S&P long-term issuer credit rating This person has ADEQUATE capacity to meet financial obligations. Susceptible to economic downturns. Anything less NO DICE BB less vulnerable in the near term than others below them B more vulnerable Balloon Payment one large payment for the remaining principle balance at a specified time Basic Point (BP) 1/100th of 1% expressed as a margin over an index rate Basis in tax, basis generally refers to what a taxpayer can use to offset sales revenue (revenue less basis equals taxable gain). Although basis generally equals what you pay for something (the cost basis), basis in a partnership interest is equal to what you paid for it plus your share of gain and your share of liabilities, less your distribution and losses. Basis in a subchapter S corporation is similar, although liabilities are not included and loans to the corporation by the shareholder are. Basis in shares of corporate stock is generally the taxpayers cost. Big Box very large retail store occupying 100,00 SF or more, i.e., Sams, Home Depot, etc., and use the warehouse/ showroom approach. A small box is similar but less square footage, like OfficeDepot. Borrowing Entity Type legal form under which property is owned Building SF usable square footage of a building Bullet Loan variation of a balloon loan. A bullet loan requires payment of interest only. The principal balance does not amortize: the balloon payment equals the original balance of the loan. Bundled Lease includes additional services such as maintenance, insurance, property taxes paid for by the lessor. AKA FULL SERVICE LEASE CCC bad credit rating CC worse credit rating C worst credit rating CAP the maximum which an adjustable rate mortgage may increase, regardless of index changes. An interest cap limits the amount the interest may change. Payment CAP limits the increase in monthly payments to a specific dollar amount. Capital Account in a partnership or LLC, the partners equity. A capital account consists of the partners capital contributions plus the earnings of the partnership less distributions to the partner and the partners share of losses. Capital Interest an interest in the capital of a partnership. A capital interest partnership has invested capital in a partnership and is entitled to a return on liquidation of the partnership. Capital Expenditures line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems as a roof. Capitalization Rate (Cap Rate) the required return on a product. A 10% Cap rate indicates that the required return for a specific property type is 10%. The ratio of the first year NOI to the asking price NOI/asking price Capital Lease an FASB13 accounting classification to be accounted for by a lessee as a purchase and by the lessor as a sales or financing commitment if it is in compliance with one o the following: The lessor automatically transfers ownership of the lease to the lessee at the end of the lease term The lease contains the option to purchase the asset at a bargain price The lease term is equal to 75% or more of the estimated economic life of the property Present value of the minimum lease rental payments is equal to 90% or more of the fair market value of the leased asset, less related investment tax credits retained by the lessor. Capital Reserves established by the lender that are collected on a monthly basis for capital repair of a property. Capped Fair Market Value a provision in the lease allowing the lessee to purchase the property for fair market value but not to exceed a certain amount. The lessee will know the max payment required to purchase the property Carve Out - the definition used for the inclusion of recourse in loan documents for fraud and misrepresentation Cash Flow Guarantees a guarantee established by the borrower to achieve a certain operating cash flow for the property to satisfy certain specific loan covenants within the loan documents Cash Out Refinancing when the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced and all or a portion of the equity is converted to cash. CBD Central Business District Certificate of Occupancy (CO) issued by the government inspecting agency certifying a newly constructed project is complete and ready for occupancy by tenants. Clearance distance between the floor and effective storage ceiling CMBS (Commercial Mortgage Back Security) a bond or other financial obligation secured by a pool of commercial loans. The cash flows are divided into tranches in order to pay certain cash flows to certain securities. The subdividing of cash flow into tranches allows various security classes to receive preference over other classes. COFI (Cost of Funds Index) index used to determine interest rate changes for adjustable rate mortgages. Based on the 11th District of the Federal Home Loan Bank Collateral Risk risk the market value of a property will not cover the loan balance in case of a foreclosure or deed-in-lieu of foreclosure. The lower the LTV, the lower the propertys collateral risk. Common Area Maintenance Space that is used by the building for all tenants. Comparative Market Analysis estimate of the value of a property based on an analysis of sales of properties with similar characteristics Community Shopping Center usually a strip, housing at least two anchors. Range in size from 100,000 to 300,000 SF according to the ICSC. Conduit the financial intermediary that sponsors the conduit between the lenders originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents. When sufficient volume has been obtained, the loans are pooled for sale to investors in the CMBS Market Constant maturity Treasure (CMT) an index based on the US treasury that is used in the pricing of debts for banks. Construction Loan a short term loan to pay for the construction of commercial buildings. Periodic disbursements as each stage is completed. When construction is completed, a permanent loan is used to pay-off the construction loan. Construction/Permanent Loan a loan that allows a one time close of both the construction and permanent loan. Freddie Mac and Fannie Mae offer such loans in their product types. A separate construction lender who specializes in construction lending often handles construction administration. Contingency an element of an agreement that must be satisfied before the total agreement can be consummated. Correspondent an approved lender who sells loans to a designated principal. That principal may be a life insurance company, a pension fund, conduit or other commercial mortgage market participant. Coupon the coupon on US Govt securities, expressed as an annual percentage of face value is the interest the US Govt promises to pay the holder on an on-going basis until maturity. Credit Tenant debt rating by S&P or Moodys of BBB or better Current Assets those assets of a real estate enterprise that either consist of cash or will become cash during the enterprises operating cycle. For a real estate entity, current assets generally include cash, unrestricted temporary investments and its lease accounts receivable. Current Liabilities those liabilities the real estate enterprise will pay in cash during its operating cycle. Includes short-term debt, the short-term portion of long-term debt, accounts payable and accrued liabilities. Current Ratio ratio of current assets to current liabilities. A current ratio in excess of one indicates the enterprise has cash-producing assets in excess of cash liabilities. The higher the ratio is greater than one, the less the company faces liquidity risk. Debt Service the periodic payments made on a loan Debt Coverage Ratio (Debt Service Coverage Ratio) measures a mortgaged properties ability to cover monthly payments defined as the ratio of net operating income over the periodic payments made on a loan. A DSCR of less than one means there is insufficient cash flow generated by the property to cover required debt payments Defeasance a clause in the mortgage that gives the borrower the right to prepay a commercial mortgage by purchasing US Treasuries in an escrow account to pay off ongoing debt service Depreciation (accounting) allocating the cost of an asset over its estimated useful life Depreciation (appraisal) a charge against the reproduction cost (new) of an asset for the estimated wear and obsolescence. Depreciation may be physical, functional or environmental Direct-Finance Lease Same as Capital lease except this accounting classification only applies to the lessor Discount Rate the rate of interest the FED charges member banks for loans In CMBS, due diligence is the foundation of the process because of the reliance securities investors must place on the specific expertise of professionals involved in the transaction. Early Rate Lock a loan delivery option that allows a prospective borrower to lock the rate relatively early in the underwriting process. Effective Gross Income (Investment) income of a building fully rented less an allowance for vacancies. Effective Lease Rate the effective lease rate (for the lessee) of the cash flow resulting from a lease transaction. To compare this rate with a loan interest rate, a company must include in the cash flows any affect the transactions have on federal tax liabilities. Efficiency Factor a measure of common area allocated to rentable square footage. It is the ratio of net rentable square footage in other words, net rentable area divided by usable area is the space tenants can actually use. Entitlements rights to benefits specified especially by law or contract Equity the difference between the fair market value and the current indebtedness AKA owners interest Equity Loan a loan for an equity position which represents an ownership position in a property or a loan for the participation in the profits of CP Equity REIT a REIT that takes an ownership interest in property. Generally, an equity REIT will specialize in a certain type of property. Escrow special account set up by the lender to pay for taxes and insurance. Or a 3rd party who carries out instructions of both the buyer and seller to handle the paperwork at settlement Exit Fees fees charged to the borrower on the expiration of a loan term Expense Stop a specified minimum used in calculating operating pass-throughs. The stop is specified in the lease and is generally adjusted annually by an index such as the CPI. FASIT (Financial Asset Securitization Investment Trust) It is a flow-through entity for tax purposes that parallels the REIMIC in many aspects. Federal Funds (Fed Funds) Fed Funds is the interest rate charged by those banks with excess reserves on hand to those banks in need of overnight loans to meet the reserves requirements. Set daily, the Fed Fund is the most sensitive indicator of the direction of interest rates. Finance Lease Capital lease or non-tax lease Financial Accounting Standards Board 13 (FASB 13) establishes standards for lessees and lessors accounting and reporting for leases. This includes the characterization of a lease as an operating or capital lease for the lessees purposes. A companys assets, liabilities and net income will differ, depending on how it chooses to structure the leases. The provisions of FASB 13 derive from the view that a lease that transfers substantially all the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee (a capital lease) and as a sale or financing by the lessor. Other leases should be accounted for as rental Fit-out tenant improvements within a commercial property Flex space property that is industrial and office. Floating Rental Rate rent may change with prime interest rate during lease Flow-Through Entity a tax entity that flows through the entitys taxable income and loss to its owner. Partnerships, LLCs, trusts, REITS and subchapter S corporations are examples. Franchise Deals a type of CMBS pool structure. Franchise deals are supported by the cash flows of a franchise operation such as a convenience store or fast-food restaurant. Full-Payout Lease a lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return without any reliance upon a future residual value. Full Service Lease see Bundled Lease. Functional Obsolescence refers to the obsolescence of an otherwise serviceable building from changes in design or construction. For example, a building built around a hollow core because you lose density or a building has mechanical, computer, security, electric, HVAC systems that do not meet current industry standards. Funds from Operations (FFO) a measure of REIT cash flow. NAREIT defines FFO as cash flow from operations plus depreciation less gains from sales or refinancing. Conforming adjustments are made to the income of unconsolidated subsidiaries and joint ventures. This definition is synonymous with the definition of net cash flow used by real estate investors, rating agencies and lenders. Fusion Deals a type of CMBS pool structure. In a fusion deal, a pool of smaller loans is fused with a group of larger real estate loans. Such a structure diversifies the pool and reduces various risk. General Partnership a state law entity has unlimited, joint and liability for its partners. The General partner manages the partnership and people vote on matters concerning the partnership in proportion to their ownership interest. Good Faith Deposit deposit made by a purchaser to show evidence in honesty Government Subsidized Section 8, rents that are partly paid by the government. Ground Lease the lease of land. It is generally a long-term lease of land to a building owner. Government Sponsored Enterprise (GSE) includes Freddie Mac, Fannie Mae, Sallie Mae and others. They may be publicly owned but are regulated by the Office of Federal Housing Enterprise Oversight (OFHEO). They are exempt from state and local taxes. They carry an implicit government guaranty because of their ability to borrow from=m the U.S. treasury. Incremental Borrowing Rate the rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset. Index an economic indicator, usually a published interest rate. Interest - sum paid for borrowing money, pays the lenders cost of doing business Interest Accrual interest earned for the period of time elapsed since interest was last paid. Interest Only (IO) a security that pays only interest. In a CMBS, the IO is a slice of the cash flow that only provides interest payments. An IOs value increases when market interest rates increase and decrease when market rates decrease. Interest Rate Cap limits the rate to a cap. Protects borrower for rising interest rates. Kick-out Provision in a retail lease, thi8s allows the tenant to terminate the lease if the tenant is unable to achieve certain sales per square foot. Lease rental contract. Specifies the rights and duties to parties in a lease. The lessor grants the lessee rights to use the property for a certain period in exchange for rent. Usually, the lease discusses terms covering the rent, rent escalation, operating cost pass-throughs, indemnification, the lease term, renewals, lease extensions, purchase rights, tenants improvements and their ownership, utility usage, space usage and default. Lease Assignment an agreement between the commercial property owner and the lender that assigns lease payments directly to the lender. Lease Concessions given by a landlord to a tenant to encourage the execution of a lease, an example is free rent. Lease-up Period the stage of property development, during and after construction, when the developer is leasing the property. Lease-up ends when the property reaches some level of occupancy, like 95%. Lessee tenant Lessor owner Leverage the amount of debt a property carries. The higher the LTV, the higher the leverage. Leveraged Lease involves at least a lessor, lessee and funding source. The lessor borrows a significant portion of the asset cost, typically a non-recourse basis by assigning the future lease payment stream to the lender in return for upfront funds (borrowing). The lessor puts up a minimal amount of its own equity funds (the difference between the asset cost and the present value of the assigned lease payments) and is generally entitled to the full tax benefits of asset ownership. Limited Liability Company state law entity that limits the liability of its members. Limited Partnership state law entity that limits the liability of the partners to their capital contributions. One or more General partners have unlimited liability. The General partners run the day to day activities of the partnership. Limited Service a hotel that offers lodging services only. Loan Processing Fee the fee charged by the lender to prepare all the documents associated with a mortgage Loan-To-Cost Ratio the amount borrowed divided by the actual cost of the collateral plus any additional capital added to the property, expressed as a percentage Loan-To-Value-Ratio (LTV) the ratio between the principal amount of the mortgage balance (at origination or thereafter) to the current value of the underlying real estate collateral. The ratio is commonly expressed to the potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic and varies by lending institution, property type, geographic location, property size, etc. Lock Box a postal address maintained by the lender that is used solely for the purpose of collecting checks. The major goal is to reduce default risk since the receipts are credited to the borrowers monthly loan payment. Lock-Out Period the period of time after origination during which a borrower cant prepay the mortgage loan. Low Rise Office office building that is too low to require an elevator Management Fee the agreed upon compensation paid to a property management company for managing a real estate project. The fee is usually a percentage of effective gross income. Margin the amount that is added to an index rate to determine the total interest rate. Master Lease a contract where the lessee leases currently needed assets and is able to acquire other assets under the same basic terms and conditions without negotiating a new contract. MAT monthly average Treasury Maturity termination period of a note 25 year mortgage has a maturity of 25 years. Max Lease Rate highest asking lease rate Mezzanine/Second Loan a loan secured by a mortgage or trust deed in which the lien is junior, or secondary, to another mortgage or trust deed. Military Clause included in a lease of residential property that allows the tenant to terminate the lease w/o penalty when the tenant is transferred to another location. Minimum Lease Rate the lowest lease rate available Minimum Divisible SF the minimum percentage of space or units that must be leased or occupied. Mini-perm Loan intermediate term loan that sometimes bridges the gap between construction and permanent financing to allow occupancy and income to stabilize. The mini-perm may have a two-tiered payment structure, for example, interest only for several years and then payment based on some amortization period. A mini-perm is a loan that does not fully amortize and requires a balloon payment upon maturity. Mixed Use - a building that has two or more uses an example would be retail stores on the street level, offices on the next 10 floors and residential suites on the top two floors. Money Market the market for short-term debt instruments Mortgage REIT A REIT that makes real estate loans. Net Effective Rent rental rate adjusted for lease concessions Net Lease a lease where payments paid to the lessor do not include insurance, taxes and maintenance, which are paid separately by the lessee. Net Effective Income net rental income plus ancillary income (parking, vending, etc.) Net Operating Income (NOI) total income less operating expenses, adjustments, etc. prior to mortgage payments, tenant improvements and leasing commissions. It is synonymous with operating cash flow before debt service. Net-Net Lease the tenant is required to pay for property taxes and insurance in addition to rent Net Rentable Area the square footage of a property that can be rented. Equals the SF of a property less vertical penetrations such as stairs and elevator shafts. Net Rental Income the gross potential rental income of a commercial property after deductions for vacancies, free rent, staff occupancy and bad debts. Net Worth total assets minus total liabilities of an individual or company. For a company, also called owners equity or shareholders equity. Non-amortizing Loan the only payment received is interest payments. Non-recourse loan in which the lessor is not at risk for the borrowed funds. The lender is expecting repayment from the lessee and/or the salvage value of the leased asset. Therefore, the lenders decision is based on the creditworthiness of the lessee as well as the expected salvage value of the asset. Off-Balance-Sheet-Financing qualifies as an operating lease for the lessees financial accounting purpose. It is referred to as off-balance-sheet- financing due to its exclusion for the balance sheet asset and debt presentation, except for that portion of the payment that is due in the current fiscal period. Full disclosure of such transactions is typically made in the auditors notes to the financial statements. Periodic payments are recorded as expense items on the lessees income statement. Operating Cost Pass-through a pass-through of excess operating costs to a tenant. The amount of pass-through is determined by comparing actual costs to a stated expense stop. The stop serves as the floor over which the tenant must reimburse the landlord. Operating Expense periodic expenses necessary to the operation and maintenance of an enterprise (i.e., taxes, salaries, insurance, maintenance) used as a basis for rent increases Operating Lease a lease that has the characteristics of a usage agreement and also meets certain criteria established by the Financial Accounting Standards Board. It is not required to be shown on the balance sheet of the lessee. The term may also refer to certain leases in which the lessor has taken a significant residual position in the lease pricing and must salvage the asset for a certain value at the end of the lease term to earn its rate of return. Origination securing a completed mortgage application from a commercial or residential borrower. Permanent-Take-Out-Loan long-term financing that typically replaces short term construction or bridge financing upon the completion of a project. Phase I an assessment and report prepared by a professional environmental consultant who reviews the property land an improvements to ascertain the presence or potential environmental hazards at the property. Should additional investigations be needed, a Phase II assessment will be undertaken. They also provide a remediation recommendation when required. Points (Loan Discount Points) each point is equal to 1% of the total amount of a mortgage Pooled Funds a funding technique used by lessor in which several forms of borrowing are pooled or grouped for use in funding leases and are not specifically tied to the purchase of one specific leased asset. Potential Gross Rent gross income of a building if fully rented. Power Center 250,000 to 600,00 SF, 3 or more category killer discount department stores, home improvement stores, warehouse clubs or off-price stores as anchors. Pre-leased % - to obtain lease commitments in a building or complex prior to its being available for occupancy. Prepayment Penalty fees paid by borrowers for the privilege of retiring a loan early. Prime Rate the rate at which banks lend to their most credit worthy customers Principal the amount of debt (not interest) left on a loan. Processing Fee same as application fee Pro Forma financial statements showing what is expected to occur Property Administrator person in brokers employ who is responsible for updating and renewing a property listing, if different from the contact name. Property Grade a stratification of property type that is indicative of the propertys ability to command rental rates. Property Subtype description that provides further information to the lender. R S&P Long-Term Issuer Credit Rating an obligor rated R is under regulatory supervision owing to its financial condition. During the dependency of the regulatory supervision the regulators may have the power to favor one class of obligations over others or pay some obligations but not others. Rate Index an index used to adjust the interest rate of an adjustable mortgage loan. Recourse - a loan in which the borrower or lessor is fully at risk to the lender for repayment of the obligation. The borrower or lessor is required to make payments to the lender regardless if the lessee is fulfilling their lease obligation. Refinance to replace an old loan with a new loan. REIT real estate investment trust. A REIT is a special corporate form entity permitted by the IRC. In order to qualify as a REIT, the company must meet certain requirements. Generally, REITS are not taxed as long as they meet those requirements. Rent Roll a list of tenants leasing a property, with details of the lease including length of lese, SF leased and amount of rent being paid. Rent Step-up an agreement in which the rent increases every period for a fixed amount of time or for the life of the lease. Rentable Square Feet same as Net Leasable area floor space that may be rented to tenants. Replacement Reserves an amount set aside from net operating income to pay for the eventual wearing out of short-lived assets. Monthly deposits that a lender may require a borrower to a reserve in an account, along with principal and interest payments for the future capital improvements of major building systems. Roof, HVAC, etc. Required Completion items that are necessary to complete prior to receiving additional funding on a project. Reserve Funds in CMBS, portion of the bond proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement. Also called reserve accounts. Residual Interest in a securitization, a residual is the remaining interest in the cash flows of the security after the cash flow distributions to the regular interests are satisfied. The residual amounts to the cash flow that are left over. It is also the equity interest. In leases, the residual is value of the property at the end of the leased term. Retained Earnings not paid out as dividends but instead reinvested in the core business. Also called earned surplus or accumulated earnings. Retenanting Reserves an escrow account used to cover the costs involved in re-leasing rental property that typically includes tenant improvement allowance and leasing commissions. RV (Reversionary Value) the value of property at the expiration of a certain time period. SD S&P Long-Term-Issuer-Credit-Rating a rating of SD (selective default) has failed to pay one or more of its financial obligations when it came due. An SD rating is assigned when S&P believes the obligor has selectively defaulted on a specific issue but will continue to meet its payment obligations on other loans. D - S&P Long-Term-Issuer-Credit-Rating A rating of D is assigned when S&P believes that the default will be a general default and the obligor will fail to pay when all or most of its obligations come due. Sale/Leaseback the transaction that involves the sale of an asset to a leasing company and a subsequent lease of the same asset back to the original owner, who continues to use the property. Sales Broker commercial real estate broker that represents the client in the sale or purchase of real estate. Sales Reports used to determine percentage rent on some retail reports. Usually are given on a periodic basis, monthly, quarterly, etc. The Lessor generally can audit the lessees reports. Second Mortgage- a mortgage that is second in priority because of the time of recording the mortgage or of the subordination of the mortgage. Secondary Financing a funding method using a loan secured by a second mortgage or second lien on a property. Second Mortgage Market the buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgages. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (par) or above, but are usually sold at discount. Security the property that will be pledged as collateral for a loan. Self-Amortizing Mortgage a mortgage that will retire itself through regular principal and interest payments. Senior Housing multi-residential property specifically designed for the care of seniors and/or physically disabled persons. This includes assisted living, congregate care, senior apartments and skilled nursing Sequential Pay paying securities in a priority sequence. The senior-rated securities receive their share of cash flow before the junior or subordinate securities. Shadow Anchored an unanchored shopping center near an anchored shopping center. Spread number of basis points over a base rate index Stabilized Operating Property the income generated on an annual basis from the commercial property is stable, consistent and reliable Step Lease a lease in which the rent may change during the term of the lease. The lessee pays more initially and less later. Strip Center an attached row of stores managed as a retail entity. Without central leasing or management. Structural/Engineering Report a property condition report that outlines structural stability of a property. The report will indicate the costs needed to repair the property as well as maintenance suggestions. Subordination process of making one security subordinate to the interest of another. In CMBS, the senor securities receive allocations from cash flow, principal and interest before the subordinates. Suburban town or developed are close to a city. Subchapter S Corporation treated as a flow-through entity for tax purposes. The corporations taxable income flows-through to the owners who pay the tax. Substantial Economic Effect Regulations provisions in the regulations of the IRC that allow certain special allocations of gains or losses to partners. These regulations provide that an allocation of profit or loss must either provide or cost the partnership something. In order to incur a loss, the partner must pay for it. Super-Regional Center 800,000 + SF. 3 or more full size department stores, mass merchant shops, discount department stores and fashion apparel stores. Tax and Insurance Compound monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance. Tenant one who is given possession of real estate for a fixed period or at will Tenant Improvements the expense to physically improve a property to attract and retain tenants. May be paid by the tenant, landlord or both. Usually tenants are given a SF allowance to make improvements. Term the length of a mortgage Third Party Costs costs resulting from third party reports such as appraisal, environmental and engineering. Title the legal document conferring ownership of real estate. Title Insurance insurance policy that insures you against errors in the title search. Guarantees you and the lenders financial interest in the property. Total Annual Operating Income total yearly income less operating expenses, adjustments, etc., but before mortgage payments, leasing commissions and tenant improvements. Total Annual Room Income hotel definition that represents the gross annual receipts from room revenues Traffic Count the amount of incoming and outgoing traffic a retailer building generates over a fixed time period. Tranche a defined stratum of cash flow. Tranche is the French word for slice and is used by CMBS issuers because they slice and dice mortgage pool cash flows to service various regular and residual interests. Triple-Net Lease lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to rent. Underwriting the process of deciding whether to make a loan based on property cash flow, credit and other factors. Vacancy Percent that percentage of all units or space that is unoccupied or not rented. On a pro-forma income statement a projected vacancy rate is issued to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income. Working Capital the excess of current assets over current liabilities. Wrap-around Loans the new first mortgagee makes a loan in an amount equal to the new money advanced plus the amount of the underlying debt. The first mortgage lender receives a payment sufficient to pay principal and interest on the first mortgage plus the principal and interest due the underlying mortgage. Generally, payments are made to a wrap trustee who ensures the underlying mortgage and new mortgage is paid. Yield Maintenance Provision a form of prepayment penalty found in commercial mortgage loans. In most cases it requires that the mortgagor pays the mortgagee (note holder) an amount equal to the discounted difference between a specified risk borrowing rate. |
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