Glossary
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Acreage
A 2 dimensional measure of land equaling 160 square rods, 10 square chains,
4,840 square yards, or 43,560 square feet
Adjustable rate mortgage (arm)
A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial rate is lower than that of fixed-rate mortgages, but monthly payments can go up or down as the rate is adjusted
Adjustment interval
The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are 6 months and one year
Amenities
In appraisal, the non-monetary benefits derived from property ownership
Amortization period
The period or length of time over which the principal portion of a mortgage loan is scheduled to be paid down through periodic payments
Anchored
Refers to a piece of commercial real estate property, which will serve as the main tenant in a shopping center
Anchors
A long term, credit worthy tenant. The presence of one or more "anchors" enhances the value and the ability to obtain financing for a shopping center
Annual percentage rate (apr)
An interest reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The apr allows home buyers to compare different types of mortgages based on the annual cost for each loan
Appraisal
An estimate of the value of a property, made by a qualified professional called an appraiser
Assisted living
Type of senior housing that is typified by independent living and limited assistance to its renters
Assumability
A mortgage loan which can be transferred to another person without a change in the terms of the loan
Available sf
The square feet available for lease
Average annual occupancy
Percentage of currently rented units in a building, city, neighborhood, or complex
Average daily rate
A hotel rate used to evaluate the average daily rate of a hotel inclusive of vacancy and seasonality
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Balloon mortgage
One large payment for the remaining balance of a mortgage, due at a time specified in the contract
Basis point (bp)
1/100th of 1% expressed as a margin over an index rate
Bankruptcy
A provision of federal law whereby a debtor surrenders his assets to the bankruptcy court and is relieved of the future obligation to repay his unsecured debts. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor. There are different types of bankruptcy chapters, the above is very general
Beneficiary
A person named to receive a benefit from a trust. A contingent beneficiary has conditions attached to his rights; usually someone else must die first
Borrowing entity type
The legal form under which property is owned
Bridge / short term loan
A short-term or interim loan for borrowers who need time to find permanent financing or are repositioning a commercial property
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself
Building permit
A document, issued by government regulatory authority that allows a builder to construct or modify a structure
Building sf
The usable square footage of the building
Buy-down
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires
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Cap
The maximum, which an adjustable-rate mortgage may increase, per year and/or the life of the loan regardless of index changes
Caps (payment)
Consumer safeguards which limit the amount of monthly payments on an adjustable rate mortgage the lender may change
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, such as roofs, etc...
Capitalization rate
The ratio of the first year noi to the asking price (noi/asking price). Not the rate of return
Carve out
The definition used for the inclusion of recourse in loan documents for fraud and misrepresentation
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 being converted to cash
Caveat emptor
Buyer beware. The buyer must inspect the property and satisfy himself it is adequate for his needs. The seller is under no obligation to disclose defects but may not actively conceal a known defect or lie if asked
Central business district (cbd)
The downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing
Certificate of eligibility
The document given to qualified veterans which entitles them to va guaranteed loans for homes, business, and mobile homes. Certificate of eligibility may be obtained by sending dd-214(separation paper) to the local VA office with va form 1880 (request for certificate of eligibility)
Certificate of reasonable value (crv)
An appraisal issued by the veterans administration showing the property's current market value
Certificate of title
A written opinion by an attorney or title company setting forth the status of title to the property as shown on the public records. The certificate does not certify as to matters not of record and affords no protection unless the author was negligent
Clearance
The distance between the buildings floor and the effective storage ceiling
Climate controlled
An industrial and self-storage term that represents temperature controlled commercial space
Closing
The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands
Closing costs
The costs and fees associated with the official change in ownership of the property and with obtaining the mortgage, which is associated at the closing
Cmbs (commercial mortgage backed security)
A bond or other financial obligation secured by a pool of mortgage loans
Cofi (cost of funds index)
Index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11th district of the federal home loan bank
Collateral
Property pledged to secure a loan
Commercial land
Development and transitional land acquired for investment use: land for lots, site selection, and assemblage of parcels
Commitment
A contract issued by a lender to make a loan on specific terms or conditions to a borrower or builder
Comparative market analysis
An estimate of the value of a property based on an analysis of sales of properties with similar characteristics
Condominium
A system of individual fee simple ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit
Conduit
The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loan from the third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the cmbs market
Congregate care
A type of senior housing that typified by a central eating facility, smaller rooms, and a higher level of care for its tenants
Constant maturity treasure (cmt)
An index based on the U.S. treasury that is used in the pricing of debt for banks
Construction loan
A short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan
Construction type
The type of construction used for a commercial building (i.e. concrete tilt-up, etc...)
Contingency
An element of an agreement that must be satisfied before the total agreement can be consummated
Coupon
The coupon on U.S. government securities expressed as an annual percentage of face value, is the interest rate the U.S. government promises to pay to the holder on an ongoing basis until maturity
Covenant
A written agreement or restriction on the use of land or promising certain acts. Homeowner associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowners association
Conventional loan
A mortgage not insured by the FHA or guaranteed by the VA or deferred interest: when a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance
Credit report
A report documenting the credit history and current status of a borrower's credit standing
Credit tenant
A tenant, who has obtained a debt rating by S&P or Moody's of "BBB"- or better
Credit tenant net lease
A lease with a tenant that has a credit rating of BBB- or better
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Debt service
The periodic payments (principal and interest) made on a loan
Debt service coverage ratio (or debt coverage ratio)
Measure a mortgaged property's ability to cover monthly payments defined as the ratio of net operating income over the periodic payments (principal and interest) made on a loan. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments
Debt-to-income ratio
The ratio, as expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income(FHA/VA loans) or gross monthly income(conventional loans)
Deed
The written document conveying real property. Once recorded at the courthouse, the original piece of paper is not needed to convey title in the future
Deed of trust
A voluntary lien to secure a debt deeding the property to trustees who foreclose, sell the property at public auction, in the event of default on the note the deed of trust secures. In many states this document is used in place of a mortgage to secure the payment of a note
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage
Defeasance clause
A clause in a mortgage that gives the borrower the right TP prepay a commercial mortgage by purchasing u.s. treasuries in an escrow account to pay off ongoing debt service
Delinquency
Failure to make payments on time, this can lead to foreclosure
Density
The number of buildings or persons occupying a certain area of land, generally an acre
Delivery
The final, unconditional and absolute transfer of a deed to the grantee so that the grantor may not revoke it. A deed, signed but held by the grantor, does not pass title
Department of veterans affairs
An independent agency of the federal government which guarantees long-term, low-or-no-down payment mortgages to eligible veterans
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
Discount rate
The rate of interest that the Federal Reserve charges member banks for loans
Distribution warehouse (also called light industrial)
Generally the least intense industrial use. Office use is limited to management tasks for the distribution or warehouse facility, or about 15 percent of total space
Dock high
Existence and/or number of dock level doors
Double-wide
A mobile home consisting of two units which have been fastened together along their length
Down payment
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 to 20 percent of the sales price on conventional
Due diligence
The legal definition: a measure of prudence, activity or assiduity, as is property to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances. In CMBS due diligence is the foundation of the process because of the reliance securities investors must place on the specific expertise of the professionals involved in the transaction
Due-on-sale clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home
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Easement
The right to use the land of another for a specific limited purpose
Effective gross income
Gross income of a building if fully rented, less an allowance for estimated vacancies
Eminent domain
The power of the state to take private property for public use upon payment of just compensation
Encroachment
The physical intrusion of a structure or improvement on the land of another. Examples include a fence or driveway over the property line
Engineering report
Report generated by an architect or engineer describing the current physical condition of the property and its major building systems, i.e.- HVAC, parking lot, roof, etc... the report also determines an amount for calculating replacement reserves, if needed
Entitlement
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility
Environmental report
Report generated by qualified environmental firms to determine potential environmental hazards in a building's region or within the building itself
Environmental risk
Risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB's radon or leaking underground storage tanks (lusts) on a property
Equal credit opportunity act (ecoa)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs
Equity
The difference between the fair market value and current indebtedness, also referred to as "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 the commercial property
Equity sharing
A form of joint ownership between an owner/occupant and an owner/investor. The investor takes depreciation deductions for his share of the ownership. The occupant receives a portion of the tax write-offs for interest and taxes and a part of his monthly payment is treated as rent. The co-owners divide the profit upon sale of the property
Earnest money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment
Escrow
1. A special account set up by the lender in which money is held to pay for the taxes and insurance
2. A third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement
Eurodollar
U.S. dollar denominated deposits at commercial banks outside of the United States
Extended stay
A hotel that caters to a business traveler on an extended lodging period
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Fair market value
An appraisal term for the price which a property would bring in an competitive market, given a willing seller and willing buyer, each having a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy or sell
Farm
Land dues for agricultural purposes for crop and livestock farming
Farmers home administration (FMHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere
Federal funds (fed funds)
Fed funds are the interest rate charged by those banks with excess reserves on hand (reserves over and above the minimum required by the Federal Reserve) to those banks in need of overnight loans to meet reserve requirements. Since it is set daily, the federal funds rate is the most sensitive indicator of the direction of interest rates
Federal home loan mortgage corporation (FHLMC)
Provides a secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac"
Federal housing administration (FHA)
A division of the department of housing and urban development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages
Federal national mortgage association (FNMA)
Secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae"
FHA loan
A loan insured by the federal housing administration open to all qualified home purchasers. While there are limits to the size of FHA loans
FHA mortgage insurance
Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of the fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000.00 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid
Firm commitment
A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan
Fit-out
Tenant improvements within a commercial property
Fixed-rate mortgage
A mortgage with an interest rate that remains constant for the life of the loan
Fixtures
Personal property for which some reason, such as the manner of attachment, has become realty. Such property is also referred to as chattel real
Flex space
An industrial property, which has both an office and industrial component
Floor-to-area ratio (FAR)
The relationship between the total amount of floor space in a multi-story building and the base of that building. FAR's are dictated by zoning leas, in effect, stipulate the maximum number of stories a building may have
Foreclosure
The process by which a lender takes back a property on which the mortgagee has defaulted. A servicer may take over a property from a borrower on behalf of a lender. A property usually goes into the process of foreclosure if payments are more than 90 days past due
Foundation
The concrete slab beneath the property, which holds the property in place
Franchise
A business arrangement undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise for a fee to another party (the franchisee) who in turn sells the product or service in the marketplace
Franchise fees
The fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business
Freestanding retail
A building which contains only one retail business. Fast-food franchises and retail stores are often freestanding buildings
Freestanding
The commercial building meant to be occupied by one single user
Full service
A hotel definition that represents services provided to its guests outside of lodging (i.e.-room service, concierge services, and restaurants)
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General business
Includes all of business assets and equipment, may include property or land
General partnership
In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner
Good faith deposit
A deposit made by a purchaser of real estate to evidence and honesty
Government national mortgage association (GNMA)
Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA. Also known as "Ginnie Mae"
Government subsidized
Rents that are partly paid by the government (e.g. section 8 residential subsidies)
Grade level door
A door at the ground level at the foundation
Ground level
Existence and/or number of ground level doors
Graduated payment mortgage (GPM)
A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fells to pay or perform according to a contract
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Hazard insurance
A form of insurance in which the insurance company protect the insured specified losses, such as fire, windstorm, and the like
High rise office
A commonly used expression referring to an office building that is high enough to require an elevator
Housing expenses-to-income ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income(conventional loans)
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Impound
The portion of the borrower's monthly payments held by the lender or service to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as "reserves"
Index
An economic indicator, usually a published interest rate
Industrial
Property used for industrial purpose, such as factories
Industrial for lease
Industrial space available
Interest
The sum paid for borrowing money, which pays the lender's costs for doing business
Interest rate
The sum charged for borrowing money, expressed as a percentage
Interest rate cap
Limits the interest rate or the interest rate adjustment to a specified maximum. This protects the borrower from increasing interest rates
Interim financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion
Investor
A money source for a lender
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Joint ownership agreement
An agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between an investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant's payment is deemed rent for tax purposes
Joint tenancy
Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent's will. Creditors may sue to have the property divided to settle claims against one of the owners
Joint venture
An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist
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-No Entry-
---- L ----
Lease assignment
An agreement between the commercial property owner and the lender that assigns lease payments directly to the lender
Lease type
Gross, triple net (NNN), net (NN), hybrid, etc...
Leasehold improvements
The cost of improvements for a leased property, often paid by the tenant
Leasing commissions
An amount earned by a real estate broker or leasing agent for his services
Lessee
Tenant in a building
Libor (London interbank offered rate)
The rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. Rates are quoted in monthly increments out to 1 year
Lien
A claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title
Limited liability Company (LLC)
The restriction of one's potential losses to the amount invested. The absence of personal liability. Provided to stockholders in a corporation and limited partners of a limited partnership
Limited partnership
One in which there is at least one partner who is passive and limits liability to the amount invested, and at least one partner whose liability extends beyond monetary investment
Limited service
A hotel that offers lodging services only
Loan processing fee
A fee charged by a lender, to prepare all the documents associated with your mortgage
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 a 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-out period
A period of time after loan origination during which a borrower cannot prepay the mortgage loan
Lot size
Total square footage of the land
Low-rise office
A commonly used expression referring to an office building that is too low to require an elevator
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Mall
(Also called super regional center) An enclosed shopping center with three or more major department stores which draws from a large trade area 12 or more miles
Management fee
The agreed-upon compensation paid to a property management company for managing a real estate project. The fee is usually based on a percentage of effective gross income.
Manufacturing
(Also called heavy industrial) Auto making, textiles, steel, chemicals, and food processing are typical uses of such properties. Typically zero to five percent office space
Margin
The amount that is added to an index rate to determine the total interest rate Marketing expenses- expenses accrued to market commercial properties
Market value
The highest price that a buyer would pay and the lowest price that a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time
Mat
Monthly average treasury
Maturity
1. The termination period of a note (e.g. - a 25 year mortgage has maturity of 25 years)
2. In sales law, the date a note becomes due
Max contiguous sf
The amount of available connected square feet
Max lease rate
The highest asking lease rate
Medical office
An office space which offers medical services
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
Mid-rise
A commonly used expression referring to an office building, that is high enough to require stairs, but too low to require an elevator
Military clause
A clause included in a lease of residential property, which allows the tenant to terminate the lease without penalty if and when the tenant is transferred to another location
Min lease rate
The lowest lease rate available
Min divisible sf
The smallest amount of available square feet
Mixed use
A real estate development that contains two or more different uses all intended to be harmonious and complimentary. An example would be a high-rise building with retail shops on the first to floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor
Mobile home park
A parcel of land zoned and developed for use by occupants of mobile homes
Money market
The market for short-term debt instruments
Mortgage
A voluntary lien filed against a property to secure a debt, usually a loan. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure
Mortgage insurance
Money paid to insure the mortgage when the down payment is less than 20 percent
Mortgage insurance premium (MIP)
One half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. On September 1, 1983, the MIP was changed to a one time premium to the borrowers
Mortgagee
The lender
Mortgagor
The borrower or homeowner
Multi-family property class a
Properties are above average in terms of design, construction and finish: command the highest rental rates: have a superior location, in terms of desirability and/or accessibility: generally are professionally managed by national or large regional management companies
Multi-family property class b
Properties frequently do not possess design and finish reflective of current standards and preference: construction is adequate: command average rental rates: generally are well maintained by national or regional management companies: unit sizes are usually larger than current standards
Multi-family property class c
Properties provide functional housing: exhibit some level of deferred maintenance: command below average rental rates: usually located in less desirable areas: generally managed by smaller, local property management companies: tenants provide a less stable income stream to property owners than class A and B tenants
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Negative amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan
Negotiable rate mortgage
Loan in which the interest rate is adjusted periodically
Neighborhood center (including community center)
Shopping center anchored by a supermarket and/or drugstore, that provides convenience goods and services to a neighborhood. It is usually between 30,000 and 100,000 square feet, and draws from a one to three mile radius
Net effective income
The borrower's gross income minus federal income tax
Net effective rent
Rental rate adjusted for lease concessions
Net-net lease (NN)
Usually requires the tenant to pay for property taxes and insurance in addition to the rent
Net operating income (NOI)
Total income less operating expenses, adjustments, etc... but before mortgage payments, tenant improvements and leasing commissions
Non assumption clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: the signed obligation to pay a debt, as a mortgage note
Non-recourse
A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. A loan not allowing for a deficiency judgment. The lender's only recourse in the event of default is the security (property) and the borrower is not personally liable
Note
A written promise to pay a certain sum of money at a certain time. A negotiable note starts "pay to the order of" and is transferable by endorsement similar to a check
Notice of default (nod)
To initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust. The trustee under the deed of trust records a notice of default and election ("nod") the real property collateral in the public records
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Office
A structure used primarily for the carrying on of business
100% private pay
Assisted living designation where senior housing residents pay 100% of the rent versus by welfare or government subsidies
Operating expense
Periodic expenses necessary to the operation and maintenance of an enterprise (e.g. - taxes, salaries, insurance, and maintenance). Often used as a basis for rent increases
Origination fee
The fee charged by a lender to prepare loan documents, perform credit checks, inspect and sometimes appraise a property: usually computed as a percentage of the face value of the loan Origination- securing a completed mortgage application from a commercial or residential borrower
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Percentage lease
Commonly used for large retail stores. Rent payments include a minimum or "base rent" plus a percentage of the gross sales "overage". Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume
Permanent loan
A long term mortgage, usually ten years or more. Also called an "end loan"
Phase I
An assessment and report prepared by a professional environment consultant who reviews the property-both land and improvements-to ascertain the presence or potential presence of environmental hazards at the property, such as underground water contamination, PCB's, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This environmental site assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a phase ii environmental site assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken
Piti
Principal, Interest, Taxes, Insurance are also called monthly housing expense
Pledged account mortgage
Money is placed in a pledged savings account and this fund plus interest is gradually used to reduce mortgage payments
Points (loan discount points)
Each point is equal to 1% of the total amount of a mortgage
Potential gross rent
Gross income of a building if fully rented
Power of attorney
A written document authorizing another to act on his behalf as an attorney in fact. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law
Pre-leased %
To obtain lease commitments in a building or complex prior to its being available for occupancy
Prepaid expenses
Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date
Prepayment penalty
Fees paid by borrowers for the privilege of retiring a loan early
Primary mortgage market
Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage market
Prime rate
The rate at which banks lend to their most creditworthy customers
Principal
1. The amount of debt, not including interest, left on a loan
2. The face amount of the mortgage
Private mortgage insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0% to 5.0% of your mortgage amount and may require an additional monthly fee, depending on your loan's structure
Pro forma
(From Latin pro forma "according to form") Financial statements showing what is expected to occur
Property administrator
Person in broker's employ who is responsible for updating and renewing a property listing, if it is different from the contact name
Property grade
A stratification of property type that is indicative of the property's ability to command rental rates
Property subtype
A property description that provides additional information to the lender
Property tax
Taxes based on the market value of a property. Property taxes vary from state to state
---- Q ----
Quitclaim deed
A deed releasing whatever interest you may hold in a property but making no warranty what so ever
---- R ----
R & D
These facilities are generally used in high technology markets and are broadly defined to include wide variations in markets across the country. R & D properties could have lab facilities, offices, warehouse facilities, or services such as carpentry or machine repair. Typically, each property allows a variable combination of office and other uses. The percentage of office space ranges from 20 to 100 percent, depending on the market and individual needs of the user
Rail served
Whether the building is served by railroad
Ranch
Land devoted to rosining livestock under range conditions with forage grass as main source of feed
Rate index
An index used to adjust the interest rate of an adjustable mortgage loan (e.g.-the change in U.S. treasury securities (T-bills) with 1-year maturity. The weekly average yield on said securities, adjusted to a constant maturity of 1 year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve statistical release h.15 (519). This change in interest rate is the "index" for the change in a specific adjustable mortgage loan)
Real estate settlement procedures act (RESPA)
RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the national association of realtors
Recession
The cancellation of a contract- with respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract, in some cases once it is signed if the transaction uses equity in the home as security
Recording fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records
Recourse
Personal liability
Recreational land
Land devoted to commercial outdoor sporting activity and relaxation
Refinance
To replace an old loan(s) with a new loan(s)
Regional center
A shopping center with one or two department store and a variety of smaller stores. It is larger than 300,000 square feet and draws from an 8 mile radius or more
Rent roll
A list of tenants leasing property, which detail terms of lease, area leased, and the amount of rent being paid
Rent step-up
A lease 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 lease area)
In a building or project, floor space that may be rented to tenants. The area upon which rental payments are based. Generally excludes common area and space devoted to the heating, cooling, and other equipment of a building
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 payment for future capital improvements of major building systems;(i.e.-HVAC, parking lot, carpets, roof, etc...)
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 referred to as "reserve account"
Retail
A property type which sells goods to consumers
Reverse annuity mortgage
Form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as satisfaction of mortgage: the document issued by the mortgagee when the mortgage loan is paid in full. Also called "release of mortgage"
Reversionary value (RV)
The value of property at the expiration of a certain time period. In transportation, recreational vehicle
---- S ----
Sales broker
Commercial real estate broker that represents client in the sale or purchase of commercial real estate property
Second mortgage
A mortgage that is second in priority because of the time recording the mortgage or of the subordination of the mortgage
Secondary mortgage market
The buying and selling of first mortgaged or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep inadequate supply of money for new loans
Self-amortizing mortgage
One that will retire itself through regular principal and interest payments. Contrast with balloon mortgage or interest-only loan
Self-storage
(Also called mini-storage) Provides personal storage for lease by consumers
Senior housing
(Includes assisted living, congregate care, senior apartments and skilled nursing centers) Multi-residential property specifically designed for care of senior citizens and/or physically disabled persons
Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like
Shadow anchored
An unanchored shopping center located near an anchored shopping center
Shared appreciation mortgage
Mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrowers share the monthly principal and interest payments with another party in exchange for a part of the appreciation
Simple interest
Interest in which is computed only on the principal balance
Single wide
A mobile home consisting of one unit
Site work
The location or place of a plot of ground set aside for a particular type of land use
Skilled nursing
A type of senior housing which offers on-site medical care
Sole proprietorship
Ownership of a business, with no formal entity as a vehicle or structure
Spread
Number of basis points over a base rate index
Sprinkler
Existence of fire suppression systems in the building
Stabilized operating property
The income generated on an annual basis from the commercial property is stable, consistent and reliable
Strip center
A string of stores in a commercial area, totaling 30,000 square feet, without central leasing, management, or theme
Structural/engineering report
A property condition report that outlines the current structural stability or instability of a property. The report will outline immediate costs needed to repair the property, as well as a maintenance program to maintain the property at its current status
Suburban
Describes a town or unincorporated developed area in a close proximity to a city. Suburbs, largely residential, are often dependent on the city for employment and support services; generally characterized by low-density development relative to the city
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any building
Sweat equity
Equity created by a purchaser performing work on a property being purchased
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Tax & insurance impound
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
Tenants by the entirety
A husband and wife own the property with the common law right of survivorship, if one dies, the other automatically inherits
Tenant improvements (TI)
The expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq.ft.)That the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant
Tenants in common
Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to partition the property
Term
The length of a mortgage
Third party costs
Costs resulting from third party reports, whether it be appraisal reports, environmental reports or structural engineering reports
Timberland
Land used for production of forest stands for commercial use
Title
The actual legal document conferring ownership of a piece of real estate
Title insurance
An insurance policy that insures you against errors in the title search- essentially guaranteeing your and your lenders, financial interest in the property
Title search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company
Total annual operating income
Total yearly income less operating expenses, adjustments, etc... but before mortgage payments, tenant improvements and leasing commissions
Total annual room income
A hotel definition that represent the gross annual receipts from room revenue
Traffic count
The amount of incoming and outgoing traffic a retailer or self-storage building generates over a fixed period of time
Triple net lease (NNN)
A lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as "net lease")
Triple wide
A mobile home consisting of three units which have been fastened together along their length
Truth in lending
Federal law requiring disclosure of the annual percentage rate to home buyers shortly after they apply for the loan
Two-step mortgage
Mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often 7 to 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at the same time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. (Also called "super seven" or "premier" mortgage)
---- U ----
Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of the risk to an appropriate rate and term or loan amount
U.S. treasury bill
Treasury bills, or t-bills, are short term securities with maturities of up to one year. They are issued by the U.S. government at a discount from face value. The price is quoted in yield, not dollars. At maturity, t-bills are redeemed for full face value. T-bills are issued in 3 month, 6 month, and 1 year maturities and are backed by the full faith and credit of the U.S. government
Unanchored
A tenant in a shopping center, which doesn't have an anchored tenant
U.S. treasury bond
Treasury bonds are long term securities with maturities greater than 10 years. Treasury bonds are coupon bearing severities that pay interest on a semi-annual basis. Treasury bonds are backed by the full faith and credit of the U.S. government
U.S. treasury note
Treasury notes are intermediate term securities issued with 2, 3, 5, and 10 year maturities. Treasury notes are coupon bearing securities that pay interest on a semi-annual basis. Treasury notes are backed by the full faith and credit of the U.S. government
Usury
Interest charged in excess of the legal rate established by law
---- V ----
Vacancy
Unoccupied units as a percentage of the total number
Vacancy percent
The percent of all units or space that is unoccupied or not rented. On a pro-forma income statement a projected vacancy rate is used to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income
VA loans
Long term, low-or no down payment loan guaranteed by the department of veterans affairs. Restricted to individuals qualified by military service or other entitlements
VA mortgage funding fee
Premium of up to 1-7/8% (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed
Verification of deposits
Document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts
Verification of employment
Document signed by the borrower's employer verifying his/her position and salary
---- W ----
Warehouse fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee
Wraparound
Wraparound results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top. The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment on the existing note holder
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---- Y ----
Yield
The rate of return on a security, taking into consideration annual interest payments, purchase price, redemption value, and the time remaining until maturity
Yield maintenance
A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers
Yield to average life
Yield calculation used, in lieu of "yield to maturity" or "yield to call", where books are retired systematically during the life of the issue, as in the case of a "sinking fund", with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirements if the bonds are trading below par, there is, to that extent, automatic price support for such bonds; therefore they tend to trade on a yield-to-average-life basis
Yield to maturity (YTM)
Concepts used to determine the rate of return an investor will receive if a long-term interest-bearing investment, such as a bond is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount rate at which the present value of all future payments would equal the present price of the bond (also referred to as "internal rate of return"). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM can be approximated using a bond value table (also referred to as a "bond yield table") or can be determined using a programmable calculator equipped for bond mathematics calculations
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-No Entry-
Acreage
A 2 dimensional measure of land equaling 160 square rods, 10 square chains,
4,840 square yards, or 43,560 square feet
Adjustable rate mortgage (arm)
A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial rate is lower than that of fixed-rate mortgages, but monthly payments can go up or down as the rate is adjusted
Adjustment interval
The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are 6 months and one year
Amenities
In appraisal, the non-monetary benefits derived from property ownership
Amortization period
The period or length of time over which the principal portion of a mortgage loan is scheduled to be paid down through periodic payments
Anchored
Refers to a piece of commercial real estate property, which will serve as the main tenant in a shopping center
Anchors
A long term, credit worthy tenant. The presence of one or more "anchors" enhances the value and the ability to obtain financing for a shopping center
Annual percentage rate (apr)
An interest reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The apr allows home buyers to compare different types of mortgages based on the annual cost for each loan
Appraisal
An estimate of the value of a property, made by a qualified professional called an appraiser
Assisted living
Type of senior housing that is typified by independent living and limited assistance to its renters
Assumability
A mortgage loan which can be transferred to another person without a change in the terms of the loan
Available sf
The square feet available for lease
Average annual occupancy
Percentage of currently rented units in a building, city, neighborhood, or complex
Average daily rate
A hotel rate used to evaluate the average daily rate of a hotel inclusive of vacancy and seasonality
---- B ----
Balloon mortgage
One large payment for the remaining balance of a mortgage, due at a time specified in the contract
Basis point (bp)
1/100th of 1% expressed as a margin over an index rate
Bankruptcy
A provision of federal law whereby a debtor surrenders his assets to the bankruptcy court and is relieved of the future obligation to repay his unsecured debts. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor. There are different types of bankruptcy chapters, the above is very general
Beneficiary
A person named to receive a benefit from a trust. A contingent beneficiary has conditions attached to his rights; usually someone else must die first
Borrowing entity type
The legal form under which property is owned
Bridge / short term loan
A short-term or interim loan for borrowers who need time to find permanent financing or are repositioning a commercial property
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself
Building permit
A document, issued by government regulatory authority that allows a builder to construct or modify a structure
Building sf
The usable square footage of the building
Buy-down
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires
---- C ----
Cap
The maximum, which an adjustable-rate mortgage may increase, per year and/or the life of the loan regardless of index changes
Caps (payment)
Consumer safeguards which limit the amount of monthly payments on an adjustable rate mortgage the lender may change
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, such as roofs, etc...
Capitalization rate
The ratio of the first year noi to the asking price (noi/asking price). Not the rate of return
Carve out
The definition used for the inclusion of recourse in loan documents for fraud and misrepresentation
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 being converted to cash
Caveat emptor
Buyer beware. The buyer must inspect the property and satisfy himself it is adequate for his needs. The seller is under no obligation to disclose defects but may not actively conceal a known defect or lie if asked
Central business district (cbd)
The downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing
Certificate of eligibility
The document given to qualified veterans which entitles them to va guaranteed loans for homes, business, and mobile homes. Certificate of eligibility may be obtained by sending dd-214(separation paper) to the local VA office with va form 1880 (request for certificate of eligibility)
Certificate of reasonable value (crv)
An appraisal issued by the veterans administration showing the property's current market value
Certificate of title
A written opinion by an attorney or title company setting forth the status of title to the property as shown on the public records. The certificate does not certify as to matters not of record and affords no protection unless the author was negligent
Clearance
The distance between the buildings floor and the effective storage ceiling
Climate controlled
An industrial and self-storage term that represents temperature controlled commercial space
Closing
The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands
Closing costs
The costs and fees associated with the official change in ownership of the property and with obtaining the mortgage, which is associated at the closing
Cmbs (commercial mortgage backed security)
A bond or other financial obligation secured by a pool of mortgage loans
Cofi (cost of funds index)
Index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11th district of the federal home loan bank
Collateral
Property pledged to secure a loan
Commercial land
Development and transitional land acquired for investment use: land for lots, site selection, and assemblage of parcels
Commitment
A contract issued by a lender to make a loan on specific terms or conditions to a borrower or builder
Comparative market analysis
An estimate of the value of a property based on an analysis of sales of properties with similar characteristics
Condominium
A system of individual fee simple ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit
Conduit
The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loan from the third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the cmbs market
Congregate care
A type of senior housing that typified by a central eating facility, smaller rooms, and a higher level of care for its tenants
Constant maturity treasure (cmt)
An index based on the U.S. treasury that is used in the pricing of debt for banks
Construction loan
A short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan
Construction type
The type of construction used for a commercial building (i.e. concrete tilt-up, etc...)
Contingency
An element of an agreement that must be satisfied before the total agreement can be consummated
Coupon
The coupon on U.S. government securities expressed as an annual percentage of face value, is the interest rate the U.S. government promises to pay to the holder on an ongoing basis until maturity
Covenant
A written agreement or restriction on the use of land or promising certain acts. Homeowner associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowners association
Conventional loan
A mortgage not insured by the FHA or guaranteed by the VA or deferred interest: when a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance
Credit report
A report documenting the credit history and current status of a borrower's credit standing
Credit tenant
A tenant, who has obtained a debt rating by S&P or Moody's of "BBB"- or better
Credit tenant net lease
A lease with a tenant that has a credit rating of BBB- or better
---- D ----
Debt service
The periodic payments (principal and interest) made on a loan
Debt service coverage ratio (or debt coverage ratio)
Measure a mortgaged property's ability to cover monthly payments defined as the ratio of net operating income over the periodic payments (principal and interest) made on a loan. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments
Debt-to-income ratio
The ratio, as expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income(FHA/VA loans) or gross monthly income(conventional loans)
Deed
The written document conveying real property. Once recorded at the courthouse, the original piece of paper is not needed to convey title in the future
Deed of trust
A voluntary lien to secure a debt deeding the property to trustees who foreclose, sell the property at public auction, in the event of default on the note the deed of trust secures. In many states this document is used in place of a mortgage to secure the payment of a note
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage
Defeasance clause
A clause in a mortgage that gives the borrower the right TP prepay a commercial mortgage by purchasing u.s. treasuries in an escrow account to pay off ongoing debt service
Delinquency
Failure to make payments on time, this can lead to foreclosure
Density
The number of buildings or persons occupying a certain area of land, generally an acre
Delivery
The final, unconditional and absolute transfer of a deed to the grantee so that the grantor may not revoke it. A deed, signed but held by the grantor, does not pass title
Department of veterans affairs
An independent agency of the federal government which guarantees long-term, low-or-no-down payment mortgages to eligible veterans
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
Discount rate
The rate of interest that the Federal Reserve charges member banks for loans
Distribution warehouse (also called light industrial)
Generally the least intense industrial use. Office use is limited to management tasks for the distribution or warehouse facility, or about 15 percent of total space
Dock high
Existence and/or number of dock level doors
Double-wide
A mobile home consisting of two units which have been fastened together along their length
Down payment
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 to 20 percent of the sales price on conventional
Due diligence
The legal definition: a measure of prudence, activity or assiduity, as is property to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances. In CMBS due diligence is the foundation of the process because of the reliance securities investors must place on the specific expertise of the professionals involved in the transaction
Due-on-sale clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home
---- E ----
Easement
The right to use the land of another for a specific limited purpose
Effective gross income
Gross income of a building if fully rented, less an allowance for estimated vacancies
Eminent domain
The power of the state to take private property for public use upon payment of just compensation
Encroachment
The physical intrusion of a structure or improvement on the land of another. Examples include a fence or driveway over the property line
Engineering report
Report generated by an architect or engineer describing the current physical condition of the property and its major building systems, i.e.- HVAC, parking lot, roof, etc... the report also determines an amount for calculating replacement reserves, if needed
Entitlement
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility
Environmental report
Report generated by qualified environmental firms to determine potential environmental hazards in a building's region or within the building itself
Environmental risk
Risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB's radon or leaking underground storage tanks (lusts) on a property
Equal credit opportunity act (ecoa)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs
Equity
The difference between the fair market value and current indebtedness, also referred to as "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 the commercial property
Equity sharing
A form of joint ownership between an owner/occupant and an owner/investor. The investor takes depreciation deductions for his share of the ownership. The occupant receives a portion of the tax write-offs for interest and taxes and a part of his monthly payment is treated as rent. The co-owners divide the profit upon sale of the property
Earnest money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment
Escrow
1. A special account set up by the lender in which money is held to pay for the taxes and insurance
2. A third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement
Eurodollar
U.S. dollar denominated deposits at commercial banks outside of the United States
Extended stay
A hotel that caters to a business traveler on an extended lodging period
---- F ----
Fair market value
An appraisal term for the price which a property would bring in an competitive market, given a willing seller and willing buyer, each having a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy or sell
Farm
Land dues for agricultural purposes for crop and livestock farming
Farmers home administration (FMHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere
Federal funds (fed funds)
Fed funds are the interest rate charged by those banks with excess reserves on hand (reserves over and above the minimum required by the Federal Reserve) to those banks in need of overnight loans to meet reserve requirements. Since it is set daily, the federal funds rate is the most sensitive indicator of the direction of interest rates
Federal home loan mortgage corporation (FHLMC)
Provides a secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac"
Federal housing administration (FHA)
A division of the department of housing and urban development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages
Federal national mortgage association (FNMA)
Secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae"
FHA loan
A loan insured by the federal housing administration open to all qualified home purchasers. While there are limits to the size of FHA loans
FHA mortgage insurance
Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of the fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000.00 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid
Firm commitment
A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan
Fit-out
Tenant improvements within a commercial property
Fixed-rate mortgage
A mortgage with an interest rate that remains constant for the life of the loan
Fixtures
Personal property for which some reason, such as the manner of attachment, has become realty. Such property is also referred to as chattel real
Flex space
An industrial property, which has both an office and industrial component
Floor-to-area ratio (FAR)
The relationship between the total amount of floor space in a multi-story building and the base of that building. FAR's are dictated by zoning leas, in effect, stipulate the maximum number of stories a building may have
Foreclosure
The process by which a lender takes back a property on which the mortgagee has defaulted. A servicer may take over a property from a borrower on behalf of a lender. A property usually goes into the process of foreclosure if payments are more than 90 days past due
Foundation
The concrete slab beneath the property, which holds the property in place
Franchise
A business arrangement undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise for a fee to another party (the franchisee) who in turn sells the product or service in the marketplace
Franchise fees
The fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business
Freestanding retail
A building which contains only one retail business. Fast-food franchises and retail stores are often freestanding buildings
Freestanding
The commercial building meant to be occupied by one single user
Full service
A hotel definition that represents services provided to its guests outside of lodging (i.e.-room service, concierge services, and restaurants)
---- G ----
General business
Includes all of business assets and equipment, may include property or land
General partnership
In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner
Good faith deposit
A deposit made by a purchaser of real estate to evidence and honesty
Government national mortgage association (GNMA)
Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA. Also known as "Ginnie Mae"
Government subsidized
Rents that are partly paid by the government (e.g. section 8 residential subsidies)
Grade level door
A door at the ground level at the foundation
Ground level
Existence and/or number of ground level doors
Graduated payment mortgage (GPM)
A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fells to pay or perform according to a contract
---- H ----
Hazard insurance
A form of insurance in which the insurance company protect the insured specified losses, such as fire, windstorm, and the like
High rise office
A commonly used expression referring to an office building that is high enough to require an elevator
Housing expenses-to-income ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income(conventional loans)
---- I ----
Impound
The portion of the borrower's monthly payments held by the lender or service to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as "reserves"
Index
An economic indicator, usually a published interest rate
Industrial
Property used for industrial purpose, such as factories
Industrial for lease
Industrial space available
Interest
The sum paid for borrowing money, which pays the lender's costs for doing business
Interest rate
The sum charged for borrowing money, expressed as a percentage
Interest rate cap
Limits the interest rate or the interest rate adjustment to a specified maximum. This protects the borrower from increasing interest rates
Interim financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion
Investor
A money source for a lender
---- J ----
Joint ownership agreement
An agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between an investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant's payment is deemed rent for tax purposes
Joint tenancy
Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent's will. Creditors may sue to have the property divided to settle claims against one of the owners
Joint venture
An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist
---- K ----
-No Entry-
---- L ----
Lease assignment
An agreement between the commercial property owner and the lender that assigns lease payments directly to the lender
Lease type
Gross, triple net (NNN), net (NN), hybrid, etc...
Leasehold improvements
The cost of improvements for a leased property, often paid by the tenant
Leasing commissions
An amount earned by a real estate broker or leasing agent for his services
Lessee
Tenant in a building
Libor (London interbank offered rate)
The rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. Rates are quoted in monthly increments out to 1 year
Lien
A claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title
Limited liability Company (LLC)
The restriction of one's potential losses to the amount invested. The absence of personal liability. Provided to stockholders in a corporation and limited partners of a limited partnership
Limited partnership
One in which there is at least one partner who is passive and limits liability to the amount invested, and at least one partner whose liability extends beyond monetary investment
Limited service
A hotel that offers lodging services only
Loan processing fee
A fee charged by a lender, to prepare all the documents associated with your mortgage
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 a 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-out period
A period of time after loan origination during which a borrower cannot prepay the mortgage loan
Lot size
Total square footage of the land
Low-rise office
A commonly used expression referring to an office building that is too low to require an elevator
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Mall
(Also called super regional center) An enclosed shopping center with three or more major department stores which draws from a large trade area 12 or more miles
Management fee
The agreed-upon compensation paid to a property management company for managing a real estate project. The fee is usually based on a percentage of effective gross income.
Manufacturing
(Also called heavy industrial) Auto making, textiles, steel, chemicals, and food processing are typical uses of such properties. Typically zero to five percent office space
Margin
The amount that is added to an index rate to determine the total interest rate Marketing expenses- expenses accrued to market commercial properties
Market value
The highest price that a buyer would pay and the lowest price that a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time
Mat
Monthly average treasury
Maturity
1. The termination period of a note (e.g. - a 25 year mortgage has maturity of 25 years)
2. In sales law, the date a note becomes due
Max contiguous sf
The amount of available connected square feet
Max lease rate
The highest asking lease rate
Medical office
An office space which offers medical services
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
Mid-rise
A commonly used expression referring to an office building, that is high enough to require stairs, but too low to require an elevator
Military clause
A clause included in a lease of residential property, which allows the tenant to terminate the lease without penalty if and when the tenant is transferred to another location
Min lease rate
The lowest lease rate available
Min divisible sf
The smallest amount of available square feet
Mixed use
A real estate development that contains two or more different uses all intended to be harmonious and complimentary. An example would be a high-rise building with retail shops on the first to floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor
Mobile home park
A parcel of land zoned and developed for use by occupants of mobile homes
Money market
The market for short-term debt instruments
Mortgage
A voluntary lien filed against a property to secure a debt, usually a loan. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure
Mortgage insurance
Money paid to insure the mortgage when the down payment is less than 20 percent
Mortgage insurance premium (MIP)
One half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. On September 1, 1983, the MIP was changed to a one time premium to the borrowers
Mortgagee
The lender
Mortgagor
The borrower or homeowner
Multi-family property class a
Properties are above average in terms of design, construction and finish: command the highest rental rates: have a superior location, in terms of desirability and/or accessibility: generally are professionally managed by national or large regional management companies
Multi-family property class b
Properties frequently do not possess design and finish reflective of current standards and preference: construction is adequate: command average rental rates: generally are well maintained by national or regional management companies: unit sizes are usually larger than current standards
Multi-family property class c
Properties provide functional housing: exhibit some level of deferred maintenance: command below average rental rates: usually located in less desirable areas: generally managed by smaller, local property management companies: tenants provide a less stable income stream to property owners than class A and B tenants
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Negative amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan
Negotiable rate mortgage
Loan in which the interest rate is adjusted periodically
Neighborhood center (including community center)
Shopping center anchored by a supermarket and/or drugstore, that provides convenience goods and services to a neighborhood. It is usually between 30,000 and 100,000 square feet, and draws from a one to three mile radius
Net effective income
The borrower's gross income minus federal income tax
Net effective rent
Rental rate adjusted for lease concessions
Net-net lease (NN)
Usually requires the tenant to pay for property taxes and insurance in addition to the rent
Net operating income (NOI)
Total income less operating expenses, adjustments, etc... but before mortgage payments, tenant improvements and leasing commissions
Non assumption clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: the signed obligation to pay a debt, as a mortgage note
Non-recourse
A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. A loan not allowing for a deficiency judgment. The lender's only recourse in the event of default is the security (property) and the borrower is not personally liable
Note
A written promise to pay a certain sum of money at a certain time. A negotiable note starts "pay to the order of" and is transferable by endorsement similar to a check
Notice of default (nod)
To initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust. The trustee under the deed of trust records a notice of default and election ("nod") the real property collateral in the public records
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Office
A structure used primarily for the carrying on of business
100% private pay
Assisted living designation where senior housing residents pay 100% of the rent versus by welfare or government subsidies
Operating expense
Periodic expenses necessary to the operation and maintenance of an enterprise (e.g. - taxes, salaries, insurance, and maintenance). Often used as a basis for rent increases
Origination fee
The fee charged by a lender to prepare loan documents, perform credit checks, inspect and sometimes appraise a property: usually computed as a percentage of the face value of the loan Origination- securing a completed mortgage application from a commercial or residential borrower
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Percentage lease
Commonly used for large retail stores. Rent payments include a minimum or "base rent" plus a percentage of the gross sales "overage". Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume
Permanent loan
A long term mortgage, usually ten years or more. Also called an "end loan"
Phase I
An assessment and report prepared by a professional environment consultant who reviews the property-both land and improvements-to ascertain the presence or potential presence of environmental hazards at the property, such as underground water contamination, PCB's, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This environmental site assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a phase ii environmental site assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken
Piti
Principal, Interest, Taxes, Insurance are also called monthly housing expense
Pledged account mortgage
Money is placed in a pledged savings account and this fund plus interest is gradually used to reduce mortgage payments
Points (loan discount points)
Each point is equal to 1% of the total amount of a mortgage
Potential gross rent
Gross income of a building if fully rented
Power of attorney
A written document authorizing another to act on his behalf as an attorney in fact. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law
Pre-leased %
To obtain lease commitments in a building or complex prior to its being available for occupancy
Prepaid expenses
Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date
Prepayment penalty
Fees paid by borrowers for the privilege of retiring a loan early
Primary mortgage market
Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage market
Prime rate
The rate at which banks lend to their most creditworthy customers
Principal
1. The amount of debt, not including interest, left on a loan
2. The face amount of the mortgage
Private mortgage insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0% to 5.0% of your mortgage amount and may require an additional monthly fee, depending on your loan's structure
Pro forma
(From Latin pro forma "according to form") Financial statements showing what is expected to occur
Property administrator
Person in broker's employ who is responsible for updating and renewing a property listing, if it is different from the contact name
Property grade
A stratification of property type that is indicative of the property's ability to command rental rates
Property subtype
A property description that provides additional information to the lender
Property tax
Taxes based on the market value of a property. Property taxes vary from state to state
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Quitclaim deed
A deed releasing whatever interest you may hold in a property but making no warranty what so ever
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R & D
These facilities are generally used in high technology markets and are broadly defined to include wide variations in markets across the country. R & D properties could have lab facilities, offices, warehouse facilities, or services such as carpentry or machine repair. Typically, each property allows a variable combination of office and other uses. The percentage of office space ranges from 20 to 100 percent, depending on the market and individual needs of the user
Rail served
Whether the building is served by railroad
Ranch
Land devoted to rosining livestock under range conditions with forage grass as main source of feed
Rate index
An index used to adjust the interest rate of an adjustable mortgage loan (e.g.-the change in U.S. treasury securities (T-bills) with 1-year maturity. The weekly average yield on said securities, adjusted to a constant maturity of 1 year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve statistical release h.15 (519). This change in interest rate is the "index" for the change in a specific adjustable mortgage loan)
Real estate settlement procedures act (RESPA)
RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the national association of realtors
Recession
The cancellation of a contract- with respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract, in some cases once it is signed if the transaction uses equity in the home as security
Recording fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records
Recourse
Personal liability
Recreational land
Land devoted to commercial outdoor sporting activity and relaxation
Refinance
To replace an old loan(s) with a new loan(s)
Regional center
A shopping center with one or two department store and a variety of smaller stores. It is larger than 300,000 square feet and draws from an 8 mile radius or more
Rent roll
A list of tenants leasing property, which detail terms of lease, area leased, and the amount of rent being paid
Rent step-up
A lease 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 lease area)
In a building or project, floor space that may be rented to tenants. The area upon which rental payments are based. Generally excludes common area and space devoted to the heating, cooling, and other equipment of a building
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 payment for future capital improvements of major building systems;(i.e.-HVAC, parking lot, carpets, roof, etc...)
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 referred to as "reserve account"
Retail
A property type which sells goods to consumers
Reverse annuity mortgage
Form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as satisfaction of mortgage: the document issued by the mortgagee when the mortgage loan is paid in full. Also called "release of mortgage"
Reversionary value (RV)
The value of property at the expiration of a certain time period. In transportation, recreational vehicle
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Sales broker
Commercial real estate broker that represents client in the sale or purchase of commercial real estate property
Second mortgage
A mortgage that is second in priority because of the time recording the mortgage or of the subordination of the mortgage
Secondary mortgage market
The buying and selling of first mortgaged or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep inadequate supply of money for new loans
Self-amortizing mortgage
One that will retire itself through regular principal and interest payments. Contrast with balloon mortgage or interest-only loan
Self-storage
(Also called mini-storage) Provides personal storage for lease by consumers
Senior housing
(Includes assisted living, congregate care, senior apartments and skilled nursing centers) Multi-residential property specifically designed for care of senior citizens and/or physically disabled persons
Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like
Shadow anchored
An unanchored shopping center located near an anchored shopping center
Shared appreciation mortgage
Mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrowers share the monthly principal and interest payments with another party in exchange for a part of the appreciation
Simple interest
Interest in which is computed only on the principal balance
Single wide
A mobile home consisting of one unit
Site work
The location or place of a plot of ground set aside for a particular type of land use
Skilled nursing
A type of senior housing which offers on-site medical care
Sole proprietorship
Ownership of a business, with no formal entity as a vehicle or structure
Spread
Number of basis points over a base rate index
Sprinkler
Existence of fire suppression systems in the building
Stabilized operating property
The income generated on an annual basis from the commercial property is stable, consistent and reliable
Strip center
A string of stores in a commercial area, totaling 30,000 square feet, without central leasing, management, or theme
Structural/engineering report
A property condition report that outlines the current structural stability or instability of a property. The report will outline immediate costs needed to repair the property, as well as a maintenance program to maintain the property at its current status
Suburban
Describes a town or unincorporated developed area in a close proximity to a city. Suburbs, largely residential, are often dependent on the city for employment and support services; generally characterized by low-density development relative to the city
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any building
Sweat equity
Equity created by a purchaser performing work on a property being purchased
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Tax & insurance impound
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
Tenants by the entirety
A husband and wife own the property with the common law right of survivorship, if one dies, the other automatically inherits
Tenant improvements (TI)
The expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq.ft.)That the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant
Tenants in common
Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to partition the property
Term
The length of a mortgage
Third party costs
Costs resulting from third party reports, whether it be appraisal reports, environmental reports or structural engineering reports
Timberland
Land used for production of forest stands for commercial use
Title
The actual legal document conferring ownership of a piece of real estate
Title insurance
An insurance policy that insures you against errors in the title search- essentially guaranteeing your and your lenders, financial interest in the property
Title search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company
Total annual operating income
Total yearly income less operating expenses, adjustments, etc... but before mortgage payments, tenant improvements and leasing commissions
Total annual room income
A hotel definition that represent the gross annual receipts from room revenue
Traffic count
The amount of incoming and outgoing traffic a retailer or self-storage building generates over a fixed period of time
Triple net lease (NNN)
A lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as "net lease")
Triple wide
A mobile home consisting of three units which have been fastened together along their length
Truth in lending
Federal law requiring disclosure of the annual percentage rate to home buyers shortly after they apply for the loan
Two-step mortgage
Mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often 7 to 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at the same time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. (Also called "super seven" or "premier" mortgage)
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Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of the risk to an appropriate rate and term or loan amount
U.S. treasury bill
Treasury bills, or t-bills, are short term securities with maturities of up to one year. They are issued by the U.S. government at a discount from face value. The price is quoted in yield, not dollars. At maturity, t-bills are redeemed for full face value. T-bills are issued in 3 month, 6 month, and 1 year maturities and are backed by the full faith and credit of the U.S. government
Unanchored
A tenant in a shopping center, which doesn't have an anchored tenant
U.S. treasury bond
Treasury bonds are long term securities with maturities greater than 10 years. Treasury bonds are coupon bearing severities that pay interest on a semi-annual basis. Treasury bonds are backed by the full faith and credit of the U.S. government
U.S. treasury note
Treasury notes are intermediate term securities issued with 2, 3, 5, and 10 year maturities. Treasury notes are coupon bearing securities that pay interest on a semi-annual basis. Treasury notes are backed by the full faith and credit of the U.S. government
Usury
Interest charged in excess of the legal rate established by law
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Vacancy
Unoccupied units as a percentage of the total number
Vacancy percent
The percent of all units or space that is unoccupied or not rented. On a pro-forma income statement a projected vacancy rate is used to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income
VA loans
Long term, low-or no down payment loan guaranteed by the department of veterans affairs. Restricted to individuals qualified by military service or other entitlements
VA mortgage funding fee
Premium of up to 1-7/8% (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed
Verification of deposits
Document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts
Verification of employment
Document signed by the borrower's employer verifying his/her position and salary
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Warehouse fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee
Wraparound
Wraparound results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top. The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment on the existing note holder
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Yield
The rate of return on a security, taking into consideration annual interest payments, purchase price, redemption value, and the time remaining until maturity
Yield maintenance
A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers
Yield to average life
Yield calculation used, in lieu of "yield to maturity" or "yield to call", where books are retired systematically during the life of the issue, as in the case of a "sinking fund", with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirements if the bonds are trading below par, there is, to that extent, automatic price support for such bonds; therefore they tend to trade on a yield-to-average-life basis
Yield to maturity (YTM)
Concepts used to determine the rate of return an investor will receive if a long-term interest-bearing investment, such as a bond is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount rate at which the present value of all future payments would equal the present price of the bond (also referred to as "internal rate of return"). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM can be approximated using a bond value table (also referred to as a "bond yield table") or can be determined using a programmable calculator equipped for bond mathematics calculations
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