Real Estate Lingo Cheat Sheet

If you have ever been in a conversation with a real estate professional and been overwhelmed by the jargon, you’re not alone.  From “Triple Net” to “Gross Absorption,” commercial real estate lingo can be a little intimidating.  But, Calco Commercial is here to help cut through the confusion by offering the following overview of common real estate terms.  With this “cheat sheet,” you will be able to converse with industry pros in no time.

Availability  Rate:  The ratio  of available  space to total  rentable space, calculated by dividing the total available square feet by the total rentable square feet.

Available  Space:  The  total  amount of  space  that  is currently being marketed as available  for lease in a given time period.  It includes  any  space  that  is available,  regardless  of whether  the space is vacant,  occupied,  available  for sublease, or available  at a future date.

Build-to-Suit:  A term describing a particular property, developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant.  A build-to-suit can be leased or owned by the ten- ant.  In a leased build-to-suit, a tenant  will usually  have a long term lease on the space.

Buyer: The individual, group,  company,  or entity that  has purchased a commercial real estate asset.

Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year’s net operating income  and  the current  market  value of a particular property. The Cap Rate is calculated  by dividing the annual  net operating income by the sales price (or asking sales price).

CBD:  Abbreviation  for  Central   Business  District.   (See  also: Central Business District)

Central  Business District:  The designations of Central  Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical  area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized  core within the largest city of a given MSA.

Class A: A classification  used to describe buildings that generally qualify  as extremely  desirable  investment-grade properties and command the highest rents or sale prices compared to other buildings  in the same market.  Such buildings  are well located and provide efficient tenant layouts as well as high quality, and in some buildings, one-of-a-kind floor plans. They can be an archi- tectural or historical  landmark designed by prominent architects. These buildings  contain  a modern  mechanical  system, and have above-average maintenance and management as well as the best quality materials  and workmanship in their trim and interior  fit- tings. They are generally the most attractive and eagerly sought by investors willing to pay a premium for quality.

Class B: A classification  used to describe buildings that generally qualify as a more speculative investment,  and as such, command lower rents or sale prices compared to Class A properties. Such buildings  offer utilitarian space without special attractions, and have  ordinary design,  if new  or  fairly  new;  good  to  excellent design if an older non-landmark building. These buildings typical- ly have average to good maintenance, management and tenants. They are less appealing  to tenants  than  Class A properties, and may be deficient in a number  of respects including  floor plans, condition and  facilities.  They  lack  prestige  and  must  depend chiefly on a lower price to attract tenants and investors.

Class C: A classification  used to describe  buildings  that  gener- ally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market.  Such buildings typically have below-average maintenance and  management, and  could  have mixed  or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings  lack prestige and must depend  chiefly on a lower price to attract tenants and investors.

Construction Starts: Buildings that  began construction during  a specific period of time. (See also: Deliveries)

Contiguous Blocks of Space: Space within a building that is, or is able to be joined together into a single contiguous space.

Deliveries: Buildings that complete construction during a specified period  of time. In order  for space to be considered  delivered,  a certificate of occupancy must have been issued for the property.

Delivery Date: The date a building  completes  construction and receives a certificate of occupancy.

Developer: The company, entity or individual that transforms raw land to improved  property by use of labor,  capital and entrepre- neurial efforts.

Direct Space: Space that  is being offered for lease directly from the landlord or owner  of a building,  as opposed  to space being offered in a building  by another tenant  (or broker  of a tenant) trying to sublet a space that has already been leased.

Existing Inventory: The square footage of buildings that have received a certificate  of occupancy  and are able to be occupied by tenants.  It does not include space in buildings  that  are either planned, under construction or under renovation.

Flex Building: A type of building designed to be versatile, which may be used in combination with office (corporate headquarters), research  and  development, quasi-retail sales, and  including  but not limited to industrial, warehouse, and distribution uses. A typi- cal flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off.

Full Service Rental  Rate: Rental  rates that  include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance.

Gross  Absorption: The total  change  in occupied  space over a given period  of time,  counting  space that  is occupied  but  not space that  is vacated  by tenants.  Gross absorption differs from leasing Activity, which is the sum of all space leased over a certain period of time. Unless otherwise noted Gross Absorption includes direct and sublease space.

Growth in Inventory:  The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings.

Industrial Building: A type of building  adapted for such uses as the  assemblage,  processing,  and/or  manufacturing of products from raw materials  or fabricated parts.  Additional uses include warehousing, distribution, and  maintenance facilities.  The  pri- mary purpose  of the space is for storing, producing, assembling, or distributing product.

Landlord Rep: (Landlord Representative) In a typical lease trans- action  between  an owner/landlord and  tenant,  the broker  that represents the interests of the owner/landlord is referred to as the Landlord Rep.

Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently  occupied by a tenant.  Leased space also includes space being offered for sublease.

Leasing Activity: The volume of square  footage  that  is commit- ted to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases  and  renewals  of existing  leases. It also  includes  any pre-leasing activity in planned, under construction, or under renovation buildings.

Market: Geographic boundaries that serve to delineate core areas that  are competitive  with each other  and constitute a generally accepted primary  competitive  set of areas. Markets are building- type specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundar- ies of the entire Region (See also: Region). Markets can be further subdivided  into Submarkets. (See also: Submarkets)

Multi-Tenant: Buildings that  house  more  than  one tenant  at a given time.  Usually,  multi-tenant buildings  were  designed  and built to accommodate many different floor plans and designs for different tenant needs. (See also: Tenancy).

Net Absorption: The net change in occupied  space over a given period of time.  Unless otherwise  noted Net Absorption includes direct and sublease space.

Net Rental Rate: A rental rate that excludes certain expenses that a tenant  could  incur  in occupying  office space.  Such expenses are expected  to be paid directly by the tenant  and may include janitorial costs,  electricity,  utilities,  taxes,  insurance  and  other related costs.

New  Space: Sometimes  called  first  generation space,  refers  to space that has never been occupied and/or leased by a tenant.

Occupied  Space: Space that  is physically  occupied  by a tenant. It does not  include  leased space that  is not  currently  occupied by a tenant.

Office Building: A type of commercial  building  used exclusively or primarily  for office use (business), as opposed  to manufactur- ing, warehousing, or other uses. Office buildings may sometimes have other associated  uses within part of the building,  i.e., retail sales, financial, or restaurant, usually on the ground floor.

Owner:  The company,  entity, or individual  that  holds title on a given building or property.

Planned/Proposed: The status of a building that has been announced for  future  development but  not  yet started construction.

Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date.

Price/SF: Calculated by dividing  the price of a building  (either sales price or asking sales price) by the Rentable  Building Area (RBA).

Property  Manager: The company  and/or  person  responsible  for the day-to-day operations of a building,  such as cleaning,  trash removal, etc. The property manager also makes sure that the vari- ous systems within the building, such as the elevators, HVAC, and electrical systems, are functioning properly.

Quoted Rental  Rate: The asking rate per square  foot for a par- ticular building or unit of space by a broker  or property owner. Quoted rental  rates  may  differ  from  the  actual  rates  paid  by tenants  following  the negotiation of all terms and conditions in a specific lease.

RBA: Abbreviation for Rentable  Building Area. (See also: Rentable Building Area)

Region: Core areas containing a large population nucleus,  that together  with adjacent  communities have a high degree of eco- nomic and social integration. Regions are further  divided into market areas, called Markets. (See also: Markets)

Relet Space: Sometimes called second generation or direct space, refers  to  existing  space  that  has  previously  been  occupied  by another tenant.

Rentable  Building Area: (RBA) The total square footage of a building that can be occupied by, or assigned to a tenant  for the purpose  of determining a tenant’s  rental  obligation. Generally RBA includes a percentage  of common  areas including  all hall- ways, main lobbies, bathrooms, and telephone closets.

Rental  Rates:  The  annual  costs  of occupancy  for  a particular space quoted on a per square foot basis.

Sales Price: The total dollar amount paid for a particular property at a particular point in time.

Sales Volume: The sum of sales prices for a given group of build- ings in a given time period.

Seller: The individual, group, company,  or entity that sells a par- ticular commercial real estate asset.

SF: Abbreviation for Square Feet.

Single-Tenant: Buildings that are occupied,  or intended  to be occupied by a single tenant.  (See also: Build-to-suit and Tenancy)

Sublease Space: Space that  has been leased by a tenant  and  is being offered  for lease back  to the market  by the tenant  with the lease obligation. Sublease space is sometimes  referred  to as sublet space.

Submarkets: Specific geographic  boundaries that  serve to delin- eate a core group  of buildings  that  are competitive  with  each other  and  constitute a generally  accepted  primary  competitive set, or peer group.  Submarkets are building  type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different  factors  relevant  to each building  type. Submarkets are non-overlapping, contiguous geographic  designations having a cumulative  sum that matches the boundaries of the Market they are located within (See also: Market).

Suburban: The Suburban and Central  Business District (CBD) designations refer to a particular geographic area within a metro- politan statistical area (MSA). Suburban is defined as including all office inventory not located in the CBD. (See also: CBD)

Tenancy:  A term used to indicate  whether  or not  a building  is occupied by multiple tenants  (See also: Multi-tenant) or a single tenant.  (See also: Single-tenant)

Tenant Rep: Tenant  Rep stands  for Tenant  Representative. In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep.

Time On Market: A measure of how long a currently  available space has been marketed for lease, regardless  of whether  it is vacant or occupied.

Under Construction: The status of a building that is in the process of being developed, assembled, built or constructed. A building is considered  to be under construction after it has begun construc- tion and until it receives a certificate of occupancy.

Vacancy Rate: A measurement expressed  as a percentage  of the total  amount of  physically  vacant  space  divided  by  the  total amount of existing inventory.  Under construction space generally is not included in vacancy calculations.

Vacant  Space: Space that  is not currently  occupied  by a tenant, regardless  of any  lease obligation that  may  be on  the  space. Vacant space could be space that is either available or not avail- able. For example, sublease space that is currently  being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be con- sidered vacant space.

Weighted Average Rental Rate: Rental rates that are calculated by factoring in, or weighting, the square footage associated with each particular rental  rate.  This has the effect of causing rental  rates on larger spaces to affect the average more than  that  of smaller spaces. The weighted  average rental  rate is calculated  by taking the ratio of the square footage associated  with the rental rate on each individual  available  space to the square  footage  associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces.

Year Built: The year in which a building completed  construction and was issued a certificate of occupancy.

YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative  from the beginning of a calendar  year through what- ever time period is being studied.

Source:  CoStar Group