Glossary of Terms

1031 Exchange (aka like-kind exchange)

1031 Exchange is a method of deferring capital gains taxes on the sale of real estate held for investment purposes by exchanging proceeds from the sale of such asset, into like-kind property of equal or greater value that is held for investment purposes, as defined in IRC Section 1031. 

Read More

1033 Exchange

A method of deferring capital gains taxes on property that is lost involuntary to condemnation, theft, or casualty, and a gain is realized from the insurance or condemnation proceeds. Although similar in scope to a 1031 exchange, the steps to transacting a 1033 exchange vary significantly. See Disasters and 1031 Exchanges (Part 2) for a list of these differences.

Read More

180-Day Exchange Period

180-day exchange period is defined under IRC Section 1031, which states that an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

Read More

200% Rule

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date

Read More

401k

A 401(k) plan is an employer-sponsored retirement plan that allows eligible employees to make tax-deferred contributions from their salaries or wages. Employers can offer to match employee contributions up to a certain percentage of salary or specific dollar amount.

The 401(k) plan was introduced by law in 1978. The IRS limits the amount an individual can invest into a 401(k). In 2019, the contribution limit was set at $19,000. Withdrawals from a 401(k) account are taxed and are charged with a 10 percent early-withdrawal penalty if drawn upon before a certain retirement age.

Read More

45-Day Identification Period

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

Read More

50% Gross Income Test

In order to qualify as a QOZB, an investor must demonstrate that a property or business generates at least 50 percent of its gross income from the active conduct of a trade or business in a QOZ. A trade or business will satisfy the 50% gross income test if it meets any of the following:
  • Hours Test: at least 50% of hours spent performing services for a QOZB by its employees and independent contractors (and by the employees of independent contractors) are performed within the QOZ, or
  • Pay Test: at least 50% of pay allocated to employees and independent contractors are in exchange for services performed in the QOZ, or
  • Qualitative Test: the QOZB’s positioning in a QOZ is critical to the generation of at least 50% of the gross income of the trade or business.
Read More

721 UPREIT Exchange

721 UPREIT exchange results in the same tax deferral benefits that are achieved as with a 1031 exchange. Capital gains taxes are deferred until such time as the exchanger sells 

Read More

95% Rule

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

Read More

Absorption

Absorption is the rate at which rentable space is leased within a market or submarket over a given period of time. Gross absorption measures total square feet

Read More

Accounts Payable

Accounts payable is an accounting term that measures the sum of a firm’s short-term obligations to creditors and/or suppliers. Accounts payable must be paid off in a defined period of time to avoid default and maintain a firm’s credit rating, thus ensuring its access to debt financing in the future.

Read More

Active Conduct

Proposed Regulations released in April 2019 dictate that a Qualified Opportunity Zone Business must generate at least 50 percent of its gross income from the active conduct of a trade or business in a Qualified Opportunity Zone. The regulations indicate that ownership and operation of a property used in a trade can be treated as active conduct of a business, but merely entering into a triple net lease at a property is not considered active conduct. Active conduct can be measured by the following:
  • Hours Test - if at least 50 percent of services of a business or trade is performed in the QOZ, the QOZB qualifies.
  • Pay Test - if at least 50 percent of services are performed in QOZ, calculated by the amounts paid by a QOZB to its employees and independent contractors, the QOZB qualifies.
  • Qualitative Test - A qualitative test gauges whether or not the property is responsible and/or critical for generating at least 50 percent of the business’s revenues.
Read More

Actual Receipt

Actual receipt is physical possession of, exchange proceeds or other property by an exchanger completing a tax-deferred like-kind exchange.

Read More

Ad-valorem Tax

A tax on the assessed value of real or personal property. Translated from Latin to mean “according to value”, ad-valorem taxes are based upon the monetary value of the asset or good. Common ad-valorem taxes seen in practice are property taxes, sales taxes, and taxes on import goods. Ad-valorem taxes can be transactional or assessed yearly.

To provide an example, an 8% sales tax is based on the monetary value of the good being purchased, and is transactional based, as it only applies when a good is being bought or sold. Likewise, a 7% property tax in Travis County is based on the monetary value of the land as determined by a government assessor, however, is paid annually.

Read More

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage, or ARM for short, is a mortgage loan which does not have a fixed interest rate throughout its term.  With an adjustable rate mortgage (ARM) the interest rate is subject to periodic adjustment.  The rate adjustment may be based on any time period (daily, monthly, quarterly, semi-annually, annually, etc.) and the adjusted rate is typically expressed as a spread or margin over a defined index rate. Typical index rates include LIBOR, Prime Rate, and the 30-Day US Treasury rate.

Read More

Adjusted Basis

Adjusted basis is the original purchase price of an asset plus its acquisition costs plus any capital improvements less the cumulative depreciation deductions

Read More

Adjusted Gross Income

Adjusted gross income (AGI) is a calculation used to determine how much income is taxable on a taxpayer’s tax return. Starting with gross income, which is a sum of all wages, investment income, capital gains, retirement income, among other things, AGI factors in a number of allowable deductions to arrive at the monetary amount a taxpayer will be taxed on.

The allowable deductions that can be factored into gross income to arrive at AGI include, but are not limited to: retirement plan contributions, medical expenses, capital losses, alimony payments, and school tuition and student loan interest.

Read More

After-Tax Cash Flow

The amount of money an investment generates after any tax liabilities have been paid. The first step in calculating after-tax cash flow is determining taxable income, then applying the appropriate marginal tax rate to produce one’s tax liability. As stated by the IRS, there are several deductions a taxpayer may claim that reduces taxable income, and thus his or her’s tax liability. Common deductions include mortgage interest payments and depreciation.

To provide an example, say a property generates $500,000 of Net Operating Income. Now assume that annual depreciation for the property is $400,000, taxable income would be $100,000. If an investor falls into a marginal income tax bracket of 35%, the tax liability would be $35,000. Deducting this number from the pre-tax income of $500,000, after-tax cash flow would equate to $465,000.

Read More

Alternative Investment

Alternative investment is an investment in asset classes other than the three traditional asset types (stocks, bonds, and cash). Most alternative investments are held

Read More

Amenities

Defined as a desirable or useful feature of a building or place, amenities look to provide comfort and convenience for tenants occupying the property. Amenities encompass additions that are in excess of the basic needs of an individual, and usually include features such as pools, workout facilities, and internet.

Read More

Amortization

Amortization is paying off debt over a period of time with a fixed repayment schedule in regular installments. Monthly mortgage payments are often comprised of

Read More

Anchor Tenant

Anchor tenant is the tenant that acts as the primary draw to a commercial property. It is usually the largest tenant in a shopping center or retail development. A common example is a grocery store.

Read More

Appellate Court

Appellate court, or the Court of Appeals are where entities come and submit previously reviewed cases in an effort to receive a new judgment. These cases are brought by parties which have been unsatisfied with the decisions of the lower court, and should a judgment be reversed or ruled differently by the appellate court, this new decision takes precedent over the ruling of the lower court.

Read More

Appraisal

Appraisal is an estimate of a property’s fair market value by an authorized person with applicable knowledge and expertise. Appraisals can be used for taxation

Read More

Appreciated Property

Appreciated property is a property that has increased in value over time. This increase can occur for a number of reasons including increased demand or weakening supply,

Read More

Appreciation

Appreciation is the increase in the value of an asset over time, which can be affected by a number of factors such as increased demand, weakening supply, or changes in inflation.

Read More

APR

Annual percentage rate (APR) is a measure used to calculate the percentage of principal on a loan that an individual or business will pay per year. It is ultimately expressed as a percentage that quantifies the annualized cost of funds during the term of a loan, though it does not account for compounding interest. APR is best used as a measure of the cost of funds and is a bottom-line figure that can be compared across a spectrum of lenders.
Read More

Arbitrage

Arbitrage is a method of risk-free investment in which an investor acquires an asset at a particular price in a certain market and simultaneously sells that asset for a different price in another market. Arbitrage exists as a result of market inefficiency and would not exist if markets were perfectly efficient. As technology has evolved over time, an investor’s ability to generate profits from arbitrage has diminished. Opportunities do still exist when, for example, the price of an asset on the New York Stock Exchange differs at the same moment in time from the price of the asset as it is listed on the London Stock Exchange.

Read More

Assessed Value

The monetary value of property determined for tax purposes. Assessed values are given by government assessors, and act as the basis for property taxes. Each tax district has a different method for conducting assessments, although all tend to rely upon similar factors such as comparable home sales, replacement value, and any income being generated from the property. Assessed values are typically less than private appraisal valuations in most jurisdictions, as assessed values act as a percentage of fair market value. In Mississippi, for example, the assessed value is just 10% of the determined fair market value for single-family, residential real property.1

While market values may fluctuate substantially, increasing or decreasing every year, assessed values tend to be less volatile. This is commonly due to state legislation limiting how much the assessed value of a property may increase year to year. In Oregon, for example, it is prohibited that the assessed value of land, that has not been improved from the previous year, increase in value more than 3% from the prior year.2

Read More

Assessor

A local government official who determines the assessed value of taxable property in a county or municipality. This valuation is used to determine the tax basis for a property in a given area.

After being appointed or elected, assessors are trained in common property appraisal techniques, reaching a degree of certification that varies city to city. In some cases, continuing education or even no certification is required for an assessor to maintain his or her status.

Read More

Asset

An asset is a resource owned by an individual, corporation or country that controls the item with the expectation that it will produce a benefit or cash flow in the future. Assets are typically reported on a firm’s balance sheet and are bought or created to increase a firm’s value or enhance a firm’s operations.

Read More

Asset Class

A group of investments that behave similarly in the market, and are subject to the same regulations. Today, the three main asset classes recognized are equities, bonds, and cash equivalents. Although real estate and commodities are included by some professionals as well, these investments typically fall in the alternative investment category.

Investments within an asset class are associated based on their underlying fundamentals. For example, fixed income investments are grouped because of their similar financial structure, and equities are grouped together because of what they represent and how they are traded. Because the fundamentals of each class differs, each represents a different risk and return profile. By allocating across different asset classes, investors may be able to achieve a degree of diversification in their portfolio. Diversification, however, does not guarantee profits or protect against losses.

Read More

Assets Under Management (AUM)

Assets Under Management (AUM) is the total market value of assets an investor has managed by a financial institution. These financial institutions vary, but mainly fall under bank deposits, mutual funds, and brokerages.
Read More

Bad Title

Bad title is title to a property that does not grant distinct ownership. Often used in the context of real estate, bad title results in the interests in real property not being transferred properly to the new owner. A product of unpaid taxes and liens, faulty transfer documents, building code violations, among other reasons, any encumbrance causing the cloud on title must be remedied before title can be fully transferred.

Read More

Balance Of Trade

Balance of trade is defined as the difference between the value of a nation’s imports and exports over a defined period of time. A country is considered to have a trade deficit if the value of the goods it imports exceeds the value of the goods it exports. A country has a trade surplus when the value of its exports exceeds the value of its imports. A country’s balance of trade is a metric used to quantify the relative strength of that country’s economy.
Read More

Balance Sheet

A balance sheet is a financial sheet that lists a firm’s assets, liabilities and equity at a point in time. The balance sheet provides a firm and its stakeholders a look at a point in time of what it owns, what it owes, and the difference of the value of its assets and the sum of its liabilities.

Used in tandem with financial statements such as the income statement and statement of cash flows which illustrate a firm’s performance over a period of time, a balance sheet illustrates the firm’s standing at the beginning and end of said period.

Read More

Balloon Payment

A balloon payment is a large payment due at the end of a loan’s life. This type of payment usually occurs over the life of a short-term loan, which has only been amortized partially over the course of the loan’s term. The balloon payment is the final repayment of the loan’s remaining balance.

Read More

Bank

A bank is a financial institution regulated by a regulatory body. A bank receives deposits and issues loans. Banks can also provide financial services that include wealth management, currency exchange and safe deposit boxes.

There are two types of banks: commercial banks and investment banks. Commercial banks primarily manage the funds of their customers in checking and/or savings accounts and by issuing loans to individuals and businesses. Investment banks provide services to corporate clients that include underwriting and merger and acquisition activities.

Read More

Bankruptcy Remote

Bankruptcy remote is typically used when discussing a special purpose entity. A bankruptcy remote entity is a separate legal entity whose bankruptcy or insolvency

Read More

Basis

Basis, in the context of commercial real estate, is an asset’s basis is the original purchase price or cost of investment property plus any out-of-pocket

Read More

Basis Point

The basis point is a common unit of measurement used in the field of finance. One basis point is equal to 1/100th of 1% (0.01%). Basis points are used primarily for noting changes in interest rates, yields, and equity indexes, and are used by analysts to minimize confusion when discussing percent changes in financial instruments. 

Read More

Beneficial Interest

A beneficial interest, typically referred to in manners concerning trusts,  is the right to receive benefit from assets held by another party. 

Read More

Beneficiary

Beneficiary is any person who is eligible to receive distributions from a trust, will, or life insurance policy.

Read More

Beta

A measure of systematic risk given to a security or portfolio, beta measures the volatility of a given financial instrument in comparison to the market as a whole. Often used in financial analysis, beta helps determine an asset’s expected return based off the capital asset pricing model.

Read More

Blanket Mortgage

A blanket mortgage is a type of mortgage that finances more than one piece of real estate. Similar to a conventional mortgage, the real estate acts as collateral under the loan, and depending on the terms, the individual pieces of real estate may be sold without retiring the entire mortgage.

In practice, blanket mortgages allow the mortgagee to aggregate its debt obligations under a single loan to a single lender. Due to the size and scope of the loan, the borrower may have the ability to negotiate better terms and achieve a lower interest rates. In addition, a borrower may be able to save on application and closing costs associated with taking on multiple mortgages.

The disadvantages of a blanket mortgage include the capability of the lender to foreclose on all of the properties serving collateral in the scenario that the borrower defaults. In addition, blanket mortgages are typically unable to cover properties across numerous states, as each state has unique guidelines regarding how blanket mortgages are issued.

Read More

Blind Pool

A blind pool is a limited partnership that raises funds from investors with no specific investment thesis. Typically managed by a general partner, the blind pool’s goal is broadly defined as growth or income, perhaps with a focus on a specific sector or sectors, but provides the general partner decision making autonomy in the allocation of capital.
Read More

Bond

A bond is a fixed income instrument that represents a loan from an investor to a corporation or government. A bond is considered a fixed income security that is throughout of as an IOU between the individual lender and borrower with terms that outline the details of the loan and its regular payments. A bond is equipped with an end date when the principal of the loan is due back to the borrower in addition to the specific coupon amount that is due to the lender on a payment schedule, based on the variable or fixed interest rate assigned to the loan.
Read More

Boot

Boot, although not specifically defined (or even mentioned) in IRC Section 1031, is commonly used and refers to the fair market value of cash,

Read More

Brexit

In a June 23, 2016 referendum, the U.K. voted to leave the European Union, making it the first EU country to do so. The event became known as Brexit, short for British exit. David Cameron, the then prime minister, resigned the next day. Theresa May, who replaced Cameron, tried three times to negotiate a deal with the EU, but failed on all accounts. The former mayor of London, Boris Johnson, is now prime minister and a Brexit supporter.

As of now, the U.K. remains in the EU, due to multiple extensions. Once the U.K. leaves the EU, and depending on the deal if leaves with, it will no longer be a part of the customs union and single market. Being outside of the EU will lead to increased commerce cost and transit time between the U.K. and EU countries.

Read More

Bridge Loan

Bridge loan is a short-term loan that is used until a person or company secures permanent, longer-term financing or fulfills an existing obligation. 

Read More

Broker Dealer

Broker dealer is a person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction.

Read More

Build-to-Suit (BTS)

Built-to-suit is a way of leasing commercial property whereas the developer/owner has constructed a building to the specifications of a particular tenant or type of tenant. This type of property is popular among tenants because of its ability to offer efficient layouts, reduce operating costs associated with the property, or create a building design that may be more favorable in the public eye.

Build-to-suit properties are common in retail and industrial property types, but may exist in any type of real estate such as office space. Given that a building is designed specifically for the tenant, leases are typically longer-term, and tenants may be less inclined to vacate the property.

Read More

Bull Market

A bull market is a term used to describe a financial market where the values of a particular group of securities are expected to rise. The term is most widely used when describing the stock market under conditions where an array of securities appreciate in value over an extended period of time, whether that be months or years. 

Bull markets are driven by investor optimism and confidence that the price of an asset today will be less than the price of the asset in the future.

Read More

Business Cycle

Business cycle is a term used to describe the cycle of economic activity that an economy experiences over time. Business cycles are characterized by expansion and contraction with regard to the output of goods and services in the described economy. 

There are six stages of a business cycle: expansion, peak, recession, depression, trough, and recovery. The National Bureau of Economic Research (NBER) measures and studies business cycles and defines the start and end dates of business cycles in the United States.

Read More

Business Ethics

Business ethics is the study of policies and practices with regard to corporate governance. Business ethics are critical to a firm’s operations, as they ensure that a firm is operating in an ethical manner on behalf of its stakeholders. Businesses began to become increasingly concerned with business ethics in the 1960s as society began to become more concerned with environmental and social causes.
Read More

Business Risk

Business risk is anything that jeopardizes a company’s ability to meet its financial goals. This type risk goes beyond the internal operations of a business, such as the actions of upper management, and can include external factors such as new regulations enacted by the government. By becoming aware of the different factors that may cause a particular business to fail, such as compliance and operational risk, a company may be able to enact a proper risk management strategy that mitigates specific risk that may affect their ability to drive revenue or control costs.
Read More

Buying on Margin

Buying on margin is the process in which an investor purchases an asset with leverage by borrowing a balance from a bank or a stock broker. Buying on margin allows for an investor to purchase assets with, for example, 20 percent cash and 80 percent leverage, where the leverage is secured by marginable securities held by the investor. 

In order to buy on margin, an investor needs to apply for approval from a bank or broker. The degree of buying power an investor has access to is a function of the total dollar amount of purchases the investor can make with cash and securities holdings.

Read More

Capital

Capital is defined as a type of financial asset that includes funds held in a deposits account or a physical factor production, e.g. manufacturing equipment and facilities and buildings used to produce and store goods. To be classified as capital, assets must serve as an ongoing source of service to the business used to generate wealth. Combined with labor, capital is combined with individuals who exchange their time and skills for money to create value.

“Capital” and “money” are commonly interchanged, but the two terms are distinct. Capital is deployed to crate growth and expand a company’s capacity to provide its service or develop its product, while money is a means purchasing and developing a company’s specific source of capital.

Read More

Capital Asset

Capital assets, for corporations and business entities, are assets that have a useful life longer than one year and are not held for sale in the ordinary course of business.

Read More

Capital Expenditures (CapEx)

Capital Expenditures are, in the context of commercial real estate, funds used by a company to acquire or upgrade physical assets that cannot be expensed as

Read More

Capital Gains Tax

Capital gains tax is tax payable on capital gains realized from the sale of a capital asset. Capital Gains Taxes are assessed by the federal government in the United States

Read More

Capital Stack

Capital stack is a term used to describe the composition of total capital invested in a project. Listed from most risky to least risky, capital stacks in real estate are usually comprised of common equity, preferred equity, mezzanine debt, and senior debt. Usually, the riskier positions in the capital stack tend to earn higher expected returns due to the increased risk taken on.

Read More

Capitalization

There are two meanings for capitalization as it relates to accounting and finance. In accounting, capitalization refers to a method by which a firm expenses the costs associated with the acquisition of an asset over the useful life of the asset rather than at the time it is acquired. In finance, capitalization is a measure of a firm’s book value (the sum of its stock, long-term debt, and retained earnings) or its market value (the product of the number of outstanding shares and the stock price).

Read More

Capitalization Rate (Cap Rate)

Capitalization rate is the initial rate of return an investment property is expected to generate. The Capitalization Rate is determined by dividing the

Read More

Carry Costs

Carry costs are any expenses the owner must pay on investment property over the course of owning it. These costs usually include utilities, debt service payments, taxes and insurance, among other items.

Read More

Cash Reserves

Cash reserves, in the context of commercial real estate, is cash and cash equivalents held in short term accounts used to cover things such as

Read More

Cash Sweep

A cash sweep is the use of a borrower’s excess free cash flow to pay down a loan’s principal balance or build a reserve account for the benefit of the lender. Commonly used in situations where a borrower’s cash flow is uncertain or volatile, a lender may implement a cash sweep provision to protect itself from the financial risk that may occur in years where a borrower’s cash flow may not be sufficient enough to satisfy its financial obligations to the lender.

A cash sweep is commonly activated in scenarios where a borrower fails to meet certain financial requirements or loan covenants as laid out in the loan terms. These may include failure to meet a minimum debt service coverage ratio, leverage ratio, or debt to equity ratio.
Read More

Cash-On-Cash Return

Cash-on-cash return is the ratio of annual before-tax cash flow from an investment to the total amount of cash invested, represented as a percentage.

Read More

Census Tracts

Small, relatively permanent statistical subdivisions of a county or equivalent entity that are updated by local participants prior to each decennial census as part of the Census Bureau's Participant Statistical Areas Program.  The primary purpose of census tracts is to provide a stable set of geographic units for the presentation of statistical data.

Read More

Certificate of Deposit

A certificate of deposit (CD) is a savings certificate issued by a financial institution that has a fixed maturity date and interest rate that restricts the certificate holder’s access to funds from the time of issuance to the specified maturity date. CDs are tools that financial institutions and banks use to generate deposit growth and are typically issued electronically. Financial institutions typically charge a fee if an investor wishes to obtain access to funds prior to the maturity date.

Read More

Certificate of Occupancy (CO)

Certificate of Occupancy is a document issued by a local government agency, certifying that a building meets certain requirements and codes that indicate its fitness to house tenants. These requirements differ across building types, as well as cities and states, and are usually required to be met by new developments.

Read More

Certified Public Accountant

A certified public accountant (CPA) is a designation bestowed upon an individual by the American Institute of Certified Public Accountants (AICPA) when that individual satisfies the educational requirements and passes the CPA exam. In order to be deemed a CPA, an individual must obtain a bachelor’s degree in business administration, finance or accounting, have no fewer than two years of public accounting experience, complete 150 hours of education, and pass a certification examination.

Read More

Checking Account

A checking account is a liquid type of account individuals and businesses use to deposit and withdraw funds at a financial institution or bank. Consumers and businesses can access funds held in checking accounts via checks, automated teller machines and electronic debits. Banks allow unlimited withdrawals and deposits on checking accounts.

Checking accounts typically do not offer high interest rates because of the high level of liquidity it offers to customers. Funds held in a checking account at a chartered banking institution regulated are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,0000 per individual depositor

Read More

Closing Costs

Closing costs are expenses over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction.

Read More

Co-tenancy Clause

A lease provision that protects retail tenants in the event that major tenants leave an area or a certain percentage of the retail center they occupy is vacant. Based on the belief that high occupancy with strong tenants drives traffic, co-tenancy clauses remedy smaller tenants when larger tenants vacate the premises. These remedies can include a reduction in rent or the ability to terminate a current lease.

Heavily negotiated in lease contracts, co-tenancy clauses create a degree of risk for the landlord. Contingent on the property, lawful acts of third-party tenants, co-tenancy clauses may create a “domino effect” of vacancies in the event that a major tenant does not comply with the terms its lease.

Read More

Collateral

A property or asset that a borrower pledges to a lender in the event of default. When a borrower fails to make debt service payments as stated in the loan agreement, collateral looks to secure repayment of the loan, providing protection to the lender. In real estate, typically the property that is being financed by the loan serves as collateral, whether this be a house or commercial property. Other common types of collateral include: plant and equipment, marketable securities, and personal property.

Read More

Commercial Real Estate

Commercial real estate is real estate intended to generate income or profit for the owner of the property. Generally includes all categories of non-residential real estate

Read More

Common Area

Common areas are the areas of a building that are available for the nonexclusive use of all its tenants, such as lobbies, corridors, and parking lots.
Read More

Common Area Maintenance (CAM) Charges

Common area maintenance charges are the contribution or fee paid collectively by individual tenants for the maintenance and upkeep of the non-exclusive areas of the premises. 

Read More

Community Development Financial Institutions Fund (CDFI Fund)

Promotes economic revitalization in distressed communities throughout the United States by providing financial assistance and information to community development financial institutions (CDFI)

Read More

Comparative Advantage

Comparative advantage is a term that describes a firm’s ability to produce a good or service at a lower cost than its competition. A comparative advantage in terms of production enables the firm to sell its good or service at a lower price and a higher margin than its competition. 

Comparative advantages cannot be explained without understanding opportunity costs, which are measured as the potential benefit an individual misses out on when choosing one course of action over another. On an individual basis, a college degree provides an individual a comparative advantage over not having a college degree, as that credential provides the individual the ability to convince employers that he or she is capable of providing tangible value to a firm.

Read More

Compound Interest

Compound interest is “interest-on-interest”, or the ability of a financial instrument to generate earnings on its earnings.

Read More

Concessions

A benefit given by a buyer, seller, landlord or tenant in order to help facilitate a real estate transaction. Concessions can be given in both residential and commercial real estate, and are often predetermined during the negotiation period. Concessions are often included in closing costs, but come in various forms: covering moving expenses and repair costs, rent reduction, or even cash back to the buyer.

Read More

Concurrent Exchange

Concurrent exchange refers to a method of executing a tax deferred exchange (aka 1031 exchange or like-kind exchange) where the sale of the relinquished property

Read More

Condemnation

Condemnation is the seizure of property by a public authority for a public purpose. Condemnation typically occurs when a taxpayer owns property in a place

Read More

Constructive Receipt

Constructive receipt is direct access to tax-deferred like-kind exchange funds or other property by an exchanger completing a tax-deferred like-kind exchange.

Read More

Consumer Price Index (CPI)

A measure of the change in the value of consumer goods and services, such as food, medical care, and recreation. CPI is used to gauge inflationary and deflationary periods, providing an economic indicator as to the effectiveness of current monetary policy. The index is calculated and published by the U.S. Bureau of Labor Statistics each month.

Read More

Continuous Operation Clause

A clause commonly written in retail leases that requires a tenant to continuously operate at a property for the entire term of the lease. As anchor tenants may act as a demand driver for a retail center, landlords may enforce this clause to minimize the risk of a major tenant “going-dark.” In situations that a continuous operation clause is not included in the lease terms, a non-profitable tenant may leave the premises, and the center may suffer as a whole. Smaller tenants may negotiate rent abatements to make up for the loss in traffic due to the anchor tenant ceasing operation.

For example, assume a major grocery store has begun to operate at a loss in a shopping center, and has requested to “go-dark.” Knowing that the grocery store may drive a substantial amount of people to the area, the landlord may have negotiated a continuous operation clause that requires that the tenant maintain full operations. Although the grocery store may not be profitable, staying open continues to drive traffic and traffic helps to maintain the value of the overall retail center.

Read More

Core Property

Core properties exhibit the lowest risk and lowest potential returns amongst the four major commercial real estate risk profiles, and represent

Read More

Core-Plus Property

Core-plus properties are generally similar to core properties, but have a slightly higher degree of risk and potential for slightly higher returns than core properties.

Read More

Cosigner

A cosigner is a term used to identify an additional source of repayment on a loan. A cosigner can aid a borrower by increasing the amount of principal for which he or she is eligible. A borrower may need a cosigner if he or she has a low income or minimal credit history.

Read More

Cover Letter

They say first impressions are everything. This is especially true when applying for a job. A cover letter is your chance to make a great first impression. The cover letter is a summary of you and includes parts of your resume. It’s meant as a conversational piece to show off your best attributes and why you’re the best candidate.

Read More

Credit Card

A credit card is an item issued by a financial services company that provides a consumer a personal, unsecured line of credit to make purchases from merchants that accept credit cards.

Consumers will have limits on their lines of credit based on their credit score and annual salaries and wages. Credit cards feature higher annual percentage rates (APRs) than other lines of credit because of the lack of collateral associated with the line of credit. Whereas a financial institution may repossess a delinquent borrower’s home or vehicle if repayment stops, a financial institution will have a harder time obtaining recourse on the unsecured personal line of credit.

Read More

Credit Rating

A measure of a person or entity’s ability to meet certain financial requirements or obligations. Credit ratings are based on credit history, current financial position, and ability to generate future income, and look to predict the likeliness of the debtor defaulting. Common rated debt instruments include government bonds, municipal bonds, corporate debt, and collateralized securities. 

Read More

Credit Report

A credit report provides a breakdown of an individual’s credit history and is a measure of that individual’s creditworthiness in the future. Credit bureaus compile credit reports by compiling financial information about an individual’s previous history of repayment and current levels of debt, among other factors. A credit report is a tool that lenders use to assess the risks associated with issuing debt to an individual.

Read More

Credit Risk

The risk of loss resulting from a borrowers inability to repay its loan obligations. When a borrower is given funds from a lender, there is always risk that the borrower may not be able to meet its obligatory principal and interest payments. Although impossible to quantify, managing credit risk may reduce risk of loss. Common methods of managing credit risk on loans include assessing a consumer’s credit history, ability to repay, and access to capital. A lender may also look at loan conditions and the collateral securing the loan, to ensure that the risk of loss is compensated for.

Read More

Credit Score

A credit score is an index that quantifies an individual consumer’s history of creditworthiness and his or her probability of repaying future debts. A credit score ranges from 300 to 850; the higher the score, the more trustworthy a lender considers a consumer. 

FICO is the most commonly accepted method of credit score. A credit score is a key component of a lender’s decision to extend a line of credit to an individual. Individuals with credit scores below 640 are considered subprime borrowers, while borrowers with credit scores above 700 are considered creditworthy.

Read More

Credit Tenant

Credit tenant is a tenant with the size and financial strength worthy enough of being rated as investment grade by one of the three major credit agencies: Fitch, Moody’s,

Read More

Credit Tenant Lease

Credit tenant lease is a method of financing real estate where the landlord borrows money to purchase the property and pledges the rent to be received from the tenant as security.

Read More

Credit Unions

Credit unions are financial institutions that perform banking activities and are created, owned and operated by participants. Under the credit union structure, members pool money together via deposit accounts to provide loans and other financial products and services to other members. Credit unions and their members are typically comprised of individuals with some sort of common bond, whether that be occupation in a regional fire department or status as health workers in a hospital system.

Income generated from the activities conducted by a credit union are used to fund projects and services that will benefit the interests of the credit union’s members.

Read More

Cross-Collateralization

The act of using multiple properties to secure one or more loans. Common in situations where a borrower lacks the capital to purchase a property, a cross-collateralized loan allows the borrower to use the untapped equity in another property to secure the loan on another property. This type of loan reduces the lender’s risk by securing their position in multiple properties.

For example, say John wants to buy Property A for $2 million. He currently has $200,000 in cash, and needs to borrow $1.8 million to close. The lender, however, will not lend past an 80% loan-to-value, leaving John $200,000 short on his down payment. Given that the lender will accept additional property in the place of the down payment, John looks to use a property he already owns, Property B, as further collateral. Property B has a $400,000 loan in-place, with John’s equity representing about $600,000.

Together, the market value of these properties is $3 million. The combined debt is $2.2 million, representing a loan-to-value of 73.33%. John’s debt level is then below the 80% threshold, making the lender more inclined to fulfill his loan request. The Lender now has claim to both properties in the event of default.

Read More

Crowdfunding

Crowdfunding is a form of financing that utilizes small amounts of capital from a large number of people to fund a new venture or project. Originally brought forward as a way for organizations and entrepreneurs to secure general funding and donations from the public, regulatory changes passed in the JOBS Act have allowed for equity crowdfunding to emerge so that investors could gain a return on their crowdfunding investment.

Read More

Curb Appeal

Curb appeal is the attractiveness of a residence or investment property from the sidewalk or street. Often a term used by real agents when selling a property, increasing curb appeal may attract potential buyers to particular property over a less appealing property of similar size and scope. Items that may play into curb appeal include landscaping, painting, fixtures, and even the surrounding area and neighborhood.
Read More

Dark Space

Any space or suite which is physically vacant or “dark”, but for which the tenant is still contractually obligated to pay rent. Dark space typically results from a tenant ceasing operations at an unprofitable location, in hopes of saving cash on employee wages and other operating expenses. The ability of a tenant to allow its space to go “dark” is governed by any go dark provisions and/or continuous operations clauses in its leases. Dark space may be subject to recapture rights by the landlord.

Read More

Debt

Debt is an amount of money owed by a borrower to a lender. It is used by individuals and corporations to make large purchases that they otherwise would be incapable of making given current cash holdings. A debt agreement provides terms that include the amount borrowed and the date at which principal and interest need to be repaid.

Read More

Debt Financing

A method of raising capital through borrowing. Although commonly associated with lending from a bank, debt financing includes selling debt instruments to individual and institutional investors, often seen in practice by corporations through the use of bonds. The cost of debt is the price of interest payments to either the lender or bondholder.

Read More

Debt Service

Debt service is the cash that is required for a particular time period to cover the repayment of interest and principal on a debt. 

Read More

Debt Service Coverage Ratio (DSCR)

In the context of commercial real estate, a measure of the cash flow available to pay current debt obligations. It is calculated as the annual

Read More

Deed in Lieu of Foreclosure

Deed in lieu of foreclosure is a deed instrument in which the mortgagor (borrower) conveys all interest in a real property to the lender to satisfy a loan that is in default and avoid

Read More

Deed of Trust

A deed of trust, like a mortgage, is a security instrument used to finance real estate. A deed of trust transfers legal title in real property to a trustee,

Read More

Deferred Gain

In a tax-deferred exchange, the deferred gain is the amount of gain that escapes current taxation and is deferred until a later date.

Read More

Deficit Spending

Deficit spending is a term that describes the conditions under which a government’s expenditures exceed its revenues in a particular fiscal period. Deficit spending increases a government’s debt balance, and is typically financed by the issuance of government bonds. Many economists believe deficit spending to be a fiscal policy tool that can stimulate economic growth.

Read More

Deflation

Deflation is a term used to describe a scenario in which the price for goods and services declines, or when the inflation rate falls below 0 percent.

Experts believe deflation can be caused by a number of factors, but the two predominant causes of deflation are a decline in aggregate demand and increased productivity. Declining aggregate demand will drive the price for goods and services lower as suppliers seek to offer their goods or services at a price that will incentivize consumers to buy. Increasing productivity can also cause deflation. Companies that become more efficient by minimizing production costs have the option to pass on savings to consumers with lower prices than competitors who may not yet have been able to drive the cost of production down.

Read More

Delaware Trustee

In a Delaware Statutory Trust (DST), the Delaware trustee maintains a physical address in the state of Delaware in order to prevent the DST from

Read More

Delayed Exchange

Delayed exchange refers to a method of executing a tax deferred exchange (aka 1031 exchange or like-kind exchange) in which the exchanger or taxpayer sells

Read More

Delivered

In real estate, delivered means the total square footage or number of properties in a particular asset class that have been completed (status changing from under construction to inventory) and received a certificate of occupancy during a given period of time. Once a certificate of occupancy has been given, the property will be deemed delivered, regardless if tenants have occupied the space or not.

Read More

Demand

Demand is an economic principle that describer’s a consumer’s inclination to consume a particular good or service at a particular price. In theory, a price of a good is determined by the intersection of the supply and demand curves by gauging the consumer market’s appetite to consume a good or service at a price offered by suppliers.

There are two types of demand: elastic and inelastic. A good or service with elastic demand experiences a sharp decrease in quantity demanded when the price of that good rises. A good or service with inelastic demand does not experience a sharp decrease in quantity demanded when the price of that good rises. Examples of elastic goods are toys or candy, while water and medicine are examples of inelastic goods.

Read More

Depreciation

Depreciation, in our context, refers to the allocation of an asset’s cost over the timeframe of its “useful life”, or duration for which it will be useful

Read More

Depreciation Recapture

Depreciation recapture is the USA Internal Revenue Service (IRS) procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset

Read More

Discount Rate

Discount rate is the interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

Read More

Discounted Cash Flow (DCF)

A valuation method used to estimate the feasibility and attractiveness of an investment opportunity. DCF analysis utilizes future free cash flow (FCF) and discount rate estimates to determine a net present value (NPV) of the investment. If the present value of the cash flows is higher than the initial cost of the investment, the DCF analysis will show a favorable investment, or positive net present value (NPV). If the initial cost is higher, however, the NPV will be negative, showing an unfavorable investment.

For example, an investor has estimated that a project they are investing in will generate a FCF of $50,000 over the next 5 years with a cost of capital of 9%. Taking into account the time value of money, the investor determines that the present value of the investment is approximately $195,000. If the initial cost of the project is $200,000, the NPV would be about -$5,000, showing a poor investment opportunity.

Read More

Distressed Areas

Low-income community census tracts are the basis for determining eligibility in Qualified Opportunity Zones.

Read More

Diversification

Diversification is an investment strategy that seeks to mitigate downside by allocating proceeds across a variety of assets or products. The goal of diversification is to build a portfolio of investments across unrelated markets, so a downturn in one particular market may not drastically affect the returns of the portfolio as whole. Diversification looks to create a smoothing effect, allowing the negative performance of some investments be counteracted by the positive performance of an unrelated asset. Diversification is only a strategy, however, and does not guarantee returns and does not protect against losses.

An example of employing a diversification technique would be owning a portfolio of single family homes, corporate equities, and treasury bonds. Although some inherit systematic risk may still exist, an investor would not be fully exposed to the same non-systematic risk across the entire portfolio.

Read More

Dividend

A dividend represents the distribution of a reward, usually in the form of cash, to a firm’s shareholders paid in exchange for the shareholder’s investment in the company’s equity. A dividend is managed by a company’s board of directors and typically paid from a company’s net profits regularly on a monthly, quarterly or annual basis.

Read More

Double Net Lease

Double net lease is a lease agreement in which the tenant is responsible for their pro-rata share of both property taxes and premiums for insuring the building,

Read More

Down Payment

Down payment is a payment used in the context of purchasing an expensive good or service, whereby the payment is the initial upfront portion of the total amount due

Read More

Downtime

Also expressed as average space downtime, downtime is the general term used to describe the typical amount of time expected between the expiration of a lease and the commencement of a replacement lease for a particular property. Downtime pertaining to real estate is usually expressed in weeks or months.
Read More

DST Sponsor

A DST Sponsor is a person or entity that creates a Delaware Statutory Trust (DST) to hold real property asset(s) and arranges for the issuance of

Read More

Duration

Duration is a measure of the sensitivity of a fixed income security’s price to changes in interest rates.

There are generally two methods of calculating a bond or debt instrument’s duration. The first method of duration calculation is called Macaulay duration, which accounts for the present value of future bond payments and value at maturity. It is the standard by which markets calculate bond pricing. The second method of duration calculation allows an investor to know how much a bond’s price will fluctuate if the yield to maturity rises or falls by one percent.

Read More

Earnest Money

Earnest money is a payment made to a seller indicating a buyer’s willingness to enter into an arrangement. Typically, buyers provide earnest money to acknowledge that they are serious about a potential purchase, or that their intent to transact is “in good faith.” For the seller, earnest gives assurance that the buyer won’t backout of negotiations without valid cause. Earnest money does not obligate a buyer to transact, however, as issues with the property may be found later while being appraised or inspected.

Read More

Easement

Easement is a non-possessory right that allows the holder to occupy or use real property that he or she may not actually own. Easement rights are limited in nature, and are restricted to whatever is “convenient or necessary” to satisfy the purposes of the easement. There are two main types of easements that are common in real property: easements appurtenant and easements in gross.

Read More

Economic Growth

Economic growth is a term used to describe an increase in the production of economic goods and services over time. It is measured by an increase in the market value of goods and services produced as a result of changes in the productive capacity of capital goods, labor force, technology, and human capital.

Read More

Economic Life

Economic life is the period an entity expects to be able to use an asset, assuming a normal amount of usage and maintenance. Different from physical life, economic life is used to determine how long a capital investment, or investment in real estate, will be useful towards the operations of a business. Economic life doesn’t just refer to a predetermined amount of time, and can be applied to other forms of measurement such as mileage. For example, one may refer to an automobiles economic life as 200,000 miles, instead of 15 years.

Read More

Economically Distressed Community

See Distressed Areas
Read More

Economies of Scale

Economies of scale are competitive cost advantages that firms enjoy when they achieve efficiency in production. The higher the production and the larger the business, the wider the fixed and variable costs can be spread.

Read More

Egress

The right to exit a property or the act of going out of or leaving a place. From a real estate standpoint, egress and ingress may be important components of site feasibility.  Properties typically have entry and exit points along public streets, however that is not always the case.  In situations of a landlocked or difficult to access property, access easements may be necessary in order to provide reasonable access to and from the property. Note that easements rights to enter and exit a property may be separate from legal ownership of the property itself.

Read More

Elasticity

Elasticity is a concept used to measure the sensitivity of one variable to change in another variable. Typically used to gauge consumer demand for a good or service, elasticity can be measured by the change in aggregate quantity demanded following a change in price or quality.

Read More

Empowerment Zones

Economically distressed communities designated by government for aid—but this aid is intended primarily to lift the communities out of poverty by stimulating business enterprise and creating jobs.

Read More

Encumbrance

Encumbrance is any limitation on the ownership of real property. Similar to a lien, an encumbrance can restrict both the free use and the transferability of the property until removed. Encumbrances include leases and mortgages, but are not always financially related. Encumbrances are non-possessory, holding no interest in the title of real property.

Read More

Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is the process used by firms to manage various portions of their business to promote efficiencies across business lines. ERP systems are used to manage all levels of a firm’s operations, from distribution and supply chain management to treasury management and payroll processing.

Enterprise resource planning allow firms to integrate all information onto a single platform and promote the sharing of information across various departments. ERP is particularly valuable for corporations that operate across diverse geographies across a country or the globe.  

Read More

Environmental Site Assessment (ESA)

Environmental Site Assessment is a report prepared for a real estate holding that identifies potential or existing environmental contaminations liabilities.
Read More

Equity

Equity is the value of an asset less the value of all liabilities on that asset. For example, if an investor owned a property with a market value of

Read More

Equity Financing

A method of raising capital through the sale of ownership interests in an enterprise or other business entity. Equity financing can range in size from seed money for a start-up to an IPO for a multinational corporation. This type of financing isn’t limited to business endeavours, however, and can include raising capital for a real estate acquisition or other asset that may churn a profit. Equity ownership includes, but is not limited to, common stock, convertible preferred stock, and ownership interests in a Delaware Statutory Trust.

Read More

Equity Interests

Equity Interests are ownership interest in a business entity, from the concept of equity as ownership. 

Read More

Equity Investments

Equity investments are one or more shares in the ownership of a business or corporation that are purchased by investors. In contrast to debt investments, equity investments

Read More

Equity Load

Equity load is a commission paid by an investor on his or her investment in a security (in this case a beneficial interest in DST or TIC). The sales charge is paid to

Read More

Escrow Agent

Escrow agent is an entity that has fiduciary responsibilities in the transfer of property from one party to another. The escrow agent acts as a custodian of

Read More

Escrow Funds

Escrow funds are capital held by a neutral entity in an account for the benefit of the parties of a financial arrangement whereby the funds are distributed only after certain

Read More

Estate Planning

The process of arranging the transfer of one’s wealth and assets after his or her death. Estate planning helps govern how these assets will be managed and distributed, while looking to minimize estate taxes to preserve wealth. Real estate, personal property, stock and other securities, life insurance, and debt are a few of the assets that are considered to be part of an individual’s estate.

Read More

Estate Tax

Per the IRS, an estate tax is a tax on the transfer of property upon death. An estate tax considers the fair market value of all the property within one’s estate, and not what the assets were originally purchased for. The total of these items is known as the Gross Estate, and can include cash, securities, ownership interests in either a business or real estate, annuities, among other asset classes. As of 2019, a filing is only required for estates with a gross assets and prior taxable gifts above $11,400,000.

Once the Gross Estate has been determined, one may be able to take deductions to determine the actual taxable amount of the estate. These include mortgages, estate administration expenses, and property that is given to eligible charities. Note, that property passed to a living spouse may be transferred tax free.

Read More

Exchange Accommodator Titleholder (EAT)

For Exchange Accommodator Titleholder see Accommodator.

Read More

Exchange Period

Exchange period, under IRC Section 1031, is when an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

Read More

Exchange Proceeds

Exchange proceeds are cash proceeds from a transfer of relinquished property held in a qualified escrow account set up by a qualified intermediary whereby the funds

Read More

Exchange Rates

An exchange rate is a metric that quantifies the value of a country’s currency as it relates to the value of another country’s currency. Most exchange rates are considered floating rates, meaning that the rate rises and falls as a result of changes and developments on the foreign exchange market. An exchange rate tells an individual for example how many euros he or she can obtain in exchange for one U.S. dollar.

Read More

Exchange-traded Fund (ETF)

An exchange-traded fund (ETF) is collection or basket of securities traded on a financial exchange. ETFs can be bought and sold via brokers just as stocks can. ETFs can have any type of investment concentration and offer investors exposure to thousands of stocks, commodities or bonds operating within or originated in the United States, emerging markets such as India or Brazil, Europe or any other geography. It can also focus on a specific industry or sector such as banking, telecommunications, minerals or technology.
Read More

Exchanger

Exchanger is the taxpayer or owner of the property or properties being exchanged during a tax deferred exchange (aka 1031 exchange or like-kind exchange).

Read More

Excise Tax

Excise tax is an indirect tax charged to a producer of a good such as oil or tobacco that is ultimately passed onto a consumer via a higher price. There are two types of excise taxes: ad valorem and specific excise tax.

Ad valorem means “according to value” in Latin. An ad valorem excise tax is levied on a product or service based on its value. Tax regulators impose ad valorem excise taxes on products and services via a fixed percentage of the price for that good or service.

Read More

Exclusive Right Listing

Exclusive right living is a formal agreement between a seller and a real estate agent, under which the real estate agent has the sole right to sell a specified property.

Read More

Exclusive-Agency Listing

Exclusive-agency listing is an agreement established between the seller and one real estate agent, where the seller reserves the right to sell the property on his or her own,

Read More

Exit Strategy

A planned approach to liquidating one’s position in an asset, investment, or venture in hopes of minimizing loss or maximizing gain. Exit strategies may be executed when an investment has stopped being profitable, or has met its objective. Other factors that may contribute to an exit include a change in market conditions or legal reasons.

Read More

Expected Return

Expected return is the amount an investor would anticipate receiving on an investment that has various known or expected rates of return.

Read More

Expense Stops

Expense stops, as stated in a commercial lease, mark the extent of operating expenses and taxes a landlord will be responsible for on a tenant-filled property. All expenses past this threshold will be held liable by the active tenant.

Read More

Externality

Externality is an economic term that describes a third-party factor that has a positive or negative impact on an individual or firm where the third party factor has no direct control over the creation of a cost or benefit. 

The impact that positive net migration to a particular market in the United States has on property values is an example of a positive externality. The impact of an uptick in crime in a particular neighborhood has on the value of homes in that area is an example of a negative externality.

Read More

Face Rent

Face rent is also known as Stated Rent.

Read More

Factors of Production

Factors of production are inputs that firms use to generate economic profit during the production of a good or service. These factors include land, labor, capital, entrepreneurship, and technology. 

Firms leverage these factors to generate economic profits by generating revenues from the sale of a good or service that exceeds the costs of producing or maintaining these factors.

Read More

Fannie Mae

Fannie Mae is the more common alias of The Federal National Mortgage Association (FNMA) is a publicly traded

Read More

FDIC

The Federal Deposit Insurance Corporation is an independent federal agency tasked with insuring customer deposits at US banks and thrifts. Created in 1933, the FDIC seeks to maintain public confidence and stability throughout financial crises by promoting sound banking practices.

Read More

Federal Funds Rate

The interest rate at which banks lend reserve balances to each other on an overnight basis. Depository institutions are required by law to maintain a certain percentage of their customer’s money in reserves, causing banks to lend money back and forth to maintain an acceptable level of cash on hand. Banks will try to stay as close to the minimum reserve limit as possible, as excess reserves earn a rate of return of zero and can lose value over time due to inflation.

Read More

Federal Reserve System

The Federal Reserve System is the central bank of the United States. As the regulator of the nation’s financial systems, the Federal Reserve monitors the country’s monetary policy, regulates and seeks to institute policies that maintain the stability of the economy.

The Federal Reserve is comprised of the Board of Governors and 12 Federal Reserve Banks in cities around the United States.

Read More

Fee Simple Ownership

The most absolute type of ownership of land. The owner has complete rights over the property, and may possess, use, and dispose of the land as he or she desires. Contrary to a leasehold ownership, an owner of a fee simple interest in a property has taken title, and owns both the land and any improvements that exist on the land indefinitely. Expect for a few unique situations, no one can legally take ownership of land from someone with pre-existing fee simple ownership.

Read More

Fiat Money

Unlike a commodity currency, fiat money is not backed by any physical asset such as gold or silver. Instead, it relies on the faith people have in the currency and the government behind it. The U.S. dollar is a fiat currency and is considered the least risky currency of all the other fiat currencies. The U.S. dollar has become a global safe haven because of the U.S. government’s stability. It is backed by the "full faith and credit" of the U.S. government.

A fiat currency provides a country’s central bank with more control over the money supply — credit supply, liquidity, interest rates, and money velocity. Because central banks can print money, unless there are checks and balances, the situation can get out of control, leading to hyperinflation, as was the case in Zimbabwe and the Weimar Republic of Germany.

Read More

Finance

Finance is a term that describes the study and system of money, investments and various other financial instruments. Generally, finance is broken into three categories: public finance, corporate finance and personal finance.

Read More

Finance Charge

A finance charge is a fee that a lender earns in exchange for the issuance or extension of a line of credit. A finance charge can take the form of an origination fee on a loan or interest payments associated with the amortization of a loan. A finance charge is often a function of a borrower’s creditworthiness. Thus, the higher a borrower’s creditworthiness, the lower a finance charge may be.

Finance charges provide lenders an incentive to provide funds to consumers and businesses. Without the, lenders would receive no compensation for providing liquidity to individuals and businesses.

Read More

Financial Leverage

Financial leverage is the use of borrowed funds to acquire an investment. In the context of commercial real estate, this typically involves the use of a mortgage

Read More

FinTech

FinTech, which is short for Financial Technology, is the word used to describe new technology that is developed to automate and improve the financial and banking services sectors. Typically delivered through different algorithms and software packages on computers and smartphones, FinTech looks to help corporations, business owners, and consumers facilitate and manage their financial operations and needs.

Read More

Fiscal Policy

Fiscal policy is a tool used by governments to influence economic conditions via spending and tax policy. Fiscal policies are implemented to influence demand for goods or services, employment, inflation or economic expansion.

A government can implement fiscal policy in the form of lower tax rates in order to influence higher levels of consumer spending. It could also promote economic expansion by building infrastructure such as public transportation or highways that will allow individuals and businesses higher levels of connectivity and ability to expand productivity.

Read More

Fiscal Year

A fiscal year is a period of time that a firm or government uses for its accounting and preparation of financial statements. Though it is similar to a calendar year in that it is 12 months, the Internal Revenue Service (IRS) provides firms the choice to pay tax liabilities on a calendar year basis or fiscal year basis. 

The Internal Revenue Service dictates that a fiscal year consists of twelve consecutive months ending on the last day of any month with the exception of December. Thus, a firm can report its financial statements to various regulators and shareholders as of the fiscal year ending February 28. 

Read More

Fixed Cost

A fixed cost is one that does not fluctuate as a function of an individual’s or firm’s level of activity or usage. An example of a fixed cost is debt service. A borrower that obtains financing at a fixed interest rate is liable to pay a regular debt service on a monthly or annual schedule until the principal and interest on the loan reach zero.

A fixed cost is a critical input in a firm’s break-even analysis, which is used to determine pricing and production for the firm’s inputs and products.

Read More

Fixed Rate Loan

A type of loan where the interest rate is predetermined, and does not fluctuate during the term of the loan. Fixed rate loans allow borrowers to accurately calculate future financial obligations, in the form of both principal and interest payments.

Read More

Fixture

A fixture is something that is permanently attached to real property.  Examples include items such as HVAC systems, ceiling lights, awnings, window shades,

Read More

Flat Tax

Refers to a tax system that utilizes the same marginal tax rate across individual taxpayers or businesses. Opposite of the progressive tax structure, this method ensures that higher income earning entities don’t pay a proportionately higher amount of taxes. 

Read More

Foreclosure

Foreclosure is the legal process by which the mortgage holder attempts to recover the balance of a loan from a borrower who has defaulted by forcing the sale

Read More

Foreign Investment in Real Property Tax Act (FIRPTA)

Foreign Investment in Real Property Tax Act (FIRPTA) is a United States tax law that imposes a tax on foreign persons disposing of United States real property interests. To ensure tax collection from

Read More

Form 1099

One of the several tax forms distributed by IRS, Form 1099 is used in the United States to report various types of income other than wages, salaries, and tips. The form is primarily used to report payments to independent contractors, income from rental properties, and income from interest and dividends.

Read More

Form 8824

Form 8824 is a form to be filled out with an exchanger’s tax return in order to report the completion of a 1031 like-kind exchange to the IRS.

Read More

Fractional Ownership

Percentage ownership over real property. A common structure for assets that require significant pooling of capital, fractional ownership allows the costs and profits of a particular investment be split amongst the owners of title. Percent ownership is typically determined by the amount contributed to the entity’s overall capitalization.

There are two primary options one can take when considering 1031 eligible fractional ownership in investment property: Delaware Statutory Trusts (DSTs) and Tenant-In-Common investments (TICs). These structures allow smaller investors to enter into larger, investment-grade properties that were originally restricted to institutional investors, such as banks and insurance companies.

Read More

Freddie Mac

Freddie Mac is the more commonly known alias of the Federal Home Loan Mortgage Corporation (FHLMC) which is a publicly traded

Read More

Free Market

A free market is an economic system categorized by the free exchange of goods and services absent of government intervention. In a free market, the laws of supply and demand dictate the flow of capital and individual decision making. While no free markets exist in actuality, economists have widely concluded that a higher level of economic freedom in a particular market is highly correlated with economic well being in that region.
Read More

Free Rider

In a community with shared resources, such as a town, there are some people who use what they pay for and others who overuse resources. Others pay nothing and still use resources. Those who use more than they’ve paid for are called free riders.

Read More

Free Trade

Free trade is a policy that seeks to allow buyers and sellers from economies around the world to trade freely without incurring government tariffs, quotas or subsidies. Free trade is synonymous with “laissez-faire trade” which seeks to eliminate discrimination against imports and exports and allow markets to find equilibrium organically in the absence of government policies. Free trade allows the expansion of an economy’s offering of services and products by allowing the best producer the opportunity to penetrate a market regardless of its national denomination. This allows an economy to expand its product offerings, knowledge, skills and promotes specialization and the division of labor. 

Read More

Fully Amortizing Loan

A fully amortizing loan is a type of loan which is completely paid off by the end of its term, given the borrower makes complete payments based on the loan’s amortization schedule. Whereas fixed rate loans will have equal payments of interest and principal over its term, debt service on floating rate loans will change as the interest rate changes. Due to the fact that all principal will be paid off, fully amortizing loans will not see a balloon payment at the end of its term, regardless of whether it is fixed or floating.

Read More

Fund

A fund is a pool of money that is allocated for a specific investment strategy or purpose. Individuals and businesses can allocate money into a fund for various purposes, whether that be for college savings, emergencies or trusts.

With regard to corporate-level investment strategies, fund types can include mutual funds, exchange-traded funds (ETFs) or hedge funds. Different types of funds have different investment theses which attract investors with risk profiles that align strongly with a fund’s strategy.

Read More

Future Value (FV)

Future value is a time value of money (TVM) concept that represents the expected value, as of a defined date in the future, resulting from

Read More

GDP

Gross domestic product (GDP) is a broad measure of a nation’s productivity. GDP is defined as the monetary value of all finished goods and services a nation produces within its borders in a specific time period.

Read More

Go Dark Provision

A go dark provision is clause often used in retail leases which governs whether or not a tenant may vacate a space, while continuing to pay rent, prior to lease maturity. Opposite of a continuous operating covenant, go dark provisions allow a tenant to cease business operations when they turn unprofitable. Landlords often dislike this type of provision, as they can lead to rolling vacancies and gradually shrinking traffic in a retail center.

Read More

Going-in Cap Rate

Going-in-cap rate is the cap rate based on the ratio of the first year of net operating income to the property purchase price. 

Read More

Goodwill

Goodwill is an intangible asset typically measured or recorded when one company purchases another. Goodwill is calculated by the difference between the purchase price of the company and the sum of its fair market values of assets and liabilities.

Goodwill = P – (A + L)

Read More

Grant

Grant means to transfer an interest in real property by deed or other legal instrument.
Read More

Grantee

Grantee is one to whom the grant is made. The recipient who will be taking title, as named in the legal document used to transfer the real estate. 

Read More

Gross Income

Gross income is a term used to describe an individual’s or a business’s total earnings in a given period of time. For individuals, gross income is primarily derived from wages and salary as well as other forms of passive income such as interest, dividends, rental income and pensions.

For businesses, gross income is measured as the firm’s total revenue less its cost of goods sold. It is ultimately a measure of a firm’s profitability, measuring the firm’s ability to derive profit from the production of goods or services prior to servicing other costs related to administrative activities, taxes and other costs of running a business.

Read More

Gross Lease

A gross lease is a lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc. 

Read More

Gross National Product (GNP)

Gross national product is a measure of the total value of goods and services produced by a nation in a given period of time by that nation’s residents. It is a sum of personal consumption expenditure (PCE), private domestic investment (PDI), government expenditure (GE), net exports (NE) of a nation and the total income earned by a nation’s residents’ income from investments outside of the country, less the income earned by investments within the domestic economy. It ultimately is a measure of the output of a country’s residents and is very similar to gross domestic product (GDP). GDP seeks to measure a similar level of activity but excludes the difference of investment income earned on investments outside the domestic economy and within it.
Read More

Gross Rent

Gross rent is rent charged to occupy a premise without any additional rent for operating or other expenses.

Read More

Gross Square Footage

Gross square footage is the total square footage of a building including all rentable spaces as well as all “non-rentable” space including common areas, 

Read More

Ground Lease

Ground lease is a lease of the land only, on which the tenant usually owns a building or is required to build as specified in the lease.

Read More

Hard Asset

A hard asset is a type of asset with underlying intrinsic value that can be used to produce or purchase other goods or services. Hard assets typically include commodities such as oil, natural gas, gold, silver, and diamonds, as well as other tangible assets such as farmland and commercial real estate.

Read More

Hard Money Loan

Hard money loan is a type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by

Read More

Health Insurance

Health insurance is a type of policy that protects an individual from being liable for the total costs of medical and surgical expenses incurred in the event of illness or injury. Employers often include healthcare insurance in benefits packages to attract highly skilled workers. Insurance plans often require policyholders to seek care from a defined network of care providers and dictate that policyholders pay a higher percentage of costs if they obtain care from providers outside that network.

Read More

Hedge

A hedge is an investment used to reduce an individual or entity’s risk of exposure to adverse price movements. It is an insurance policy that protects an investor against the downside risk associated with an investment in a particular security.

A car manufacturer may hedge its exposure to fluctuations in the price of steel by purchasing a futures contract that will allow it to purchase steel at a fixed price over a specific period of time. This is attractive to the car manufacturer because it is able to project a stable budget over this period of time and reduce its exposure to a spike in the price of steel, which would result in a spike in its cost of production of a vehicle.

Read More

Hedge Fund

A hedge fund is an alternative investment vehicle in which an entity pools together resources in pursuit of alpha, the difference between an active investor’s returns and the market’s returns over a given period of time. Available only to accredited investors because of the lower level of regulation and oversight that other investment vehicles face, hedge funds typically charge a “Two and Twenty” fee structure, which is a two percent charge for the management of assets and a 20 percent charge for profits on the active management of its clients’ assets.

Read More

HOA Fees

Membership fees that must be paid by an owner of property within a homeowner association’s jurisdiction. HOA fees are collected to pay for maintenance and improvements of properties owned by the association, including common areas or necessary features such as roofing or elevators. HOA fees are very common in condominium developments, but can exist in neighborhoods of single family homes.

Read More

Holding Company

A holding company owns other companies and allows them to perform daily operations with independence. The holding company owns the assets of each company and can step in as needed to make management decisions. Holding companies maintain control through majority voting stock within each company.

Each business may only be partially owned by the holding company. When it is 100% owned, the business is a "wholly-owned subsidiary." Because each business within the holding company is allowed to run its daily operations, management is responsible for that business’s performance.

Read More

Holding Period

Holding period is the real or expected period of time which an investment is attributable to a particular investor.

Read More

Holding Title

Holding title refers to the legal structure in which title to real property is owned. In the sale of real property, the title must be transferred from the seller to the buyer

Read More

Homeowners Association (HOA)

Homeowners Association is an organization within a living community that creates and enforces a set of rules for the properties within its jurisdiction. Residents that own property within an HOA’s area of authority automatically become members and are subject to HOA fees. Property types that are often apart of associations include subdivisions, planned communities, or condominiums.

Read More

Human Capital

Human capital is an intangible measure of the quality of a firm’s employees. The level of a firm’s human capital can be gauged by the level of education, experience and skills of its employees.

Though it cannot be measured on a balance sheet or various other financial statements, human capital is critical to a firm’s success. Higher quality human capital will translate to increased productivity and profitability. Firm’s can grow human capital by compensating employee’s fairly and/or offering attractive benefits to workers in exchange for exceptional performance.

Read More

Identification Period

Identification period, under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

Read More

Inclusion Event

An inclusion event occurs when a QOF investor chooses to recognize some or all deferred gains. An inclusion event will occur on the earlier of the occurrence of the event or December 31, 2026, per the Proposed Regulations.
Read More

Income

Income is money or compensation that an individual or business earns in exchange for a product or service. For individuals, income is typically earned via wages, salary or via interest, dividends or capital gains obtained from investment holdings. For businesses, income is the difference between its total revenues and expenses and taxes.

Read More

Income Statement

An income statement is one of the key financial statements that firms use to quantify the quality of its performance and operations over a stated period of time. Also known as the profit and loss (P&L) statement, the income statement is primarily concerned with a firm’s revenues and expenses during a fiscal period. An income statement provides a snapshot of a firm’s profitability in a particular fiscal period.

Read More

Income Tax

Income tax is a tax levied by governments on individuals and businesses and serve as a source of revenue for governments that collect them. The Internal Revenue Service (IRS) collects income taxes and enforces the tax code.

The tax code offers individuals and businesses deductions and credits, which mean that most entities do not pay taxes on all income. For example, a taxpayer may earn $70,000 in a year but also be eligible for $15,000 in deductions, which will reduce that taxpayer’s taxable liability to $55,000. Similarly, businesses are able to reduce their tax liabilities by deducting operating and capital expenses.

Read More

Independent Trustee

Independent trustee is a trustee who is not related to the beneficiary of the trust and does not stand to inherit any property under the trust.

Read More

Index Fund

An index fund is a type of mutual fund or exchange traded fund (ETF) that is constructed to mimic the components of a market index, such as the S&P 500. Index funds are used to achieve broad market exposure, in an effort to reduce risk specific to a particular industry or stock. Index funds allow investors to capture the performance of the stock market in aggregate, instead having to go through the research and guesswork of investing in an individual stocks or industries.

Due to the fact that index fund investments require less effort on behalf of its manager, fees are typically less than more actively managed funds. While index fund expense ratios sit around 0.05% to 0.07%, actively managed funds typically see fees within the 1% to 3% range.*

Read More

Individual Retirement Account (IRA)

An individual retirement account (IRA) is a type of investment tool that individuals use to allocate funds for retirement. There are two predominant types of IRAs: traditional IRAs and Roth IRAs.

Contributions to traditional IRAs are tax-deductible, which allows individuals to claim contributions as a deduction on their tax returns. When the individual withdraws these funds from the account during retirement, these funds are taxed at an ordinary income tax rate.

Read More

Inferior Good

Inferior goods are goods which, due either to relative or actual quality, has the demand for itself decrease as the income levels rise. In other words, inferior goods have a lower price compared to similar goods. In some cases, it can also mean the good is inferior quality. People with lower incomes tend to prefer inferior goods because they are more affordable. Examples of inferior goods vs. normal goods are:

Read More

Infill Location

Infill Location is a real estate development site that exists within a mostly built out market. Usually located within an urban area, infill locations look to fill the few vacant lots that exist between other developments in the area. Infill locations are characterized by having a high level of demand, due to increased property values in desirable locations, with high barriers to entry.

Read More

Inflation

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

Read More

Initial Public Offering

An initial public offering (IPO) is the process that a private company participates in to offer shares of its firm to the public via a stock issuance. An initial public offering provides a firm access to public capital it previously did not enjoy as a private venture. 

The process of going public allows private investors and company founders the opportunity to realize gains on their initial investment in the firm.

Read More

Insurable Value

The maximum dollar amount an insurance policy will cover in the event that an insured asset is deemed lost. In real estate, this can include the improvements on the land, as well as the physical property that existed on the property, such as machinery and other equipment. Insurable value is can be a function of the full replacement cost of the property, reproduction cost, or depreciated value. Insurable value is typically less than the market value, as it excludes the value of land.

Read More

Insurance

Insurance is a form of a contract or policy in which an individual or corporate entity exchanges payments for financial protection or reimbursement against losses from the insurer.

Read More

Intangible Property

Intangible personal property is something of individual value that cannot be touched or held.

Read More

Intangible Property Test

In order to qualify as a QOZB, a firm must deploy a substantial portion of its intangible property in the active conduct of a trade in a QOZ, defined as at least 40 percent.
Read More

Interest Expense Deduction

Interest expense deduction is defined as a borrowing expense that a taxpayer can claim to reduce their taxable income. There are many types of interest that can be tax-deductible such as mortgage interest, student loan interest, investment property loan, interest on some business loans.

For example, if an investor has a 30% marginal tax rate and has $10,000 in tax deductible income, they would save $3,000 in taxes. Effectively that $10,000 loan only cost $7,000.

Read More

Interest Rate

The interest rate is the percent of principal charged by a lender for the use of its money. Interest rates are typically expressed on an annual basis, or annual percentage rate (APR). To the borrower, the interest rate is the cost of debt, and to the lender, the interest rate will be the rate of return. Interest rates are reflective of how much risk the lender thinks it is assuming by lending to a particular borrower. Higher interest rates are typically given to entities more susceptible to default, or a lower credit rating.

In addition to credit rating, interest rates are determined by other extraneous factors. This includes the supply and demand for credit, inflation, and monetary policy set by the U.S. Federal Reserve. In situations where a loan is backed by collateral, a borrower may be able to obtain a lower rate than if the property was not secured.

Read More

Interest Rate Risk

Interest rate risk is the risk that an investment's value will change due to a change in the level of interest rates. These changes usually have an inverse effect on

Read More

Interest Rate Swap

An interest rate swap is a forward contract between lender and borrower that trades one stream of future debt service payments with another based on a change in the interest rate on a specified principal amount. This change in interest rate is typically done as an exchange of a floating rate for a fixed rate, or vice versa, in order to reduce the risk of fluctuating short-term interest rates, or potentially pay lower interest payments.

Read More

Interest-Only Loan

Interest-Only loan is a loan in which, for a set period of time, the borrower pays only interest on the principal balance, with the principal balance remaining unchanged.

Read More

Intermediary

Intermediary is an entity that acts as the middleman between two parties in a financial transaction.
Read More

Internal Rate Of Return (IRR)

Internal rate of return is the discount rate at which the net present value of all cash flows (both positive and negative) from a project or investment equal zero.

Read More

Internal Revenue System (IRS)

The Internal Revenue System is the government agency in the United States responsible for the collection of taxes and enforcement of tax law. Founded in 1862 by Abraham Lincoln, the IRS performs the taxation of all American individuals and firms. The IRS operates as a subsidiary government agency under the larger umbrella of the US Department of the Treasury.

 

Read More

International Monetary Fund (IMF)

The International Monetary Fund was created in 1945 as part of the Bretton Woods agreement with the mission of promoting global economic growth, financial statement, international trade and reducing poverty across the globe. The IMF currently consists of 189 member countries, each of which have a proportionate number of seats on the executive board by order of the nation’s financial importance. The IMF's mission is “to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

Read More

Interpersonal Skills

Interpersonal skills are behavioral techniques that an individual employs to properly interact with others. In a professional setting, interpersonal skills are considered an individual’s ability to work well in groups with others. 

Interpersonal skills generally are defined by the person’s knowledge of social expectations. More simply, they are a measure of a person’s ability to communicate effectively with others and adapt as circumstances change.

Read More

Investment Portfolio

An investment portfolio is a collection of investments that can include stocks, bonds, commodities, and alternatives, among other types of asset classes. Investment portfolios can be held and managed by an individual, or held and managed by a hired financial professional for a fee, based upon the wants and needs of a particular investor.

Investment portfolios are built based upon one’s financial goals and risk tolerance. Catering towards diversification and the management of unsystematic risk in a single investment, building a portfolio of investments across various asset classes may help an investor achieve a desired level of risk-adjusted return.

Read More

Investment Property

Investment property is a broad term for a real estate property that has been purchased with the intention of earning a return on the investment, either through

Read More

Investment Vehicle

Any product used by investors to achieve a positive return on their money, although a favorable return is not guaranteed. Investment vehicles span all asset classes, and include ownership investments, lending investments, cash equivalents, and pooled investment structures such as a mutual fund.

For investors looking to diversify past asset classes as a whole, holding several types of investment vehicles may help further spread risk.* For example, corporate bonds and Treasury Inflation-Protected Securities (TIPS) each allow an investor to put his or her money into a debt instrument, but are subject to different market pressures and risks. Likewise, from a real estate perspective, investment may be made through various investment vehicles including LLCs, Limited Partnerships, REITs, or Delaware Statutory Trusts, with each vehicle having its own set of strengths and risks.

*Diversification does guarantee returns and does not protect against loss.

Read More

Joint Tenancy

Joint tenancy is ownership of real estate by two or more individuals with the right of survivorship. A right of survivorship means that

Read More

Joint Venture

A joint venture is an arrangement between two or more entity pool resources to accomplish a particular task in a business setting. Entities in the joint venture enjoy profits and are responsible for losses, but the entity is separate from other personal or business interests.

Joint ventures are commonly formed when two businesses want to partner to enter an unfamiliar market. In real estate, a REIT specializing in multifamily development may for a joint venture with an office developer for the purpose of obtaining exposure to the office real estate market.

Read More

Jumbo Loan

A jumbo loan is a type of mortgage that exceeds the loan limitations set by Fannie Mae and Freddie Mac. Thus, unlike a conventional loan, these type of mortgages can’t be purchased or securitized by these two entities.

Read More

Law of Demand

The law of demand is a lynch pin of economic theory that states a consumer will demand a lower quantity of a good or service at a higher price. Economists illustrate this law of demand along the market demand curve, which represents the sum of quantity demanded by consumers across a market for a particular good. A change in the price of a given good will result in a movement along the demand curve, but will not increase or decrease demand.
Read More

Law of Supply

The law of supply is a microeconomic theory that states that, all other factors held equal, as the price of a good increase, the quantity of the good supplied will increase. Put simply, firms will choose to supply more of a good or service as they watch the price of said good or supply increase.

 

Read More

Lease Co.

Lease Co. is a legal entity established to operate as a master tenant under a Delaware Statutory Trust (DST) ownership structure.

Read More

Lease Termination Fee

Lease termination fee is a payment made by the tenant or resident to the landlord in order to legally end a lease early and not be held liable for the remaining time.

Read More

Leasehold Improvement

A leasehold improvement is any change made to a leased property to meet the needs of the tenant. These improvements include changes to interior walls and ceilings, electrical and plumbing, and flooring, and can either be taken on by the landlord to increase the competitiveness of the space, or by the tenant themselves. In the event that the tenant undertakes the improvements, ownership of the improvements will typically revert back to the landlord once the lease has terminated, unless the tenant can remove the improvements without damaging the property.
Read More

Letter of Credit

A letter of credit is a letter from a bank or other financial institution which guarantees an investor’s payments to a third party. If the investor does not make its payments pursuant to its agreement with the third party, the party issuing the letter of credit will be required to make the payment of fund any shortfall.

For example, imagine Company ABC is interested in purchasing 1,000 widgets from Supplier XYZ for $1 million. Given Company ABC’s weak credit rating, Supplier XYZ is worried that Company ABC will not be able to pay in full within 60 days. In order to ensure Supplier XYZ that it will make good on it payment, Company ABC gets a letter of credit from the bank stating that it will pay any outstanding liability within the set time period, with the bank acting as insurance in the event that it can’t meet its financial obligations.

Read More

Lien

A lien is a right to possess property belonging to another person, given that an underlying obligation is not met. In finance, a lien often serves as a guarantee that a borrower will fulfill his or her responsibility of repaying a loan. 

Read More

Life Insurance

Life insurance is a contract between an insurance company and a policyholder. The insurance company agrees to provide a death benefit to the policyholder’s named beneficiaries in exchange for a regular payment of a premium.

Read More

Like-Kind Property

Upon the sale of an investment property, capital gains may be deferred by completing a 1031 exchange provided that the investor purchases

Read More

Limited Liability Company (LLC)

Limited liability company is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Read More

Line of Credit

Line of credit is a credit arrangement in which a financial institution agrees to lend money to a borrower up to a specified limit. The borrower can draw down on the

Read More

Liquidation

Liquidation is the process of converting assets in to cash or cash equivalents. Liquidation can occur when a firm goes bankrupt and thus needs to extract cash from its assets with readily marketable value to satisfy the demands of creditors and investors, or when an investor decides to give up his or her position in a security in exchange for the cash value of that security at a given point in time.
Read More

Liquidity

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. Market liquidity refers to the extent to which a market allows assets to be bought and sold at stable prices. Cash is the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.

Read More

List Price

In real estate, list price is the initial sale price of the property that is suggested to the market. Evaluated by a real estate agent or other real estate professional, a list price is typically determined based off a comparative market analysis. This includes taking the sale price of comparable properties in the surrounding area, and making adjustments for any differing attributes. On larger scale investment properties, one may be able to utilize the appraised value of the property to determine an acceptable list price.
Read More

Load Factor

The multiplier to a tenant's useable space that accounts for the tenant's proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.)

Read More

Loan

A loan is an agreement between and lender and a borrower in which a lender agrees to provide funding, property or material goods to a borrower in exchange for repayment of principal and interest at a later date.

Read More

Loan-To-Value (LTV)

The ratio of a loan to the value of an asset as determined by the formula of loan balance divided by the market value of the asset securing the loan.

Read More

Local Tenant

Local tenant, also known as a “mom-and-pop", is a small scale company with a narrow footprint typically limited to a single market.

Read More

Lock-out Period

A predetermined period of time following loan origination in which the loan cannot be prepaid, as set forth in the loan documents.  The lock-out period can vary greatly from no lockout period at all to nearly the entire loan term.  From a lender’s perspective, a lock-out clause is a form of call protection as it prevents prepayment. There is considerable time and effort involved to underwrite and originate a loan, thus the lender wants to ensure a certain level of minimal return on the loan.
Read More

Low Income Housing Tax Credits

Created in 1986 and made permanent in 1993, is an indirect federal subsidy used to finance the construction and rehabilitation of low-income affordable rental housing.
Read More

Low-Income Community Census Tracts

A low-income community census tract has an individual poverty rate of at least 20% and median family income up to 80% percent of the area median [Section 45D(e)].

Read More

Margin

A margin is a term used to describe money borrowed from a brokerage to purchase securities. Investors who “buy on margin” via their brokerage borrow money from the brokerage to purchase securities. Margin is calculated as the difference between the value of securities purchased and held in the investor’s account and the dollar amount of funds lent by the broker to facilitate the purchase.

Read More

Marginal Land

Marginal land is land that has little value and offers its owner little opportunity to profit from it. The term typically refers to land with poor soil or other undesirable characteristics that makes it difficult or near impossible to grow crops and thus turn a profit.

While undesirable to hold, marginal land does have some utility in certain cases. It can be used as grazing grounds for livestock. Additionally, land that is considered marginal at one time can be considered desirable at another time if conditions in that market change. For instance, if the cost of growing corn on marginal land at one point in time does not exceed the revenue associated with selling such corn, land is considered marginal. But if conditions change and the price of corn rises, this land once considered marginal now offers some utility and opportunity to profit.

Read More

Mark-to-Market

Typically used in accounting practice, mark-to-market refers to the measure given to asset and liability accounts that are in accordance with current market values. Having the ability to increase or decrease over time, this method looks to give a current, accurate depiction of an individual’s or business’s financial standing. To provide an easy, relatable example, stocks in the S&P 500 are marked-to-market everyday. Values are determined based on investor demand, and fluctuate based on how much the market values a particular piece of equity. Mark-to-market valuations may be more difficult in non-public markets and illiquid assets as much less real-time data exists.

Although the mark-to-market model may provide an effective representation as to the current value of a company or asset, this measure may not prove as effective in times of uncertainty. When the market is shifting, and buyers continuously leave and enter the market, pricing becomes volatile and the mark-to-market method may prove inefficient and inaccurate.

Read More

Market Analysis

Market analysis is the process of studying certain characteristics and trends of a market to determine its strengths, weaknesses, opportunities and threats.

Read More

Market Cap

Market capitalization places a total dollar value on a company based on its outstanding shares. The market cap formula is simple — total outstanding shares multiplied by the current stock price. Market cap allows a company to be compared to competitors within its industry. Investors also use market cap as a measure of risk — a lower market cap can signify more risk.

Market cap is divided into three categories:

Small cap — $300 million to $2 billion
Mid cap — $2 billion and $10 billion
Large cap — Over $10 billion

Large cap companies are considered a low-risk staple of an investment portfolio.

Read More

Market Lease Rate

Master lease rate is the current rental rate that a space would likely command in the open market, indicated by current rents paid for comparable space within a given market.

Read More

Market Share

Market share is the percentage of revenues earned by a company within an industry compared to total revenues within the industry. It provides a method of determining a company’s size by revenue compared to similar companies.

Read More

Master-Planned Community

Master-planned community is a large scale, mixed-use development that is constructed based off a long-term, comprehensive plan. These communities include a wide range of residential property types, such as townhouses and single family homes, complemented by a variety of commercial properties that serve the resident’s needs. Commercial properties include strip centers, restaurants, and office space. Other common features of a master-planned community include public parks, schools, and recreation areas such as a golf course.
Read More

Medicaid

Medicaid is a government-sponsored insurance program that works to assist low-income families and individuals in costs associated with medical care (e.g. doctor visits, hospital stays, long-term medical, custodial care costs). Primarily funded by the federal government, Medicaid operates at the state level and is available only to individuals and families that meet certain criteria that include legal and permanent residency in the United States and low-income generation.

Read More

Merger

A merger is an agreement in which two companies combine into one. Companies typically merge to create synergies, expand capabilities, reduce production costs, expand into new segments and ultimately create and/or enhance shareholder value. Whereas acquisitions are not considered voluntary, mergers are considered voluntary and require agreement on both sides. The five types of mergers are conglomerate, congeneric, market extension, horizontal and vertical.
Read More

Mezzanine Financing

Mezzanine financing is financing that is junior in interest to the mortgage but senior in interest to equity. Mezzanine financing has a similar risk and return profile to

Read More

Microeconomics

Microeconomics is the study of the way individuals and firms allocate scarce resources in the pursuit of productivity. It is the study of economic tendencies and the ways individuals and firms price and produce goods and services in response to shifts in demand, regime and/or production capacities.

Considered a more settled science than macroeconomics, microeconomics seeks to explain what will happen to supply and demand for a product or products in a particular market when certain conditions change with regard to the pricing and/or supply of a good or service.

Read More

Moat

An economic moat is a term used to describe a distinct competitive advantage that a firm has over its competitors that allows it to maintain market share and profitability over an extended period of time. Firms that enjoy economic moats are typically scaled and have significant free cash flows that allow them to minimize operating expenses relative to competitors.

Strong patents, brands and licenses are items that allow firms to control and minimize operating expenses, protect market share and make duplication by competitors extremely difficult. Pharmaceutical companies with patents on specific drugs are able to charge premium prices for the products, while suppliers such as Wal-Mart are able to undercut retail competitors by offering the lowest prices on the market because of immense free cash flows and vertically integrated supply chains.

Read More

Modern Portfolio Theory

Modern portfolio theory is based on the thought that one may be able to maximize expected return, given a level of market risk, by constructing a portfolio of assets based upon an “efficient frontier”. Modern Portfolio Theory is an extension of diversification, and is the idea that owning assets across various asset classes exposes you to less risk than owning just one. MPT argues that an investment’s risk and return profile should not be viewed in isolation, but looked at in aggregate with the portfolio as a whole.

Read More

Monetary Policy

Monetary policy is the method by which central banks and other financial regulators govern the supply of money and interest rates in an economy to promote stable prices and low unemployment.

Monetary policy can either be classified as expansionary or contractionary, depending on the regulator’s objectives. Central banks and regulators seek to use tools such as control of money supply and interest rates to influence output, employment and prices.

Read More

Money Laundering

Money laundering is the process of making funds generated from illegal or illicit activities appear to be legitimately sourced. For example, revenues generated from drug trafficking need to be properly laundered to avoid the attention of authorities. 

Criminal organizations will seek to deposit these funds into financial institutions, but can only do so if they can convince the bank that the funds are the product of legal operations. Money laundering in itself is also a crime.

Read More

Month-to-Month Tenancy

Short-term tenancy terms in which a tenant rents from a landlord month to month. Although increasing vacancy and turnover risk, month-to-month tenancy offers several advantages to landlords that include the chance to negotiate lease terms more often, providing the opportunity to raise rent, while also providing the ability to get rid of troublesome tenants. Often times long-term leases convert to month-to-month tenancies at the end of the original lease term, if another lease has not been signed. This type of tenancy is most commonly found in residential leases, but can include commercial leases as well.

Read More

Mortgage

Mortgage is a legal instrument that pledges the rights of ownership of an asset or property to a lender as security for a loan.

Read More

Mortgage Broker

A mortgage broker is a type middleman that connects mortgage borrowers with mortgage lenders. Tasked with helping qualify borrowers for a loan, whether it be for a purchase mortgage of refinance, mortgage brokers help borrowers shop interest rates with potential lenders, determine appropriate loan amounts and loan-to-value ratios, and help execute the application process. Similar to a real estate broker on the buy-side, mortgage brokers are compensated by the lender through an origination fee.

Read More

Multi-Tenant Property

A multi-tenant property is a property that has two or more tenants. Compared to single tenant properties, multi-tenant properties can be more management intensive and may have  less predictable cash flow.
Read More

Mutual Funds

A mutual fund is an investment vehicle that pools money from the public and provides individual investors access to professional managed portfolios of equities, bonds and other security types. The value and performance of a mutual fund is thus based upon the pro rata performance of the various securities that comprise the fund.

Read More

National Tenant

National tenant refers to a tenant that has a national footprint with locations throughout the US. The term is most frequently used in the context of retail properties.

Read More

Net Asset Value

Net asset value, or NAV, is defined as the total value of an entity’s assets less the total value of its liabilities. NAV is typically used to determine the share price of a pooled investment fund, based off how many shares are currently outstanding at a given time. In practice, NAV is used by funds registered with Securities and Exchange Commission, such as a mutual fund or real estate investment trust. In reality, however, any business or financial product that records its assets and liabilities can have a net asset value.

For example, say a REIT holds $15 million worth of real estate in its portfolio, and has a 10,000 shares outstanding. Given that the REIT is 50% leveraged, it would be assumed to hold $7.5 million in debt. NAV would then be calculated as so:

($15 million - $7.5 million) / 100,000 shares outstanding = $75 NAV

Read More

Net Income

Net income is the total revenue minus total expenses. It represents the amount of money remaining after all operating expenses, interest, taxes and preferred stock

Read More

Net Operating Income (NOI)

Net operating income is a calculation used to analyze real estate investments that generate income. Net operating income equals all revenue generated from the property less

Read More

Net Present Value (NPV)

Net present value (NPV) represents the amount by which the expected cash flows of an investment exceeds the initial amount invested.

Read More

Net Worth

Net worth is a gauge of financial health typically defined as the difference between an individual’s or a business’s assets and liabilities. It is a measure that seeks to quantify the value of an entity’s owned assets, and the abilities of these assets to satisfy all outstanding liabilities. Ultimately, it provides insight into an entity’s financial position at a given point in time.

Read More

New Market Tax Credits

Designed to increase the flow of capital to businesses and low-income communities by providing a modest tax incentive to private investors.

Read More

Non Profit Organization

A nonprofit is an organization, also called an NPO, that doesn’t pay taxes on its earnings. The IRS has granted the nonprofit a tax-exempt status because it both furthers a social cause and benefits society. Some nonprofits take in donations to help further their cause. Individuals and businesses donating to a nonprofit do not have to pay taxes on those donations. Financial documents of a nonprofit must be made public so donors can see how money is being used by the organization.

The technical IRS tax code name for a nonprofit is a 501(c)(3). 501(c)(3) status must be requested for the organization to receive its tax-exemption. Additionally, the organization has to maintain compliance through its state.

Read More

Non-Like Kind Investment

In order to qualify as an investment in a QOZ, capital obtained by the sale of assets to provide liquidity for investment in a QOZ do not have to be like-kind assets. For example, an investor can sell stocks or precious metals and still reap the benefits of QOZ investment if he or she invests in a business or real property in a QOZ.
Read More

Non-Recourse Loan

Non-recourse loan is a loan that limits the lender’s remedies to foreclosure of the mortgage and acquisition of the collateral or property in the event of financial default

Read More

Non-traded REITs

Non-Traded REITs are a type of security that invests in real estate properties and mortgages, but is not listed on an exchange and is not publicly traded. Like any REIT, non-traded REITs distribute at least 90 percent of the company’s taxable income to shareholders in the form of dividends, however, non-traded REITs are very illiquid and usually constitute a minimum holding period per investment. Non-traded REITs are difficult to value as well, lacking an organized exchange for valuing purposes.

Read More

Nonqualified Financial Property

Nonqualified financial property’’ is defined in §1397C(e) as: debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property.

Read More

Occupancy Costs

Occupancy costs are the total amount of property-related expenses paid by a tenant for use of a particular space. Occupancy costs include base rent as well as

Read More

Office Percentage

Office percentage is the percent of an industrial property’s square footage that is attributed to office usage. In scenarios where mezzanine office space been built above an area that would have otherwise been used for industrial use, the additional square footage is not factored into the total square footage of the building.

Read More

Official Settlement Account

An official settlement account is a type of account that a central bank uses to track its reserve asset transactions with other central banks. Types of transactions include those involving gold, foreign exchange reserves, bank deposits, and special drawing rights among other items.

Read More

Oligopoly

Oligopoly is a setting in which a small number of individuals or firms restrict outputs and/or restrict prices to derive market returns. There is no exact upper limit on the number of individuals or firms involved in an oligopoly market structure, but the actions of one firm must have significant consequences on others in order for an oligopoly to exist.

Instances of oligopoly over the course of history include steel manufacturers, oil companies and wireless carriers. In each of these environments, high costs of entry allow for a select group of producers to dominate a market and obtain significant power in the pricing and production of goods and services.

Read More

Opec

The Organization of the Petroleum Exporting Countries (OPEC) consists of 14 of the world’s oil-exporting nations. Founded in 1960, the organization was created to coordinate distribution of one of the world’s most valuable resources and avoid massive price fluctuations that would negatively impact national and global economies.

The organization is a cartel. Created in Baghdad in 1960, founding member nations were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Since its inception, the organization has added nine additional members: Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Congo and Equatorial Guinea.

Read More

Operating Expenses

Operating expenses are the actual costs associated with operating a property including maintenance, repairs, management, utilities, property taxes and insurance. 
Read More

Operating Expenses, Fixed

Fixed operating expenses are the actual costs associated with operating a property that do not vary in the short term. These costs do not change with a property’s occupancy rate.

Read More

Operating Expenses, Variable

Variable operating expenses are the actual costs associated with operating a property that vary in relation to a property’s occupancy rate or volume of some activity.

Read More

Opportunistic Property

Opportunistic properties exhibit the greatest risk but highest potential returns within the four major commercial real estate risk profiles

Read More

Opportunity Cost

Opportunity cost represents the benefits an individual or business forgoes when it makes one decision in place of another. Opportunity costs are oftentimes unseen in that the consequences of choosing not to pursue one strategy in place of another, but individuals and firms can benefit greatly from working to quantify the cost of not pursuing a particular option.

Read More

Opportunity Zone

An Opportunity Zone is an economically-distressed community (see also “low-income communities”) where new investments, under certain conditions, may be eligible for preferential tax treatment.

Read More

Opportunity Zone vs. New Market Tax Credits

Although there are similarities between the Opportunity Zone Program and the New Markets Tax Credit program, a crucial difference will be in underwriting the potential financial success of the low-income community businesses in which an Opportunity Fund invests.
Read More

Ordinary Income

Ordinary income is the income earned from providing services or the sale of goods. Ordinary income is composed mainly of wages, salaries, commissions and

Read More

Original Use

In order to qualify as a qualified opportunity zone business property (QOZBP), property acquired by a QOF or QOZB must satisfy the requirements of an “original use” test or a “substantial improvement” test. Original use is defined as the date on which the property is placed into service in the QOZ for purposes of depreciation or amortization. Additionally, original use and substantial improvement requirements do not apply to land.

Suppose a QOF acquires a property in a QOZ that is worth $20 million, where the actual building is worth $14 million and the land is worth $6 million. In order to meet the substantial improvement requirements, the QOF must add $14 million of basis to the property within a 30-month period in order for the property to be treated as a QOZBP. 

Read More

Origination Fee

A fee charged by a lender for processing your loan application. Similar to a broker’s commission, an origination fee is the Lender’s way of getting paid for its services. Origination fees range from 0.5% to 1.00%, and are often negotiated with the terms of the loan. In situations where a borrower desires a lower origination fee, the lender may demand an increase in the interest rate. Origination fees usually represent a higher percentage of smaller loans, as the lender is looking to make their time spent worthwhile.

Read More

Outsourcing

Outsourcing is a practice of a firm hiring third-party labor to replace services previously performed in-house. Firms typically use outsourcing to significantly reduce labor costs by enlisting the help of an outside organization that has the capacity to perform the service or production of a good at a materially lower cost. Outsourcing can also help a business to focus more directly on its core operations.

Read More

Overdraft

An overdraft is an issuance of credit to a borrower from a lender at a time when the borrower’s account balance goes to zero. The issuance of an overdraft allows for the account holder to continue to withdraw money despite the absence of sufficient funds to cover the withdrawal. The bank or financial institution charges an interest rate and/or a fee in the event of an overdraft.

Read More

Par Value

Par value is the stated value of either a stock or bond at the time it is issued. Most typically used in the bond market, par value is used to describe the amount of cash the bond issuer agrees to pay the purchaser at the bond’s maturity. The market price set to buy the bond initially is a function of par value, considering other factors such as interest rates, coupon rate, and the bond’s credit rating to set the price.

Although par value exists within the equity market as well, it is less commonly used in practice, and is often set to adhere to regulations that require that a particular stock not be sold below par value. Due to this fact, companies will set their par value at a very low nominal amount. For example, Google’s current stock par value is $0.001.1

Read More

Pass-Through Entity

A pass-through entity is any business organized as a partnership, limited-liability company, S-corporation or sole-proprietorship that reports any profit on its owners’ tax returns -- "passing it through" to them. Pass through entities avoid taxes at the corporate level, reducing the effects of double taxation. Instead, income is allocated amongst the owners, based on percent ownership, and taxed at the individual owner’s marginal tax rate.

For example, Company A has four owners, which each individual owning an equal 25%. After a successful year, Company A saw a net income of $500,000, with each owner having claim to $125,000 of the profits that will be reported on their respective tax returns. Note that if the owners elected to retain the earnings within the business, not distributing it, the owners would still be liable for the taxes on the income they would’ve received, creating a phantom income situation.

Read More

Passive Income

Earnings collected from investment property, partnerships, or other enterprise in which the person is not actively participating in operations. Used loosely, passive income is used to describe money that required little to no effort to obtain. Passive income is typically received on a regular basis, and is taxed as ordinary income on a person’s tax return.

One caveat of passive income is that passive losses can only offset passive gains (ex. Schedule E income, some Partnership income). Active income, or income that is derived from activities that a person is materially involved in, can not be reduced by passive income.

Read More

Per Capita GDP

Per capita GDP is measured by dividing an economy’s gross domestic product by that economy’s average population in a given year. Per capita GDP is used as a measure of the standard of living in an economy by adjusting for the size of the economy’s population. As developing nations grow, their per capita GDP will converge with the per capita GDP of developed nations.

Read More

Percentage Lease

Percentage lease is a lease in which a tenant pays percentage rent in lieu of, or in addition to, base rent. The amount is typically determined by a formula

Read More

Percentage Rent

Percentage rent is rent due in lieu of, or in addition to base rent that is paid to landlords based on tenant sales. A percentage rent clause is nearly exclusive to

Read More

Personal Property

A type of property which, in its most general definition, can include any asset other than real estate. The distinguishing factor between personal

Read More

Phantom Gain

For purposes of Qualified Opportunity Zone Program, if the taxpayer has not sold the qualified investment by December 31, 2026, the inclusion of the deferred gain may result in phantom gain at that time.

Read More

Phantom Gain Date

12/31/26.  At this date, the deferred capital gain must be recognized.  All or part of the deferred gain is includible in taxable income when the taxpayer sells the investment in the Qualified Opportunity Fund or on December 31, 2026, whichever occurs first.

Read More

Phantom Income

Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer’s end. Although not commonly seen, phantom income can happen in investments such as limited partnerships, in scenarios where there are earnings that are not directly received by a partner. This includes earnings that rolled over into retained earnings or reinvested into the business.

Phantom income can occur with zero-coupon bonds as well, that are issued as a discount and mature at par. The interest payments for zeros are credited to the taxpayer, but they do not receive the cash. The bondholder effectively is paid a maturity, when the bond is redeemed at a higher par value.

Read More

Positive Leverage

Positive leverage is when a business or individual borrows funds and then invests the funds at an interest rate higher than the rate at which they were borrowed.

Read More

Potential Rental Income

Potential rental income is the total amount of rental income for a property if it were 100 percent leased at competitive market rates.

Read More

Pre-Tax Cash Flow

The amount of money an investment produces after the collection of all revenue items and payment of operating expenses and debt service. This cash flow comes before the calculation of one’s income tax liability, and does not factor in deductions for depreciation allowance, mortgage interest expense or other non-cash items.

Pre-tax cash flow allows investors to calculate their current return on investment, and when comparing to after-tax cash flow, provides context to the extent of tax shelter a particular investment may generate.

Read More

Preferred Return

Preferred return is a priority return (often in the 5-10% range) that is paid to investors prior to any profit sharing or promote to the sponsor.

Read More

Prepayment Penalty

A prepayment penalty is a mortgage provision that states that a penalty, or fee, will be assessed to a borrower if an outstanding liability is paid off before a certain time period. Lenders typically calculate these fees as a percentage of the outstanding loan balance, the cost of lost interest payments, or as a flat fee. For example, if $300,000 of principal is still owed on a mortgage and a lender charges a 2% prepayment penalty, the borrower would owe an additional $6,000 in fees to the lender for the privilege of repaying the loan before its maturity date.

These fees are used in practice to protect a lender from the loss of interest payments that would have been received if the borrower had not prepaid the loan balance early.

Read More

Present Value (PV)

Present value is expected value, as of the date of valuation, resulting from discounting future amounts.

Read More

Primary Market

The primary market is where securities are created and listed for the first time by companies, governments, and other entities looking to obtain debt or equity financing. Securities issued the primary market have never been traded before, and are typically sold by underwriting groups such as investment banks or other securities dealer, depending on the size and scope of the transaction. For example, while corporate IPOs may be underwritten in the primary market by Credit Suisse, small private placements may be underwritten by an independent broker-dealer. Once a security is purchased on the primary market, any further trades will be done through the secondary market.
Read More

Prime Rate

The interest rate banks charge their most creditworthy customers, or customers with the least risk of defaulting. In other words, the minimum rate a bank would be willing accept on an outstanding debt. Prime rates directly affect other lending rates, as the prime rate serves as a basis for determining interest rates for mortgages, business loans, and personal loans.

Read More

Principal, Debt

Principal, in the context of debt financing, is the initial amount of money that is borrowed in a loan. Once paid down over the course of the loan’s term through debt service payments, principal can then be referred to the amount that is still owed on the loan. The amount of interest and amortization paid annually, assuming it is not an interest-only loan, is a function of the loan’s principal amount.
Read More

Private Equity

Private equity is a type of alternative investment class that involves deploying capital into investments or businesses that are not listed on a public exchange. In practice, private equity is used to invest in private companies, to initiate buyouts or bolster its financial statements, or to invest in privately held assets, such as real estate. Due to the fact that private equity requires placing substantial amounts of cash for long periods of time, investors are usually institutionally backed or have achieved some degree of accreditation.

For investors in operating companies, these long hold periods are due to the considerable amount of time it takes to turnaround a distressed business, or to achieve a liquidity event such as an initial public offering or sale to a public company. In real estate, longer hold periods can be attributed to value-add initiatives, predetermined lock-up periods, as well as the overall illiquidity of real estate investments.

Read More

Private Equity Real Estate Funds

Private equity real estate funds are an asset class consisting of equity and debt investments in property. These types of funds usually involve active management from private equity entities, and follow low-risk to high-risk strategies.

Read More

Private Placement

Private placement is an offering of securities that is not registered with the Securities and Exchange Commission (SEC) and which are sold not through a

Read More

Private Placement Memorandum (PPM)

Private placement memorandum is an offering document for a private placement that contains relevant disclosures so that an investor may make an informed investment decision.

Read More

Pro Forma

Pro Forma is a forward-looking cash flow projection based on a set of assumptions. Pro forma financial statements depict future financial results if the underlying assumptions hold true.

Read More

Profit

Profit is defined simply as revenue less expenses. It is the financial benefit a business generates from its revenue after subtracting all expenses, costs and taxes it needs to pay to sustain operations.

Read More

Progressive Tax

A tax structure in which the tax rate increases as the amount of taxable income increases. “Progressive” due to the nature of the tax rate progressing from low to high, the net effect is that higher-earning individuals are taxed more heavily than lower-earning ones. In this structure, a taxpayer’s average tax rate is less than the person’s marginal tax rate.

For example, say Sarah reports $50,000 of taxable income on her tax return. Assuming she is filing as an individual, Sarah’s marginal federal income tax bracket will be 22%. Due to federal income tax being progressive in nature, however, Sarah will calculate her tax liability as so:

Read More

Promissory Note

A promissory note is a financial instrument in which the issuer contractually agrees to pay a sum of money to a payee, either at a determinable time or at the demand of the payee. Similar to a note payable, promissory notes usually include the amount of principal that should be paid at maturity, any applicable interest rate, terms of repayment, and the date of maturity. Provisions regarding issuer default are usually included as well.

Although often issued by a financial institution, promissory notes offer businesses and individuals the opportunity to obtain financing from an entity that is not a bank. Any person or persons willing to provide financing under the agreed upon terms may become a lender under a promissory note.

Read More

Promoted Equity (Carried Interest)

Promoted equity (carried interest) is a share of the profits of an investment or investment fund that is paid to the investment manager as compensation. It is given in exchange for creating value or bearing a disproportionate share of downside risk.

Read More

Property Condition Report

Property condition report provides an analysis of a building or facility to help establish a buyer's risk due to the physical condition of the facility. The analysis includes architectural, structural, mechanical and electrical systems and elements.

Read More

Property Identification Number

Property identification number is a number assigned to parcels of real property by the tax assessor of a particular jurisdiction for purposes of identification and record keeping.

Read More

Property Management

Property management is the supervision and oversight of residential and commercial real estate. Aiming to ensure that the property being managed meets a certain operational standard, property management looks to drive income growth while preserving the value of the property. Although some real estate owner-operators deploy their own property management division to oversee their assets, property management is often done through third party companies that specialize in a particular asset class. For example, Asset Campus Housing has specialized in student housing property management since 1986.

Read More

Property Tax

An ad-valorem tax applied to real estate, based off the value of the land and it’s improvements. Paid by the owner, this tax is calculated by multiplying the property’s current market value by the applicable tax rate. Market value is typically determined by a government hired assessor, who conducts an appraisal of the property to obtain the assessed value. Tax rates vary by state and jurisdiction.

When property taxes are left unpaid, a governing authority may impose a lien upon the property. A tax lien may restrict the transfer or refinancing of the property until satisfied. One should always be sure that a property is free of all outstanding liens before purchasing a property.

Read More

Property Type, Hotel

Hotels are establishments that provides lodging and sometimes meals, entertainment and various personal services for travelers and tourists.
Read More

Property Type, Industrial

Industrial property type is one of the four main asset classes of commercial property, which is typically used for the purpose of production, manufacturing, or distribution.

Read More

Property Type, Multifamily

Multifamily property types are typically considered apartment buildings that can accommodate more than one family. Condominiums can sometimes be covered in this property type as well. 

Read More

Property Type, Office

Offices are commercial properties that are primarily used to maintain professional or business offices. Encompassing term that may include

Read More

Property Type, Retail

Retail property types are properties used to market and sell consumer goods and services. This category includes single tenant retail buildings, small neighborhood

Read More

Property Type, Self-Storage

Self-storage are properties where storage space (such as containers, lockers, and/or outdoor space) is rented to tenants, usually on a short-term basis.

Read More

Property Type, Senior Living

Senior living property is housing that is catered to seniors, typically over the age of 55. Contrary to standard multifamily properties, senior living communities usually include specialized amenities or services. Senior living covers a wide range of property types that include active-adult communities, assisted living, and memory care facilities.

Read More

Prospectus

A prospectus is a formal document submitted to the Securities Exchange Commission (SEC) by a company that wishes to market a debt or equity offering to the market. Companies that wish to conduct a stock or bond sale on the market thus must file a prospectus to be submitted to the SEC that provides complete details of the investment offering.

Prospectuses typically include a brief summary of the firm’s background and financial performance, number of shares being offered, types of securities being offered and names of banks and/or financial institutions underwriting the offering.

Read More

Protectionism

Protectionism is a policy when a government seeks to restrict international trade for the purpose of protecting its nation’s businesses and jobs from being undercut by foreign competitors. 

Critics argue that protectionism hurts a nation in the long run by decelerating economic growth and pricing inflation, while proponents of protectionism say it creates jobs by forcing firms and individuals to seek innovative technologies that streamline productive efficiencies and capacities.

Read More

Public Good

A public good is a product that an individual can consume without reducing the availability of the public good to others. Public goods are defined by economists as non-excludable, meaning that the supply of public goods does not decrease in the event people use or consume them. Examples of public goods include law enforcement, freeways, public parks, and public transportation. Public goods are often financed by the public.
Read More

Purchase Agreement

A legal document between a buyer and seller of real estate that lays out the terms and conditions of a future transaction. The agreement looks to contractually bind the two parties, in hopes of ensuring that both will fulfill their promises and obligations regarding the sale.

Read More

QOZ Timelines

Screen Shot 2019-10-22 at 2.47.11 PM

Step 1:  An investor with a recently realized capital gains elects to invest this gain into the Qualified Opportunity Fund (QOF), taking stock or a partnership interest in return.  By so doing, the investor gets to defer capital gain income.

Read More

Qualified Client

A qualified client is an investor that is exempt from the provision of the Investment Advisers Act of 1940. This act prohibits private investment funds from charging performance-based fees. A "qualified client" meets at least one of the following parameters:

Read More

Qualified Opportunity Fund Certification

To become a Qualified Opportunity Fund, an eligible taxpayer self-certifies.  As of now, no approval or action by the IRS is required.

Read More

Qualified Opportunity Zone

See Opportunity Zone
Read More

Qualified Opportunity Zone Business

A trade or business (i) in which substantially all of the tangible property owned or leased by the entity is Opportunity Zone Business Property, and (ii) which (a) derives at least 50% of its gross income from the active conduct of a trade or business,  (b) uses a substantial portion of any intangible property in such trade or business, and (c) has less than 5% of its assets invested in non-qualified financial property. Notwithstanding the preceding, a trade or business will not qualify as an Opportunity Zone Business if it is engaged in owning or operating any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.

Read More

Qualified Opportunity Zone Business Property

Tangible property used in a trade or business of a Qualified Opportunity Fund if such property (i) was acquired by purchase after December 31, 2017, (ii) the original use of such property in the Qualified Opportunity Zone commences with the Qualified Opportunity Fund or the Qualified Opportunity Fund substantially improves the property, and (iii) substantially all of the use of such property was in a Qualified Opportunity Zone during substantially all of the Qualified Opportunity Fund holding period for the property.

Read More

Qualified Opportunity Zone Partnership Interest

Qualified Opportunity Zone Property also includes certain interests in a partnership, with requirements substantially identical to those applicable to Opportunity Zone Stock but which would apply when the business is organized as a partnership rather than a corporation.

Read More

Qualified Purchaser

"Qualified Purchaser" means, under Section 2(a)(51) of the Investment Company Act:

Read More

Quitclaim Deed

A quitclaim deed is a legal document that may be used to sell or transfer interests in real property. A quitclaim deed transfers whatever interest the seller or transferor actually holds in a property with no representations or warranties made to clear (unencumbered) title or the exact rights held by the grantor (seller).

Read More

Racketeering

Racketeering is term used to refer to crimes committed through extortion or coercion. Racketeers seek to obtain money or benefits from other individuals or firms via intimidation or force.

Racketeering is a term that describes a broad array of crimes and is typically associated with organized crime.

Read More

Rate of Change

The rate of change is a measure of the speed at which a variable changes over time. With regard to a stock’s price, the rate of change can be calculated by dividing the current price of a stock by its value at a previous period in time, subtracting one and multiplying by 100. 

For example, say the price of Stock A was $100 in January and dropped to $75 by March. The rate of change for Stock A’s price in this 3-month time period would be -25%.

Read More

Rate Of Return

Rate of return is the profit or loss on an investment over a specified period of time expressed as proportion of the investment amount.

Read More

Real Estate Debt

Real estate debt is a debt instrument that the borrower is obliged to pay back with a predetermined set of payments. The debt instrument is secured by

Read More

Real Estate Equity

Real estate equity is the difference between the current fair market value of a property and the amount of debt owed against the property.

Read More

Real Estate Investment

Real estate investment is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence or personal use.

Read More

Real Estate Investment Trust (REIT)

Real Estate Investment Trust is a trust or company that owns, finances, or invests in real estate and/or real estate-related assets. REITs provide individuals the ability to invest in

Read More

Real Estate Syndication

Real estate syndication is a method of pooling capital from multiple investors for the common goal of acquiring real estate.

Read More

Real Property

Real property is land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing.
Read More

Realized Gain

Realized gain is the amount of gain that the investor made from the sale of an asset. It is calculated as the net sales price received (sales price of the asset less any

Read More

Recapture Clause

A lease provision that grants a landlord the right to terminate a current lease, and take back possession to specific space or tenant suite. To take effect, there is typically a negotiated triggering event that has to occur. This includes a tenant “going dark” or failing to meet its percentage rent terms. Although common in commercial real estate leases, recapture clauses can be included in any contract in which an asset is exchanged.

For example, say Sarah owns XYZ Retail Center. The space is currently leased to Yummy Grocery, with a stated rent of 2% of its sales for a minimum of $2,000. Meaning, Yummy Grocery has to have sales of $100,000 to meet its rent obligation.

The next month, Yummy Grocery only does $80,000 in sales. Because Sarah negotiated a recapture clause in the lease, she may be able to terminate the lease and take back the space from Yummy and potentially replace it with a different tenant.

Read More

Recession

A recession is a macroeconomic term that represents a significant and extended period of declining or stagnant economic performance in a region or country in the world.  Investors, businesses, public entities and governments all track various indicators that can predict or signal the onset of a recession.

Read More

Recession-resistant Real Estate

A term used to describe real estate assets that are tied to lifestyle trends, as opposed to economic cycles. These assets are less subject to downturns, and are subject to forces of the underlying market demographic. Recession-resistant real estate typically falls under three main asset classes: student housing, self-storage, and senior living.

Read More

Recourse Loan

Recourse is a type of loan that allows the lender to recover against the personal assets of a party in the event of default by the borrower to the extent of the

Read More

Refinance

The payoff and replacement of an existing loan with a new loan, typically under different terms. Refinancing differs from debt restructuring, which is the modification of an existing loan. There are several reasons an investor may consider refinancing an existing loan including: 1) to improve on the loan’s interest rate; 2) to extend the loan’s maturity date; 3) to change the interest rate from variable to fixed, or vice versa; or 4) to access embedded equity by increasing the loan amount. Reasons 1 through 3 above are often referred to as “rate-and-term refinance” while reason 4 may be referred to as a “cash-out refinance.”

The ability of an investor to refinance a loan is dependant on a variety of factors including general market conditions, the availability of financing, the borrower's credit worthiness, and the value of the underlying property. Note however, that an investor may be constrained from refinancing a loan due to lockout provisions or prepayment penalties. Additionally, there may be costs associated with refinancing that may make it a less attractive option.

Read More

Reg A+ Offering

Reg A+ Offering is a Securities and Exchange Commission (SEC) regulation that allows public investment in private companies up to $50 million. Like an IPO, this type of offering allows companies to raise capital by offering shares to the general public.

Read More

Registered Investment Adviser (RIA)

A person or firm that is compensated for providing investment advisory services. Contrary to a broker who is transaction based, RIAs are typically compensated based off a percentage of assets under management, and have a fiduciary responsibility to their clients. RIAs compete with mutual funds, hedge funds, and wire house firms for clients.

Read More

Regressive Tax

A regressive tax is one that is applied uniformly to consumers and thus takes a higher percentage of income from low-income earners than high-income earners. It is considered the opposite of a progressive tax, which taxes higher income earners at a higher rate than lower income earners. The United States has a progressive method of taxation with regard to its income tax, but taxes levied on goods at the point of sale are considered regressive because they are applied uniformly, regardless of the individual’s level of income.

Read More

Regulation D Offering

A Regulation D Offering is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions that allows companies to raise capital through

Read More

Related Parties Transaction

Related parties transaction is a business deal or arrangement between two parties who are joined by a personal or other relationship prior to the deal.

Read More

Related Party

Generally speaking, related party issues are technical and we recommend consulting with your CPA or tax attorney to understand how the “related party” rules may impact your specific situation.

Read More

Rent Roll

Rent roll is a distinctive document providing information as to the current re-occurring revenue gained from existing leases. The rent roll is the property owner’s representation of the rental income gathered from the underlying real estate asset, and serves as the most important document when valuing income generating property, like an apartment.
Read More

Rentable Square Footage

Rentable Square Footage equals the usable square footage plus the tenant’s pro rata share of the building common areas, such as

Read More

Replacement Property

Replacement property, during a tax deferred (aka 1031 exchange or like-kind) exchange, is the property being purchased or acquired.

Read More

Replacement Property Interests (RPI)

Replacement Property InterestsTM is the term Realized uses to describe equity ownership in large properties by multiple 1031 exchange investors through Delaware Statutory Trusts (DST) and Tenant-In-Common (TIC)

Read More

Retail Investor

A retail investor is any individual who purchases and sells securities for his or her own investment portfolio. Similar to institutional investors, retail investors have the ability to engage in stock and bond markets, mutual funds, exchange traded funds, and other alternative investments, conducting trades through brokerage firms or saving accounts. Note, however, that a retail investor may need to meet a certain level of accreditation to participate in some investments, such as private equity, hedge funds, and certain private placements.

Read More

Return on Equity (ROE)

Return on equity (ROE) is a percentage-based performance metric designed to determine how well a company is putting the equity investments it has gained to work in order to increase company value. In other words, it reveals if management is providing a good return on equity. It is measured by dividing net income by total company equity, and is best used when compared to the ROE of other firms within the same industry.
 
ROE is calculated by dividing annual net income by shareholder equity:

ROE = (annual) Net Income / Shareholder’s Equity

Net income is found on the income statement, while equity is found on the balance sheet. Since equity is assets minus debt, ROE shows how well a company is able to turn assets into profits. Another way to look at ROE is how many dollars of profit are you getting back for each dollar of equity put into the company.

Read More

Return On Investment (ROI)

Return on investment measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is

Read More

Right of First Offer

A contractual obligation by the owner of an asset to offer a sale to the rights holder before negotiating with any third party. Often included in tenant-landlord contracts, right of first offer provisions allow a tenant to make a reasonable offer before anyone else, with the intent of not having to move his or her business.

Although similar to a right of first refusal, a right of first offer is thought to favor a seller, as it can reduce transaction costs while locking in a serious buyer. In addition, a seller has the option to deny the right holder’s offer, with the opportunity to negotiate with other buyers. In the event that negotiations with other buyers are unsuccessful, the seller may come back to the rights holder to pursue a new offer.

Read More

Right of First Refusal

The right of first refusal is the contractual right, but not obligation, to enter into a buy-sell transaction with the owner of an asset before any other third party. In commercial real estate, the right of first refusal allows an interested party to buy a property before the seller negotiates any other offer. In the scenario that the party with the right of refusal declines to buy, the seller is then free to negotiate and sell with other interested parties.

Read More

Right of Redemption

Right of redemption is the legal right of any borrower who owns real estate to reclaim his or her property, given that the owner has paid off the necessary obligation or lien that caused the foreclosure to begin with.
Read More

Risk Adjusted Returns

Risk adjusted returns is the measure of the return on an investment relative to the expected risk of that investment, over a specific period.

Read More

Risk Premium

Risk premium is the minimum incremental yield by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to

Read More

Risk Profile

Defined as an evaluation of an individual or organization’s willingness to take risks, as well as the threats to which an organization is exposed. Risk profiles are important for determining which asset classes and allocations are appropriate for a portfolio. This risk profile signals the tolerable level of risk that is accepted. A corporation’s risk profile attempts to determine how a willingness to take risk will affect overall decision-making strategy.

Read More

Rule 144A

Introduced in 2012, Rule 144A reduces the amount of time a qualified institutional buyer must hold privately placed securities from 2 years to six months for a company that reports to the SEC or a year for a company that does not. The introduction of this rule has substantially enhanced liquidity in the market for private placement securities. The modification was introduced to acknowledge that sophisticated institutional buyers do not need the same protections an individual investor requires on the open market.
Read More

S Corporation

An S corporation is a type of corporation with less than 100 shareholders that files corporate taxes and allows a firm to pass business income, losses, deductions and credits to the firm’s shareholders. S corporations do not pay taxes at the federal level, which is particularly beneficial to a business recently established that seeks to grow. An S corporation allows a firm to characterize distributions as salary or dividends, thus allowing the S corporation to reduce its tax liability.
Read More

Safe Harbor

Safe harbor is a statutory or regulatory provision that provides protection from a penalty or liability. In the context of a 1031 exchange, safe harbor refers to any one of

Read More

Sale-Leaseback

A sale-leaseback is an agreement where the seller of real estate leases back the same property from the buyer the seller sold it to. Once a seller has given title to the buyer, the seller immediately enters into a lease agreement with the new owner, making rent payments to occupy the property. Sale-leaseback provisions are often used in situations where a company needs to access capital tied up in an asset such as real estate, but still needs to use the property in order to operate.

Read More

Sales Tax

A sales tax is a tax imposed by a government on the sale of a good or service. A traditional sales tax is charged to the end user of the good or service at the point of sale, at which point the retailer will pass funds generated from the sales tax on to the appropriate government entity.

Different jurisdictions, counties and municipalities across the United States charge different sales taxes.

Read More

Salvage Value

Salvage value is the approximate value of an asset at the end of its useful life. Using both purchase price and a given accounting method, such as straight-line or double declining balance, one can calculate the amount of annual depreciation being attributed to an asset based on its salvage value. Salvage value is an estimate, while depreciation is a calculation based off this amount.

Read More

Same Taxpayer Provision

A requirement in a 1031-exchange transaction, the same taxpayer provision states that the taxpayer who owned the relinquished property must be the same taxpayer who takes ownership of the replacement property. This ensures that the taxpayer’s basis is carried over into the new property, and that there is a continuity of deferral.

Read More

Savings Account

A savings account is an interest-bearing deposit account. It is an instrument used by individuals and businesses to deposit funds at a bank or financial institution in exchange for a moderate interest rate. Whereas checking accounts offer depositors unlimited deposits and withdrawals and a lower interest rate, savings accounts offer depositors a limited number of withdrawals and a more favorable interest rate.
Read More

Scarcity

Scarcity is a basic economic problem that describes the limited means of producers and suppliers to satisfy unlimited wants of consumers. The concept of scarcity grapples with the fact that every resource has a finite supply, whether that be time, money, water, wood or land. The study of economics is thus ultimately the study of how individuals and entities react to the scarce supplies and allocate resources to combat this limit to generate profit.

Read More

Schedule K-1

A Schedule K-1 is a type of tax document used to report partnership incomes, losses, and dividends. Each individual partner is obligated to complete one of these forms, whenever necessary, and must include it with their respective personal tax returns.

Read More

Second Mortgage

A second mortgage is a subordinate mortgage taken on by a borrower while a first mortgage is still in place. In situations where a homeowner has built up equity in his or her property by paying down a first lien mortgage, or property appreciation as occurred, one may want to borrow against this new equity to fund projects or other expenditures. Due to the fact the second mortgages only receive payment when the first mortgage has been paid off, they typically hold higher interest rates.

There are two main types of second mortgages that exist: a home equity loan and a line of credit. A home equity loan is where a borrower receives a upfront lump sum from the lender, and makes interest and principal over the mortgages term, similar to a conventional loan. A line of credit is where the lender allots a predetermined amount of money for the borrower to draw from, with the borrower able to borrow and repay the line of credit as often as they wish. Note that in a line of credit type loan, the borrower is not required to take any funds from the borrower.

Read More

Secondary Market

The secondary market is where existing securities are bought and sold. Once a security has been purchased by an investor in the primary market, whether it be a public or private market, all further transactions are done on the secondary market. Securities are then exchanged between interested buyers and sellers, with exchanges facilitating the trade. For example, the New York Stock Exchange is considered a secondary market for public equities. Note, that private securities may not have an active secondary market to conduct secondary trades.
Read More

Securitization

Securitization is a financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or

Read More

Senior Debt

Debt that takes priority over other unsecured, “junior” debt. Senior debt sits at the bottom of the capital stack, and offers the lowest risk with the lowest return.

Read More

Shareholder

A shareholder is a person or firm that owns one or more shares of a company’s stock. Individual investors or firms can purchase shares of publicly traded companies on exchanges such as the New York Stock Exchange and in turn own equity in the company.

As owners in the company, shareholders have certain rights that include the right to review a firm’s books and records, vote on key company matters, receive dividends, attend annual meetings and vote on certain matters.

Read More

Shortage Economics

A shortage is created when the demand for a product is greater than the supply of that product. There are three conditions that can create a shortage:

- Increase in demand — occurs when consumers suddenly demand more of a product. For example, demand for a new automobile that a manufacturer cannot fulfill.
- Decrease in supply — occurs when the supply of a good drops. For example, a virus among pigs means many of them must be euthanized, creating a shortage of pork products.
- Government intervention — a government can impose a cap on prices (i.e., a price ceiling), allowing more people to buy a good than would be realized in a free market.

Read More

Simple Interest

Simple interest is a method of calculating interest generated on a loan’s principal. It is calculated by multiplying the daily interest rate by the principal and the number of days between payments.  

Types of loans that apply simple interest are auto loans and short-term personal loans. Consumers who pay loans early or on time on a monthly basis benefit from simple interest structure because principal balance shrinks faster under this method of interest calculation.

Read More

Social Responsibility

Social responsibility is a theory that argues that businesses are obligated to function in a manner that benefits the broader society, whether that be a local community, region or country. Social responsibility ultimately calls for businesses and individuals to perform their duties to act in the best interests of society and the environment. The theory asserts that businesses can achieve profitability and act in a socially responsible manner simultaneously.

 

Read More

Social Security

Social Security is a term used to represent the United States government’s Old-Age, Survivors and Disability Insurance (OASDI) program. It is an insurance program structured such that workers pay into the program via a payroll withholding on their wages. These withholdings go into two Social Security trust funds that are used to provide benefits to individuals who currently qualify.

Individuals over the age of 62 who have paid into the system for 10 years or more qualify for Social Security retirement benefits.

Read More

Social Security Act

The Social Security Act is a law introduced in 1935 designed to transfer wealth from the working population to older, retired people. The Social Security system is funded via a payroll tax.

The Social Security Act was introduced by President Franklin D. Roosevelt during the Great Depression in 1935. The government began collecting the tax from workers in 1937 and making payments in 1940.

Read More

Soft Costs

Soft costs are fees that are not directly related to labor and direct constructions costs.  Soft costs include architectural, engineering, financing, and legal fees, and

Read More

Special Purpose Entity (SPE)

Special purpose entity is a legal entity established by the sponsor or borrowing entity whose operations are limited to the acquisition and financing of specific assets.

Read More

Stagflation

Stagflation is a term used to describe a period of slowing economic growth in which prices are increasing at a rate higher than the growth of the economy. Stagflation was widely recognized during a period in the 1970’s in which the U.S. economy experienced rapid inflation and high levels of unemployment. Previously, stagflation was widely considered by economists to be impossible, because macroeconomic theory long believed that unemployment and inflation were inversely correlated. There are many theories that have spawned since the mid-20th century that seek to identify the root cause of stagflation.

Read More

Standard of Living

Standard of living is a measure of wealth, material goods and necessities available to various socioeconomic classes in a given area at a fixed point in time. Measurements of standard of living can be used to compare geographic areas at a fixed point in time or economic conditions in a single geographic location at various points in time.
Read More

Stated Rent

Stated rent is the rent amount paid by the occupant to the landlord as specified in the lease. Stated rent does not account for any concessions or landlord costs

Read More

Stock

A stock is a security that represents a shareholder’s proportionate ownership in the assets and earnings of the issuing corporation. Stocks are primarily bought and sold on exchanges. In exchange for cash, stockholders obtain a piece of a corporation and a claim to that firm’s assets and earnings.

Read More

Stock Broker

A stock broker is an individual or firm that performs securities transactions on behalf of clients in exchange for a fee. Stockbrokers often work on behalf of a brokerage firm and handle transactions both for individual investors and institutional customers in exchange for commissions.

In today’s market, stockbrokers are critical for retail investors to obtain exposure to the market, because major exchanges such as the New York Stock Exchange (NYSE) require membership to trade on its exchange. Thus, retail investors cannot trade directly through an NYSE window and must hire a broker at a member firm to perform the transaction on their behalf.

Read More

Stock Market

The stock market is a general term used to describe various markets and exchanges on which individual and institutional investors buy, sell and issue share of publicly-traded companies. Also referred to as a stock exchange, the stock market is an environment where investors can interact and transact in a secure and regulated environment that exists to ensure investors have access to liquidity and a fair price to buy or sell securities.

The stock market is also a source of capital-raising for private companies seeking to offer shares of their company to the public for the first time in the form of an initial public offering (IPO).

Read More

Substantial Improvement

Qualified Opportunity Zone Business Property (“QOZBP”) is substantially improved for this purpose if during any 30-month period following acquisition of such property there are additions to basis that equal the adjusted basis as of the beginning of such 30-month period.

Read More

Supply Chain

A supply chain is a network that a firm builds to perform the production of a good or service. This network includes individuals, entities, information and other resources that are pooled together to efficiently conduct the production of a good or service.

Companies monitor their supply chains ultimately to reduce variable costs and expenses at various points throughout the production of a good or service. More mature companies with high levels of working capital can choose to vertically integrate supply chains, which involves the ownership of all levels of the supply chain network involved in the production of a good or service.  

Read More

Suspended Loss

A capital loss that cannot be realized in a given tax year due to passive activity limitations. The losses are suspended until they can be netted against passive income in a future tax year. These suspended losses are a result of passive activities, and can only be carried forward. Suspended losses that are a result of the disposition of a passive interest are subject to an annual capital loss limit.

For example, if a taxpayer incurs a $10,000 suspended loss from a passive activity and participates in the activity in the following year and earns $20,000, then the suspended loss may be applied against $10,000 of the earned income, leaving the taxpayer with $10,000 of declarable income for the year.

Read More

Systematic Risk

The uncertainty caused by macroeconomic factors that affect all risky assets. Also known as “market risk”, systematic risk underlies the performance of most asset classes that trade publicly or privately. One can not diversify against systematic risk, as it includes events such as inflation, changes in interest rates, recessionary periods, and even war. These type of forces tend to affect the market as a whole, and typical portfolio diversification strategies may not be as effective.

Read More

Tangible Property

Tangible personal property is everything other than real estate that is used in a business or rental property.

Read More

Tax Basis

Tax basis, in the context of commercial real estate, is the original purchase price or cost of an investment property plus any out-of-pocket

Read More

Tax Credit

A tax credit reduces the amount of taxes owed to the government. Tax credits shouldn’t be confused with tax deductions and exemptions, which reduce taxable income. Tax credits provide a dollar for dollar reduction in taxes owed, making them more favorable than deductions and exemptions.

Tax credits come in three types — nonrefundable, refundable, and partially refundable. Each type of credit will reduce your taxes. A nonrefundable credit can’t create a refund, while a refundable credit can create a refund. A partially refundable credit allows, in some cases, taking part of the credit as a refund.

Read More

Tax Cuts and Jobs Act

A congressional revenue act originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA).  Public law no. 115-97 ("the Act") amended the Internal Revenue Code of 1986 based on tax reform advocated by congressional Republicans and the Trump administration.

Read More

Tax Deduction

Tax deductions help to reduce taxes owed at the end of the year for individuals and companies. Deductions can come in the form of expenses incurred throughout the year or as itemized deductions. If an individual adds up all of their eligible deductions for the year and they don’t equal the standard deduction, the person can elect to take the higher standard deduction.

Some examples of (itemized) deductions include healthcare, mortgage interest, property taxes, and home office and related job expenses. Up to $3,000 in losses on investments can also be used to reduce tax liability. Investment losses from the previous year can be carried forward into the current year for up to $3,000 in total investment losses.

Read More

Tax Deferred

Tax deferred is an instance where investment earnings such as interest, dividends, or capital gains accumulate tax-free until the payment of taxes related to the

Read More

Tax Liability

A tax liability is the total amount of taxes owed by an individual taxpayer, corporation, or other organization. Payable to federal, state and local taxing authorities, tax liabilities are derived from income earned, capital gains on the sale of an asset, or other events that are considered taxable by the Internal Revenue Service (IRS).

Tax liabilities are not determined just from the income from a given year, and may include back taxes (taxes payable from a previous year), or other write offs that actually reduce taxable income, such as loss carryforwards. An individual’s tax liability, or tax rebate, is calculated using an IRS 1040 Form, while corporations use an IRS Form 1120.

Read More

Tax Lien

A governmental claim on real property when a taxpayer fails to make property tax payments or has outstanding income taxes. While federal and state governments have the ability to assess liens over unpaid income taxes, local governments may assess liens over unpaid local income taxes and property taxes. Tax liens give taxing authorities priority over other creditors that may have claim to the property when liquidated.

In addition to affecting a taxpayer’s credit, a tax lien may affect the marketability of real property. While the lien is in-place, a taxpayer may not be able sell or refinance the property until the lien is satisfied. The two most basic ways to satisfy a tax lien is through the repayment of outstanding taxes or dismissal through bankruptcy court.

Read More

Tax Loss Carryforward

As laid out by the IRS, this policy allows an investor to use current realized losses to offset future taxable capital gains. Different from a NOL Carry Forward, this type of tax benefit can only offset gains made on the sale of assets, thus reducing your tax liability on this account in future years.

Read More

Tax Return

A document filed with the IRS that reports income, expenses, and other related tax information for an individual or entity. Tax returns allow taxpayers to calculate their taxable income and tax liability, while providing a medium to request tax refunds in situations that a taxpayer has overpaid. Typically, tax returns are filed annually.

Tax returns can be broken down into three sections: income, deductions, and tax credits. The income section lists all sources of income, including capital gains. The deduction section lists anything that reduces taxable income, such as interest deductions and charitable donations. Similar to deductions, tax credits will reduce taxable income as well, and typically includes credits given for the care of dependent children and seniors, education, and saving for retirement.

Read More

Tax Shelter

A tax shelter is a financial technique used by taxpayers to reduce taxable income. Tax shelters include both investments and investment accounts that provide favorable tax treatment, as well as deductions as laid out by the Internal Revenue Service (IRS).

Typical investment accounts that shelter returns from taxes are 401(k) accounts and traditional IRAs. Other items that lead to tax efficiency are interest expenses and depreciation, which are deductible from taxable income. In some cases, a taxpayer may be able to realize a loss after these deductions are factored in, resulting in tax loss carryforwards that may be able to offset future profits.

Certain real estate investments may provide income tax shelters through mortgage interest deductions and depreciation allowance and, depending on the legal structure, may provide the ability to defer capital gains via a 1031 exchange.

Read More

Tax-Optimized Real Estate™

Tax-Optimized Real Estate™ is a proprietary investment process that seeks to maximize an individual investor's long-term after-tax cash flow and total returns on commercial real estate within their risk tolerance and unique tax situation.

Read More

Taxable Income

Taxable income is calculated as total revenue less total expenses and applicable deductions and exemptions that are allowed in that tax year.

Read More

Tenant

Tenant is a person or entity who rents real estate from another though a lease. A tenant also may be referred to as a lessee.
Read More

Tenant Improvement Allowance

Tenant improvement allowance is a leasing incentive offered by a landlord in order to entice tenants to lease space. The tenant improvement allowance is the dollar amount, typically

Read More

Tenant Improvements (T.I.'S)

Tenant improvements are the customized alterations a building owner makes to rental space as part of a lease agreement, in order to configure the space for the needs of that

Read More

Tenant-In-Common (TIC) Properties

Tenant-in-common properties are any property purchased by multiple investors via a Tenant-In-Common structure. See Tenant-In-Common Investments.

Read More

Tenants-In-Common (TIC)

Tenants-In-Common is a type of shared ownership of property, where each owner owns a share of the property. Unlike in a joint tenancy, these shares can be of unequal size,

Read More

The Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is an index that tracks 30 publicly-owned companies that trade on the NYSE and NASDAQ. The Dow Jones Industrial Average is one of the oldest indices in the world and is generally accepted as a gauge for the momentum or lack thereof in financial markets. Named after Charles Dow, the DJIA is designed to function as a proxy for the US economy and includes firms such as ExxonMobil, Goldman Sachs and General Electric.

Read More

The Environmental Protection Agency (EPA)

The Environmental Protection Agency (EPA) is an agency of the United States government established in December 1970 by United States President Richard Nixon. The agency was created to promote and protect human and environmental health by creating standards and laws that support this mission.

The agency was created in response to public concern with regard to the health of the natural environment and humans. The EPA regulates manufacturing, processing, distribution and use of chemicals and pollutants and enforces its standards via fines, sanctions and other various methods of penalty to actors who violate its terms.

Read More

The Federal Insurance Contributions Act (FICA)

The Federal Insurance Contributions Act (FICA) is a US law introduced in 1935 that mandates a payroll tax on employee salaries and wages and on employer contributions to Social Security and Medicare programs.

FICA contributions are mandatory. Funds collected as a result of this payroll tax help fund programs such as Social Security and Medicare that pay for current retirees’ and other beneficiaries’ benefits.

Read More

Three Property Rule

The Three Property Rule is defined under IRC Section 1031, which states that an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of

Read More

Time Value of Money (TVM)

Time value of money is the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Read More

Title Company

Title company is a company that examines and insures title claims for real estate purposes. The title company verifies legal title to a property through a review of

Read More

Title Holding Trust

Title holding trust is a fully revocable grantor trust designed and drafted specifically to acquire, hold, manage and ultimately dispose of real estate on a confidential or private basis to better protect an investor’s assets.

Read More

Title III Regulation Crowdfunding

Title III Regulation Crowdfunding is a Securities and Exchange Commission (SEC) regulation that exempts non-accredited investors from registering with the SEC to invest in crowdfunded equity offerings. Title III requires that issuers gather funds through either a broker-dealer or registered funding platform.
Read More

Title Insurance

Insurance that protects the holder from financial loss resulting from defects in title to real estate. The most prominent form of title insurance is lender’s title insurance, which usually must be obtained to secure a mortgage, however owner’s title insurance does exist as well. Whereas lender’s insurance is usually paid for by the buyer, owner’s title insurance is paid for by seller.

The purpose of title insurance is to protect both real estate owners and lenders against potential damage or loss due to defects in title. These defects include claims of ownership by another party, fraud of title documents, unidentified
Read More

Title Loan

A title loan is a loan that requires an asset be used as collateral to secure the loan, such as a car or real estate property. Different from other conventional loans and mortgages an individual may apply for, title loans often do not take into account the credit rating of applicant, since repayment is guaranteed by the transfer of the asset’s title to the lender. In addition, title loans often have looser application requirements, and can be approved quickly, and in smaller denominations than other loan types.
Read More

Total Return

Total return is the actual rate of return of an investment or a pool of investments over a given evaluation period which includes income and appreciation.

Read More

Trade Deficit

Countries are constantly importing and exporting goods. But when more is imported than exported, a trade deficit occurs. Trade deficits aren’t bad and can occur for a number of reasons. Countries may import more than they export because the economy is growing so quickly. Also, wealthy individuals in the country may be buying luxury items from other nations.

When a country can’t produce enough for its residents, either because of its fast growth or lack of resources, it imports what’s needed from other nations. This kind of import/export imbalance leads to a trade deficit. After a while, imports and exports come back into alignment. A result of trade deficits is an outflow of domestic currency.

Read More

Traded REITs

Traded REITs are a type of security that invests in real estate properties and mortgages, and trades like stock on major exchanges. Like any REIT, traded REITs must pay out at least 90 percent of the company’s taxable income each year in the form of shareholder dividends. Unlike non-traded REITs, however, traded REITs are very liquid and relatively easy to value, a tribute to it’s existence on a major exchange. 

Read More

Traditional IRA

A retirement account that allows an individual to allocate pretax income toward investments that can grow tax-deferred. Income contributed to the account is limited, and may be deductible from taxable income based on the taxpayers amount of income and filing status. Capital gains taxes or dividend income taxes are only assessed once funds are withdrawn from the account.

Read More

Tranche

Tranche is a slice of the capital stack that reflects an investor’s credit or equity ownership position in a company or project. Different tranches have different cash flows and risks involved, as well as different claims to cash distributions.

Read More

Trust, Irrevocable

An irrevocable trust is a trust that cannot be modified or terminated without the permission of the beneficiary. The grantor effectively gives up all of his or her rights to the trust.

Read More

Trust, Land

Land trust is a fully revocable grantor trust designed and drafted specifically to acquire, hold, manage and ultimately dispose of real estate on a confidential or

Read More

Trust, Living

Living trust is an arrangement created during a person’s life, in which the trustee holds legal title to assets for a beneficiary.

Read More

Trust, Real Estate

Trust, Real Estate is real property owned through a trust rather than by an individual. In this context, the exact legal form of ownership may take a variety of forms

Read More

Turnkey Property

A fully renovated property that is ready to be inhabited once purchased. Turnkey properties are often acquired from companies that focus on this type of property, restoring older properties to be bought by potential investors. These restorations can range from plumbing repairs to repainting. Often times, these same companies may offer on-going property management services to buyers, further reducing the time and effort of for the prospective buyer. As the name suggests, all the buyer has to do is “turn the key.”

Although a common term used for investment properties, a turnkey property can be used to describe residential properties as well. Similar in scope to commercial, residential turnkey properties have been renovated, and are capable for move-in by homeowners.

Read More

Underwriter

An underwriter is an individual or party that measures or quantifies another party’s level of risk in investment or business engagement in exchange for a fee. Underwriting is a service required across many different industries and sectors, from mortgage issuances to insurance policies to initial public offerings. 

In the case of a mortgage issuance, an underwriter is tasked with measuring the level of risk a financial institution assumes in agreeing to lend money to a borrower, based on the borrower’s creditworthiness and current ability to repay his or her debts.

Read More

Underwriting

Underwriting is the process of evaluating the future performance of a property. Similar to an insurance underwriter, in the context of commercial real estate,

Read More

Unemployment Rate

The unemployment rate is a measure of the population in the labor force that is without a job as a percentage of the labor force as a whole. Considered a lagging indicator, the unemployment rate will rise or fall in response to improvements or deteriorations in economic conditions. When the economic outlook turns bleak, unemployment may rise. When an economy is growing at a steady rate as a result of consumer and business confidence, the unemployment rate will tend to fall.

Read More

Union

A labor union is an organization formed to protect the rights of workers in specific industries. Labor unions unite workers of similar trades to obtain leverage in negotiations with employers over wages, hours, benefits and other working conditions. Unions function like democracies in that leaders and officers are elected by peers to make decisions that are beneficial to the union as a whole.

Read More

United Nations

Formed in 1945, the United Nations is an international organization aimed at promoting political and economic cooperation among its members. The UN was formed following World War II as a vehicle aimed to ease international tensions, foster human rights and minimize risk of international conflict.

Read More

United States Department of Agriculture (USDA)

The USDA or United States Department of Agriculture is a federal government program responsible for the management of food, agriculture, natural resources, rural development, and nutrition. Many Americans know the program for overseeing food safety. The USDA was founded in 1862, a time when 50% of Americans lived on farms.

In addition to food safety, the USDA is broad-reaching and provides services in the following areas:

- Hi-speed Internet access to rural areas
- Disaster assistance to farmers, ranchers, and rural residents
- Soil, water, and other natural resource conservation to landowners
- Wildfire prevention
- Agricultural research and statistics
- Nutrition in foods

It is also responsible for welfare programs such as food assistance for women, infants and children (WIC), and food stamps.

Read More

Unrelated Business Income Tax (UBIT)

As stated in the U.S. Internal Revenue Code, any income derived from a business activity that is not related to the tax-exempt purpose of the organization is subject to taxation. An exempt organization must file a Form 990-T if unrelated business income exceeds $1,000.

Read More

Unsystematic Risk

The risk attributed to the assets of a single industry or company. Commonly referred to as “specific risk”, unsystematic risk is not correlated to the performance of the overall market. Examples of unsystematic risk include new competition, regulatory changes, fraudulent behavior by a company’s senior management, and union strikes.

Read More

Useable Square Footage

Useable square footage is the space that is actually occupied by a tenant, typically equal to the size of the tenant’s suite, without deductions for columns or other

Read More

VA Loan

VA Loans are mortgages issued by private lenders, but partially guaranteed by the Department of Veterans Affairs. To be eligible to apply for a VA Loan one must meet one of the following criteria1:

Read More

Vacancy Allowance

Vacancy allowance is a line item on a real estate pro forma that accounts for expected vacancy of the property. The specific allowance is dependant on the property type and

Read More

Vacancy Rate

Vacancy rate is the percentage of all available units or space in a rental property that are vacant compared to the total supply of units or space at a particular time.

Read More

Valuation, Cost Approach

Cost approach valuation is a real estate valuation method that bases a property’s market value off the cost it would take to build an equivalent structure. The cost approach takes into account the cost of land plus the cost of construction, less depreciation. Similar to its counterparts, the cost approach may have other forces that prove it inaccurate. For example, if vacant land is not available to compare against, the professional valuing the property will have to derive an estimate, making the end value less accurate.

Read More

Valuation, Income Approach (Direct Capitalization)

Valuation, income approach (direct capitalization) is a real estate appraisal method that values a property by taking net operating income and dividing it by a predetermined capitalization rate. The income valuation method is not suitable for valuing owner-occupied residential properties, as it relies on income produced as a function of the property’s overall value. The income capitalization formula is as follows:

Read More

Valuation, Sales Comparison

Sales comparison valuation is a real estate appraisal method that estimates a property’s value by comparing it against other properties with similar attributes that have been sold recently. This approach considers all of the individual features of a property, adjusting the value to reflect a sum of all the property’s features. A sales comparison approach may be used to evaluate both commercial and residential property.

Read More

Value-Added Tax

A value-added tax (VAT) is a consumption tax on a product as a firm adds value to it at each stage of a supply chain between the initial point of production and the sale to that consumer. It is measured as the difference between the cost of the product to the consumer and any costs of production that were untaxed. 

A value-added tax is imposed on the gross margin at various points of manufacture and distribution and is assessed at each stage. It is thus a tax on a consumer’s consumption instead of their income.

Read More

Variable Cost

A variable cost is an expense that fluctuates in proportion to a firm’s level of production. An example of a variable cost is a utility expense, which fluctuates on a monthly or annual basis depending on the amount of electricity and/or water a firm needs in the production of its goods or services.

Variable costs differ from fixed costs, which do not change based on the production of a good or service. An example of a fixed cost is rent, which is a contractual amount to be paid on a regular schedule over a defined period of time.

Read More

Venture Capital

Venture capital is capital that startup companies with long-term growth potential receive from investors. Investors provide venture capital to firm’s with unproven records of success because of the future possibility of sometimes rapid growth. Venture capital differs from private equity primarily in that venture capital is funding or financing provided to a firm for the first time, whereas private equity provides a more established firm an equity infusion.
Read More

Vertical Integration

Vertical integration occurs when a firm acquires all facets of a supply chain in the pursuit of cost reduction and efficiency. 

There are two forms of integration: forward and backward integration. A firm in the business of distribution seeks forward integration by reducing transportation costs, etc., while a firm seeking backward integration is typically in manufacturing and reduces its costs in the process of combining inputs to create value in a finished product.

Read More

Volatility

The amount of uncertainty associated with the size of change in a security or market index’s value. In statistics, volatility is determined by the standard deviation or variance of returns for the same security or index. A higher volatility means that a security’s value is more unpredictable, typically carrying a greater amount of risk. A lower volatility means that the security’s value does not fluctuate as much, and tends to be more stable.

For example, say Security A has fluctuated in value from $50 to $120 three times this year, while Security B has fluctuated between $70 to $80 three times as well. Given that Security A has changed in value at a higher variance from its average during this time period, it is said to be more volatile, or more unpredictable.

Read More

W-2 Form

A W-2 form is a document that an employer provides to its employee used to file taxes with the IRS on an annual basis. Employers are required to send W-2 forms to all employees to whom they pay salaries or wages before January 31 each year, providing the employee enough time to file his or her taxes prior to tax day in April.

Read More

Warranty Deed

Warranty deed is a document that may be used to legally transfer property. A warranty deed states that the owner can legally transfer the property and that no other

Read More

Working Capital

Working capital is the difference between a firm’s current assets (e.g. cash, accounts receivable, inventory) and current liabilities (accounts payable, other liabilities due within one year). Working capital measures a company’s liquidity and efficiency in its operations. Firms with high levels of working capital are in an advantageous position to invest in current operations or expand the capacity of future operations via capital expenditure.

Read More

Working Capital Safe Harbor

With the adoption of a 31-month working capital safe harbor for Qualified Opportunity Fund investments in Qualified Opportunity Zone Businesses that acquire, develop, or renovate a business property in a QOZ, QOFs now have an ample amount of time to deploy capital responsibly without being disqualified as a QOZB. In order to qualify as a working capital safe harbor, a QOF must have a written plan outlining the projected uses of capital to develop a business in a QOZ or acquire, develop, or renovate a property located in a QOZ.

Read More

World Bank

The World Bank is a financial institution established to provide financing, advisory services and research to emerging markets and developing nations in support of economic advancement in public and private markets. Its key objectives are the reduction of poverty and fostering of economic development in nations around the world by providing low-interest loans, credits and grants to foster education, healthcare and infrastructure in developing nations.

The World Bank was created in 1944 following the Bretton Woods agreement near the end of World War II at a time when many nations needed financing to rebuild following the conflict.

Read More