Realized 1031 Glossary of Terms

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

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.

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.

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.

Operating Expenses

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

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.

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.

Opportunistic Property

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

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.

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.

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.

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

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.

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.

Glossary of Terms