Glossary of Terms

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.

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Intangible Property

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

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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.

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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

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Parking Ratio

Total rentable square footage of a property divided by the number of parking spaces; typically expressed as a ratio of spaces per 1,000 square

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Partial 1031 Exchange

To the extent less than 100% of the proceeds of a relinquished property are reinvested, the difference will result in mortgage boot and/or cash boot.

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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.

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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.

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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.

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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Preferred Equity

Preferred Equity is an equity investment which is superior in interest to common equity but subordinate to debt. Preferred equity is secured by a

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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.

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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.

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Present Value (PV)

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

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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.
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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.

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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.
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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.

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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.

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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

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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.

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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.

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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.

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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:

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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.

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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.

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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.

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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.

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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.

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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.

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Property Type, Flex

Short for “flexible”, flex properties are typically considered a subsect of industrial properties that contain a higher percentage of

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Property Type, Hospitality

Consists of a wide range of product types including hotels, travel centers, water parks, amusement facilities, golf courses, cruise ships and restaurants.

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Property Type, Hotel

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

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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. 

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Property Type, Office

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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Qualified Opportunity Zone Program

The 2017 tax reform reconciliation act (the Act), enacted December 22, 2017, includes a new tax incentive program, Internal Revenue Code Subchapter Z – Opportunity Zones, aiming to promote investments in certain economically distressed communities.

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Qualified Opportunity Zone Property (“QOZP”)

Is property that is (i) qualified opportunity zone stock, (ii) qualified opportunity zone partnership interest, or (iii) qualified opportunity zone business property.

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Tangible Property

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

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