# Glossary

### 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

### 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 feet. As an example calculation, a 40,000 square foot office building with 180 parking spaces has a parking ratio of 4.5 spaces per 1,000sf. Different property types or tenant uses may require different parking ratios.

### 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.

### Partial Payment

A partial payment is basically an installment payment on an invoice. Through an arrangement with the billing party, a schedule of payments is created. In some cases, half of the invoice is paid on receipt and the other half once a job is completed. Paying the invoice only once a job is complete ensures the terms of the job are met. For longer jobs, a contractor may invoice as they go. This helps to cover the expenses incurred by the contractor.

### 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.

### 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.

### Payroll Tax

Payroll taxes come out of an employee’s check. Employees do not have to worry about paying this tax directly since it is withheld by the employer. The employer then pays the tax to the IRS for Federal income, Medicare, and Social Security. Employees can see how much is paid to each category on their check stub. Self-employed individuals still pay payroll taxes in the form of self-employment tax. Unemployment insurance is also funded by the employer and can be considered part of payroll taxes. When an employee is terminated, they can use the amount of paid unemployment insurance until they find a new job.

### Pell Grant

A pell grant is a government grant for college/university tuition and educational expenses. Unlike a loan, a pell grant does not need to be repaid. Students must apply each year for a Pell Grant through the Free Application for Federal Student Aid (FAFSA). The Pell Grant award amount is determined by the school. To figure out how much money a student should receive, the school calculates the gap between expected family contribution (EFC) and the cost of attendance (COA). EFC is the student’s and parent’s income and the parent’s investments and assets. COA includes school tuition, expenses, and room and board. A pell grant is only one method of filling the EFC/COA gap. Other financial assistance may come in the form of government loans and work-study programs.

### Pension Plan

A pension plan is a type of retirement plan where employees contribute to a pool of funds that are used to pay for the employees’ retirement. The employer controls the type of investments in the plan, although some plans may have a voluntary investment component. There are two types of pension retirement plans. The older type is called a defined-benefit plan. In this plan, the employer invests the pension's contributions into low-risk assets. Retirement payments are determined from a formula based on years of service and independent of the retirement fund’s performance. The more modern version is called a defined-contribution plan where employee plan contributions are usually matched by the employer. In these plans, retirement benefits are dependent on the plan’s performance.

### 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.

### 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

### 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

### Perfect Competition

Perfect competition is a non-existent market state in which companies sell the same product for the same price and make just enough money to remain in business. All products are sold because there is an exact match in demand for them. Because buyers have perfect information about the products being sold, product and service prices always reflect the current market price. In the real world, competition is not perfect. In most cases, firms do not produce the exact same product or price it the same as competitors. They are always looking for some small differences to make their product stand apart. This creates differences in prices and demand, leading to imperfect competition. However, such markets are generally liquid and highly competitive, which is about as close to perfect competition as the real world gets.

### Personal Finance

Personal finance involves learning about how to manage your money efficiently and plan for your financial future. Saving for retirement, paying off debt, saving for a house down payment, buying the right amount of insurance, and more all encompass personal finance. There’s an entire industry of services that also offer personal financial assistance. Specifically, financial advisors help people to accomplish their financial goals. Because people have unique financial situations and goals, financial advisors are still needed. However, an individual can certainly learn to manage their own money and financial future by reading online articles and books on personal finance.

### 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

### 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.

### 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.

### 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.

### Physical Capital

Physical capital is one of the three factors of production used in the production of goods. Physical capital is used to make goods and is also reusable. This is in contrast to raw goods, which become part of the final product and are not reusable. The three factors of production include land/natural resources/real estate, human capital, and physical capital.

### Ponzi Scheme

A ponzi scheme is a type of investment scam. It is named after Charles Ponzi, who initiated the first ponzi scheme in the 1920s. A ponzi scheme works by having investors invest in what appears to be a legitimate investment opportunity. The scammer promises high returns. As investor money comes in, the scammer uses the investors’ own money to pay for the returns. Because investors are receiving regular payments, they don’t question the legitimacy of the operation. Behind the scenes, the scammer is pocketing/stealing most of the money. Once new investors stop coming into the scheme, the scammer can no longer pay returns to existing investors. At that point, the entire scheme collapses. Most scammers will try to disappear when they see that new investors are not available and they are running out of money to pay returns. Sometimes authorities find out about the ponzi scheme before it collapses. In many cases, though, investors lose out.

### Positive Correlation

A positive correlation represents the relationship between two investments that move together. When one investment is moving up, we can expect the other positively correlated investment to be doing the same. One is not leading the other. They simply have common dependencies that drive their move. Correlation is a numeric value between -1 and 1. -1 means negative correction. These are investments that move opposite each other. 1 represents positively correlated investments. 0 represents investments that move independently of each other. Having a portfolio of zero correlated investments provides diversification. As some investments are moving down, others are flat or moving up.

### 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.

### 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.

### 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.

### 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

### 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.

### Preferred Stock

Companies issue two types of stock - common and preferred. Common stock is what you commonly see quoted on stock exchanges and financial news websites. It is the one most people invest in. Preferred stock is similar to a bond in its behavior, and unlike common stock, does not have voting rights. However, it does pay dividends to its owners before common stock pays and will pay any dividends in arrears.

### 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.

### Present Value (PV)

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

### Price Discrimination

Price discrimination occurs when a seller charges different prices to different customers for the same product. The seller is trying to get the highest price possible for the product. Price discrimination may occur on an individual customer basis, where each customer is charged a different price. It can also happen when groups of customers are charged different prices. Groups are based on certain characteristics such as international or domestic, educated or uneducated, employed or unemployed, wealthy or poor. There is no limit to the types of groups a company may define for its customers. There are three degrees of price discrimination. The first is when a seller tries to get the highest price from each customer. The second is when a discount is offered for bulk purchases. The third is when groups of customers are charged different prices for the same product. Sellers split customers into groups because group profits are higher than when customers are looked at as one homogenous population. How long the seller is able to keep up price discrimination will depend on the elasticities of the groups or sub-markets (also called market segments). Profits in an inelastic sub-market should not change since those consumers are willing to pay a higher price. This is likely due to the lack of alternatives in the sub-market. It is just the opposite for consumers in an elastic market. Due to alternatives, consumers will find substitutes when prices rise, reducing the seller’s profits in that market. Those companies that are a monopoly are able to more effectively employ price discrimination. Also, it is important that a seller’s sub-markets do not overlap. Otherwise, customers within one group would be able to sell products at a higher price to other groups (who were charged more for the same product).

### 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.

### 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.

### 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.

### 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.

### 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.

### 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

### 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.

### 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.

### Pro Rata

Pro rata is a term that means each person gets their proportionate share of distributions. Pro rata is Latin for "in proportion." As an example, if three people own an investment that pays quarterly distributions, they are all paid based on the amount each has invested. If person A owns 20%, B owns 50%, and C owns 30%, and the next distribution is \$1,000, A will receive \$200, B \$500, and C \$300. Pro rata should not be confused with pro forma, which is used with financial statements that are based on assumptions.

### Probate Court

Probate court handles the distribution of a deceased person’s assets to beneficiaries in the case that a will is not present. Having a will makes this process much easier for those left behind. Probate court is not needed when a will is available. But in the absence of a will, the state probate court must settle the affairs of the deceased. This can be a time-consuming and frustrating process for the beneficiaries. Probate also settles disputes when a will is left behind, but it is not clear how assets should be divided. Additionally, probate court is involved in conservatorships, guardianships, and committing a mentally ill person to an institution that can help them.

### Producer Price Index (PPI)

The Producer Price Index (PPI) is released monthly by the Bureau of Labor Statistics (BLS) and tracks changes to the price of end-user products. Unlike the Consumer Price Index (CPI), which tracks cost from the consumer’s view, PPI tracks cost changes from the producer’s view. It represents the average movement in selling prices from domestic production over time. PPI uses three areas of production classification — crude (raw product), intermediate (manufactured good but not finished), and finished (what the end-user sees and pays for). The BLS tracks nearly 10,000 individual products and product groups, covering sectors such as construction, manufacturing, mining, and agriculture.

### Productivity Economics

Productivity is a measure of production efficiency. Based on the number of labor hours needed to create a product, efficiency can be determined. Productivity efficiency is expressed as output per unit of input. In other words, the amount of product created based on the amount of labor needed. If a company’s productivity is low, it may invest more in technology to bring its productivity up to a competitive level. Companies use productivity measures to gauge their efficiency, especially against competitors. Productivity can also be used to calculate the efficiency of GDP. As well, productivity can be measured across both sectors and industries.

### 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.

### Profit Margin

Profit margin shows how efficiently a company generates profit for every one dollar of sales. Profit margin is expressed as a percentage. It is calculated by dividing net profit by sales or revenue. For example, a company that has \$500,000 in sales and \$100,000 in net profits has a profit margin of 100,000 / 500,000 = 20%. Profit margin allows for comparing the efficiency of profit generation between companies within the same industry. Trying to use profit margin to compare companies within different industries will be fairly useless since profit margin does not account for industry differences.

### 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:

### 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.

### Promissory Note

A promissory note is generally issued by a company in exchange for cash (i.e., a loan). It may also be issued by a financial institution. A promissory note is a promise to pay back a loan at a future date. Promissory notes are not as formal as loans and not as informal as IOUs. They sit somewhere in the middle. Terms of the promissory note (interest, due date, principal, signatures, etc.) are worked out between the lender and borrower. Promissory notes can be sold to other companies. In order to do this, the note must be unconditional and salable. Such notes are also called negotiable instruments.

### 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.

### 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.

### Property Identification Number

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

### 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.

### Property Rights

Property rights give property owners the right to do with their property what they chose. Property can be land, a car, a house, a pet, or a phone. Property can be transferred to another owner, sold, or rented out for a profit. It can also be inherited. Property can be private or public. It can be owned by an individual, business, group, or government.

### 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.

### Property Type, Flex

Short for “flexible”, flex properties are typically considered a subsect of industrial properties that contain a higher percentage of office buildout than traditional industrial space. Flex properties generally contain 25% or greater office buildout and as such, typically have higher parking ratios than industrial warehouse buildings. Flex is a broad term which can be applied to a variety of specific uses including research and development, light manufacturing and/or assembly, small distribution centers, retail or office showroom space, tech uses or call centers.

### Property Type, Hospitality

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

### Property Type, Hotel

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

### 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.

### 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.

### Property Type, Office

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

### 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 shopping centers, larger centers with grocery store anchor tenants, and "power centers" with large anchor stores.

### 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.

### 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.

### Proportional Tax

A proportional tax or flat tax uses the same tax rate regardless of income. Sales taxes are considered proportional. For example, an 8% sales tax is applied for someone who earns \$20,000 or \$1 million. Income is not factored into proportional tax calculations.

### 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.

### 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.

### 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.

### 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.