Glossary of Terms

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.

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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.
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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

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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.

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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.
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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

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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

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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

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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.

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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

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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,

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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.

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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.
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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.

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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.

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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.
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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.

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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.

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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

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Base Rent

Base rent is the minimum monthly rent due pursuant to a lease. Base rent does not account for expense reimbursements or percentage rent, which 

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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

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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. 

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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.
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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.
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Bondable Lease

See Absolute Triple Net Lease.

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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. 

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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.

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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.

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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.
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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.

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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.

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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.

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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

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Capital Gain

Capital gain is an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the basis of the asset. Capital gains can also

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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

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Capital Improvement

See Capital Expenditures (CapEx).

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Capital Reserves

In the context of commercial real estate, capital reserves are funds designated for long term capital investment projects or

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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.

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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).

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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

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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.

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Cash Flow

Cash flow is the net amount of cash moving in and out of a business, usually measured during a specified, limited period of time.

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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

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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.

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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.

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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.

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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

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Closing Cost Expenses

See Closing Costs.

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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.

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Commercial Mortgage-Backed Securities (CMBS)

Commercial Mortgage-Backed Securities are securities collateralized by loans secured by commercial property. A CMBS loan is a first-mortgage secured by commercial real estate which is

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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

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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.
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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. 

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Comparables (Comps)

In the context of real estate transactions, properties similar to the one being sold or appraised used to determine the fair market value of the property.

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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.

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Compound Interest

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

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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

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Conservation Easement

A landowner voluntarily agrees to sell or donate certain rights associated with his or her property – often the right to subdivide or develop – and

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Contract for Deed

A contract between a seller and a buyer of real property in which the seller provides financing to the buyer to purchase the property.

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Contract Rent

This term is used synonymously with Stated Rent.
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Core Property

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

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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.

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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.

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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.

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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.

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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.

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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,

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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.

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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.

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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.

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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.
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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.

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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. 

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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

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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

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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,

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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.

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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

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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

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Discount Rate

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

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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.

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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,

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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

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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.
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DST Interests

DST Interests represent equity ownership in a large property by multiple investors through an investment structure known as a

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Due Diligence 

An investigation or audit of a potential investment to confirm all material facts regarding a transaction. For example, when analyzing a potential property

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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.

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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.

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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.

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Effective Gross Income (EGI)

Effective Gross Income (EGI) is income generated by a property including base rent and miscellaneous income, less vacancy and collection losses.

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Effective Rent

Net rental income received by landlord from a lease after deducting the value of concessions and costs incurred to secure the lease such as

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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.

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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.

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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.  

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Environmental Site Assessment (ESA)

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

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Equity Interests

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

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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

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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

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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

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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

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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

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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.

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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.
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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.

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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.

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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,

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Expected Return

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

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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.

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Face Rent

Face rent is also known as Stated Rent.

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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.

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Fannie Mae

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

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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.

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Federal National Mortgage Association (FNMA)

See Fannie Mae.

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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.

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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

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First Trust Deed

See Deed of Trust.

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First-Loss Position

First loss position is an investment’s or security’s position that will suffer the first economic loss if the underlying assets lose value or are foreclosed upon.

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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.

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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. 

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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.

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Fixture

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

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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

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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

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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.

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Freddie Mac

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

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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.
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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. 

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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.

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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

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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.

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General Market Factors

General market factors refers to the overall conditions within a defined market that affect all properties within that market.

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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. 

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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)

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Grant

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

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Grantor

A grantor is the person or entity making the grant. For example, if Alice sells her property to Bob, then Alice would be the Grantor.

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Gross Absorption

Gross absorption measures total square feet absorbed or leased without regard for vacated space during the same period,

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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.

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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. 

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Gross Rent

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

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Gross Rent Multiplier (GRM)

An investment property valuation method which is the ratio of a property’s price to its gross revenue.

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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, 

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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.

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Hard Cost

Also called “brick and mortar expenses,” hard costs are any costs involved in the physical construction of a project. Included in hard costs are

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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

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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.

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Health Ratio

A health ration, also known as an occupancy cost ratio, it the relationship between a retailer’s sales and total occupancy costs.

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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.

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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.

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Holding Period

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

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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

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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.

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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.

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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.
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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Institutional-Grade Property

While not a precisely defined term, an institutional-grade, or institutional-quality property generally refers to a property of sufficient size and stature to

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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.

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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.

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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.
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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.

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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

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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.

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Intermediary

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

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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.

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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.

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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

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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

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Lease

A legal document outlining the terms under which one party agrees to rent property from another party.

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Lease Coverage Ratio

In the context of a Delaware Statutory Trust (DST), the lease coverage ratio is calculated by dividing the property’s NOI by the sum of the

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Leasehold Interest

Claim or right to enjoy the exclusive possession and use of an asset or property for a stated definite period, as created by a written lease.

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Leasing Commissions

Fees paid to real estate agents in connection with leasing space at a property.  Leasing commissions may be due to a “tenant rep” which is an

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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. 

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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.

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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.

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Limited Partnership

Two or more investors who pool their money to develop or purchase income-producing properties. In a limited partnership, each limited partner's

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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

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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.
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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.

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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.
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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.)

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Load on Equity

See Equity Load.

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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.

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Loan-to-Cost Ratio (LTC)

The loan to cost ratio is the ratio of the loan balance to the total cost of the project the loan is financing, expressed by the formula loan balance divided by total cost.

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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.

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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.

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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.

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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.

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Market Adjustments

A market adjustment is a change in market parameters or conditions brought about in response to one or more market signals (including price changes from shifts in

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Market Analysis

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

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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.

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Market Value

The most probable price that a property would command in a competitive and open market under fair sale conditions. Market value also refers to

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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.
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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.

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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.
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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

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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.

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Mixed-Use

Building or project that provides more than one use (e.g., a loft or apartment project with retail, an apartment building with office space,

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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.

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Modified Gross Lease

A modified gross lease is a rental agreement where the tenant pays base rent at the lease’s inception, but in subsequent years, also pays a proportional share, or

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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.

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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.

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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.

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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.
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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.

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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.

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Net Absorption

The amount of occupied space at the end of a period less the amount of space occupied at the beginning of the same period.

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Net Cash Flow

Net cash flow can be determined using the formula net operating income (NOI) less debt service payments, tenant improvements,

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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

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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

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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.

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Net Square Footage

Net square footage is the usable or “rentable” area of a specified space (e.g. a suite, floor, or an entire building). This measurement generally excludes non-rentable areas

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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.

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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.
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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

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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.

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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

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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.

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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.

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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.

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Operating Expenses

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

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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.

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Opportunistic Property

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

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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.

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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. 

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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.

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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.

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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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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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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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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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Present Value (PV)

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

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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 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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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 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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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.
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Qualified Purchaser

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

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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).

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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.

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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%.

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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.

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Real Estate

Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water.

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Real Estate Agent

A licensed intermediary between buyers and sellers of real estate, typically working for commission. Real estate agent is a broad term which includes

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Real Estate Broker

A licensed intermediary between buyers and sellers of real estate, typically working for commission. A real estate broker typically has completed

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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

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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.

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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.

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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

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Real Estate Investor

An investor who evaluates the real estate market and purchases property with the intention of building wealth.

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Real Estate Syndication

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

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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.
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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.

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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.

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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

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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.

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Release Provision

A provision or clause to release certain collateral from a loan or mortgage in exchange for the borrower’s payment of a defined amount.  

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Rent Bumps

In the context of commercial real estate, rent bumps refer to periodic adjustments on the rental rates pursuant to a lease, typically stated as a

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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

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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)

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Replacement Reserves

See Capital Reserves.

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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

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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.
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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.

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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

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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.
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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.

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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.
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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.

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Seasoned DST Interest

Previously owned equity interests in a 1031 exchange-qualified Delaware Statutory Trust (DST) whose properties have at least twelve (12) months 

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Securitization

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

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Seller Financing

Seller financing is a loan provided by the seller of a property or business to the purchaser of that property or business.

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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.

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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.

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Single Tenant Property

Single tenant property is property that is fully occupied by a single user. Single tenant properties often feature a triple-net (NNN) lease structure and generally have remaining lease terms of at least 10 years.

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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.

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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

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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.

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Sponsor

In the context of real estate partnerships, a sponsor is an individual or company in charge of finding, acquiring, and managing the real estate property on behalf of

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Stabilized Occupancy

Stabilized occupancy is the long-term average occupancy rate that an income-producing property is expected to achieve after exposure for leasing in the open market for

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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.

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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.
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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.

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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).

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Submarket

A submarket is broadly defined as a distinct part of a larger market.  In the commercial real estate context, a market is typically a city or an MSA and

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Syndicated Investment

See Real Estate Syndication.

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Taxable Income

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

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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.
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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

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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

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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,

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Terminal Cap Rate

The estimated or actual cap rate of a property on date of disposition or sale. Also known as the Exit Cap Rate. The terminal cap rate, also known as

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Terminal Value

The value of an investment at the end of its holding period. In the context of commercial real estate, the terminal value of an investment property is

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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.

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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.

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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.

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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

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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.

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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
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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.

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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. 

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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.

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Triple Net (NNN) Lease

A lease agreement that states the tenant is solely responsible for all of the costs relating to the property being leased in addition to the rent.

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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.

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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

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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.

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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

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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.

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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,

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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.

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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.

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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.

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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

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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

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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.

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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.

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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:

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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.

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Value Add Property

Investment properties that need corrective action to fully realize their value. Value-add is a term given to describe one of the four major risk profiles of

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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.

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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.

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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

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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.

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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.

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Yield

Yield is the return on an investment or the amount of profit, stated as a percentage of the amount invested. Also known as the rate of return. Yields can be depicted in a variety of ways including levered and unlevered and before tax and after tax. 

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