Glossary of Terms

Accredited Investor

An accredited investor, also referred to as a sophisticated investor, is an investor with special status under financial regulations.
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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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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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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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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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Beneficial Interest

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

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Beneficiary

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

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Boot

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

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Broker Dealer

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

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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 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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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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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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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 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 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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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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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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Delaware Statutory Trust (DST)

A separate legal entity created as a trust under Delaware state laws. Despite the name, neither the property nor the investor need to be located

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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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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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DST Sponsor

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

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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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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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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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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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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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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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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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Independent Trustee

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

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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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Lease

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

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Lease Co.

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

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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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Lease Termination Fee

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

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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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Like-Kind Property

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

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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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Master Lease

The primary lease that controls other sub-leases and may cover more property than all sub-leases combined.

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Master Tenant

Tenant which is party to direct lease with the property owner which subsequently sub-leases all or a portion of the property to other occupants.

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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 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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Non-Accredited Investor

An investor who does not meet the special requirements for an accredited investor under the Securities & Exchange Commission’s Rule 501 of

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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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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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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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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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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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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 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, 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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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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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 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 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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Regulation D Offering

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

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Relinquished Property

In a tax deferred (aka 1031 exchange or like-kind) exchange, the property being sold or disposed of is referred to as the relinquished property.

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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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Replacement Property

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

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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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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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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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Signatory Trustee

A signatory trustee is the individual who will be managing the Delaware Statutory Trust (DST). The Sponsor of the DST typically serves as the Signatory Trustee.

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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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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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Stated Rent

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

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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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Tenant-In-Common (TIC) Investments

Any syndicated investment created through a Tenant-In-Common (TIC) structure. Under a Tenant-In-Common structure, each investor

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Tenant-In-Common (TIC) Properties

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

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Tenant-In-Common Sponsor

The individual or company that packages and markets Tenant-In-Common (TIC) properties. The sponsor is in charge of a variety of different

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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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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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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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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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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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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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