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A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z ________________________________________________________________________
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Absolute Net: A lease that requires the tenant to pay all costs associated with the operation, repairs and maintenance of the building, real estate taxes and utilities including repair and maintenance of the building's structure and roof, in addition to the base rent.
Amortization: Repayment of debt, including both principal and interest payments, over a specific period of time.
Amortizing interest rate swap: Swap where the principal amount rises as interest rates rise, or falls as interest rates decline.
Assignment: A transfer to another of any property, real or personal, or any rights or estates in said property.
Assumable Mortgage: An assumable mortgage provides the borrower with the right to assign the unpaid balance of its mortgage to another person, upon the sale of the mortgaged property. The buyer assumes the payment of the loan at the same rate and terms for the remainder of the mortgage, and the seller remains secondarily liable for the obligation.
Blanket Mortgage: One mortgage on a number of parcels of real property.
Blended Rate: An interest rate, applied to a refinanced loan, that is higher than the rate on the old loan but lower than the rate offered on new loans. Generally offered by the original lender to induce new buyers to refinance the existing, low interest rate mortgage as an alternative to assuming the existing loan and obtaining a second mortgage from a third party lender.
Bridge Financing: The temporary financing required to cover the period prior to the advancement of funds under a committed financing arrangement.
Capitalization Rate: Ratio used to estimate the value of income producing properties. Simply put, the cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage. Investors, lenders and appraisers use the cap rate to estimate the purchase price for different types of income producing properties.
Commencement Date: The date the lease begins. Generally, this is the day the tenant takes possession of the leased space, which usually occurs upon completion of the tenant improvements.
Common Area: The area used by all tenants of an office building. Common area includes building and elevator lobbies, the corridor leading from an elevator lobby to the tenant space and restrooms.
Common Area Maintenance Charges: Amounts charged to tenants to maintain the common areas including hallways, elevators, restrooms, parking lots and other common areas.
Conduit Loan: A securitized loan, also known as a CMBS (Commercial Mortgage Backed Securities) Loan, indicates that a lender does not hold the loan on its books, rather the loan is pooled and transferred to an entity known as the REMIC trust (Real Estate Mortgage Investment Conduit) when the loans are securitized. The trust issues a series of bonds that can vary in yield, duration and payment priority. CMBS has become an attractive capital source for commercial mortgage lending because the bonds backed by a pool of loans are generally worth more than the sum of the value of the whole loans, allowing the loans intended for securitization to be aggressively priced. A main difference between traditional loans and CMBS loans is that, unlike traditional portfolio lenders, CMBS servicers administer loans in accordance with PSA's which generally standardize practices and procedures to meet REMIC requirements and to protect the bondholders.
Construction Loan: Short-term financing advanced on a revolving basis for the period of construction of real property. Normally repaid by permanent financing upon completion of construction.
Convertible Mortgage: A loan secured by real property, typically written at a rate below current market interest rates, in exchange for the privilege to convert the loan to an equity interest in the property at a specified future time.
Debt Coverage Ratio: The relationship between net operating income and the annual debt service. This ratio is used as a main underwriting criteria for commercial real estate loans.
Deed of Trust: A conveyance of property to a trustee for which prescribed terms are established for return or disposal.
Defeasance: The substitution of collateral.
Direct Certificate Holder: The Direct Certificate Holder, also referred to as the B-Piece Buyer, purchases pools of loans that are considered to be below investment grade bonds and an unrated class of bonds determined by a rating agency. Because these bonds are the lowest rated bonds, and considered the riskiest, the PSA provides the Directing Certificate holder with the opportunity to play an active role in monitoring the performance of each loan, make decisions on key asset issues and determine the Special Servicer for each loan.
Earn Up/Earn Out: An additional payment to the seller of a property rewarded upon the satisfactory achievement of specified leasing objectives or the fulfillment of other performance criteria. It is usually computed in accordance with a negotiated predetermined formula.
Easement: A right enjoyed by one party over the land of another obtained for a special purpose rather than for the general use and occupation of land. The most common type of easement is a right-of-way. Easements attach to properties regardless of changes in ownership of the land of either property.
Encroachment: A building, a part of a building, or an obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another.
Encumbrance: A problem with the title to a property that does not affect the transfer of ownership.
Estoppel Certificate: An instrument that prevents individuals from later asserting facts different from those contained in the document. The tenant and landlord both sign the estoppel certificate, confirming the lease and pertinent facts.
Fair Market Value: The value that a buyer would pay to a seller for a specific property where all material facts are known to both parties.
Freehold Estate: Interest in land for either an indefinite or an infinite period of time. Freehold estates include: fee simple, life estate and dower or homestead rights.
Fully Amortizing Loan: The loan term matches the amortization schedule. So that, at maturity, the loan balance would be paid to zero. A fully amortizing loan will typically have larger monthly payments than a loan with a shorter term and longer amortization schedule; however, the fully amortizing loan does not require a balloon payment at maturity since it will be paid off.
Gross Lease: A property lease whereby the landlord agrees to pay all expenses that are normally associated with ownership, such as utilities, repairs, insurance, and sometimes taxes.
Ground Lease: A lease that rents the land only. Ground rent should not be charged back to the tenant as an operating expense.
Holdback: Situation where funds are held back until certain events have occurred, such as the mortgage lender only advances funds, if minimum % of leased area is achieved.
Income Approach: The income approach is one of the three appraisal approaches to value. The income approach appraises real estate based on the properties anticipated future income.
Interim Financing: Type of loan that is used when the property owner is unable or unwilling to arrange permanent financing. This is considered a short term loan and is generally no more than 3 years.
Joint Tenancy: A form of undivided ownership in a property such that upon the death or dissolution of one joint tenant his interest in the property passes to the other joint tenants.
Lease Assignment: An agreement between the commercial property owner and the lender that assigns lease payments from tenants directly to the lender. Otherwise, lease payments are made would be the owner who would then forward mortgage payments to the lender. In a CMBS, lease payments would go directly to the servicer.
Lease Option: An agreement that fives the tenant the right to purchase the property at a specified price at a future date. Lease Options can also provide the tenant with the right to lease additional space in a property or to extend the current lease term.
Leasehold Estate: Interest in land for a definite period of time, gives the holder an exclusive possession of the land, similar to freehold estate.
Loan-to-Value Ratio (LTV): The portion of the amount borrowed compared to the cost or value of the property purchased.
Master Lease: A lease controlling subsequent leases. One cannot grant a greater interest in real estate than one has; so if a master lease is for a five-year term, a sublease cannot legally exceed five years.
Master Servicer: The Master Servicer's responsibility is to service the loans in the pool through maturity unless the Borrower defaults. The Master Services collects payments from the Borrower, analyzes the property's rent rolls, operating statements and other financial and property information from the Borrower, as well as completing site inspections. The Master Servicer is typically required to process all Borrower requests, such as waivers, consents, and modifications related to performing loans. The Master Servicer is governed by the PSA, and many Borrower requests or modifications must also require approval by the Special Servicer, and oftentimes the Directing Certificate holder or review by Rating Agencies.
Mortgage Banker: A company or institution that originates mortgages. A mortgage banker either uses their own funds or uses the funds of the correspondent lenders that they represent to fund the mortgages. After a mortgage is originated, a mortgage banker might service the mortgage. A mortgage banker's primary business is to earn the fees associated with loan origination. Most mortgage bankers do not retain the mortgage in their portfolio.
Mortgage Discount: In valuing a property encumbered by non-prepayable mortgage debt bearing a rate of interest higher than that available in the current market, a mortgage discount adjustment is made by the appraiser to recognize the present value of the outstanding mortgage debt. This is a negative adjustment equal to the different between the existing mortgage principal balance and the present value of all remaining future debt payments discounted to present value at the current market rate of debt.
Net Lease: A lease in which the stated rent excludes the insurance, utilities, operating expenses and real estate taxes for the building. The tenant is responsible for the payment of these costs either directly or as additional rent.
Net Operating Income (NOI): Income from property or business after operating expenses have been deducted, but before deducting income taxes and financing expenses including interest and principal payments.
Non-Recourse Loan: A secured loan wherein the lender may only look to the value of the security and not to the borrower.
Operating Expenses: Amounts paid to maintain property, such as property taxes, hazard insurance and utilities. Operating expenses excludes financing expenses and depreciation.
Operating Statement: Details the revenues and expenditures pertaining to a rental property.
Prepayment Clause: A clause in a mortgage that gives the borrower the privilege of paying the mortgage off before maturity. Typically there is a prepayment penalty of yield maintenance or defeasance.
Pooling and Servicing Agreement (PSA): This document along with the applicable loan documents indicate how the loan will be serviced and provides guidance so that the trust stays in compliance with the REMIC provisions of the tax code in order for the trust to maintain favorable tax treatment. All CMBS servicers (primary, master and special) are required to act in accordance with the servicing standard defined in the applicable PSA.
Primary or Sub-Servicer: The Primary Servicer can often be a Mortgage Banker or loan originator, and is the person who stays in direct contact with the Borrower. The Master Servicer often provides the primary or sub-servicer with loan administration duties for the specific loans that it originated. The Primary or Sub-Servicer reports directly to the Master Servicer, who is responsible to the trust for the Primary Servicer's performance and actions. Typically, a sub-servicing agreement is made between the Master Servicer and the Primary Servicer to ensure that they maintain the servicing standard and in compliance with the PSA.
Proportionate Share: The allocated share of operating expenses and common area expenses or expense increases to be charged to a specific tenant, usually based upon the area of the tenant's demise divided by the total area in the building or complex.
Quitclaim Deed: A deed that conveys only the grantor's rights or interest in real estate, without stating the nature of the rights and with no warranties of ownership.
Rating Agency: Rating agencies determine the bond rating for each bond class at the time of securitization. Up to four rating agencies can be involved in rating a pool of loans. Rating Agencies monitor the performance of each pool and updates ratings based on performance. However, the bond rating determined at the time of securitization indicates that the credit quality of the loan pool will not change significantly over time.
Real Estate Investment Trust (REIT): A widely held close-end trust used to acquire, hold and maintain real estate as a long-term investment. REITS may avoid paying certain taxes provided certain conditions are met, including distribution an amount to the unit holders which is at least equal to the taxable income.
REMIC Trust: REMIC or Real Estate Mortgage Investment Conduit, is a creation of the tax law that allows the trust to be a pass-through entity which is not subject to tax at the trust level. Compliance with REMIC regulations is vital because CMBS transactions are structured and priced based on the assumption that it will not be subject to tax with respect to its activities.
Rentable Area: The square footage for which rent can be charged. Typically, it is the gross area of the full floor less the area of all vertical penetrations (stairwells, elevator shafts, etc).
Right of First Refusal: A right usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease. The owner must have a legitimate offer that the tenant can match or refuse. If the tenant refuses, the property can then be sold or leased.
Sale and Leaseback: A financing arrangement whereby a party sells its premises to a third party landlord and concurrently leases the property back.
Securitization: A lender securitizes a pool of loans by transferring them to a REMIC Trust. The lender is paid for the transfer of the loans out of the proceeds of bonds issued by the REMIC Trust. Through the process of securitization, the lender is able to remove the loans in the pool from its books.
Servicing: Includes billing, collecting payments, and filing reports for a mortgage loan. May also include loan analysis, default follow-up and management of tax and insurance escrow accounts.
Special Servicer: This servicer is considered a specialist with loans in default. However, besides handling defaulted loans, the Special Servicer also has the approval authority over material servicing actions, such as loan assumptions. A Borrower will receive notification if there loan has been moved into special servicing. The Direct Certificate Holder determines who the special servicer will be for a specific loan, and can be a related entity to the Direct Certificate Holder. The goal of the Special Servicer is to maximize the recovery on the mortgage loan to the bondholders. The Special Servicer will determine which alternative would be best, including loan modification, foreclosure, deed-in-lieu, negotiated payoff or sale of the defaulted loan. The Certificate Holder often directs the Special Servicer in determining which alternative would be best.
Subordination: An arrangement in which one party agrees to put their claim against an entity after the claim of another creditor. This agreement is often made by the shareholder and can be referred to as a postponement of claim.
Takeout Financing: After completion of a construction project, the borrower needs to takeout the construction loan and secure a permanent mortgage on the property. When the initial construction loan is made, the construction lender generally requires a takeout commitment. The takeout commitment is predicated upon specific conditions, such as certain percentage of unit sales or leases for the permanent loan to take out the construction loan.
Tenant Improvements (TI's): Improvements to land or buildings to meet the needs of tenants.
Title: Evidence that the owner of land is in lawful possession of the property.
Triple Net: A lease requiring the tenant to pay in addition to its rent, the expenses of the property leases, including taxes, insurance, maintenance, utilities, cleaning, etc.
Trustee: The Trustee holds loan documents and distributes payments that the Master Servicer receives to the bondholders. However, the Trustee typically delegates its authority to either the Special Servicer or the Master Servicer.
Usable Area: The secured area occupied exclusively by a tenant within a tenant's leased space. The usable area times the load factor for common area results in rentable area on which rent is charged.
Usury: Charging a rate of interest greater than that permitted by state law. In most states, usury limits vary according to the type of lender and type of loan.
Vacancy: The absence of tenants that is usually expressed as a percentage, square footage, or where negative cash flow occurs.
Workout: A mutual effort by a property owner and a lender to avoid foreclosure or bankruptcy following a default; generally involves substantial reduction in the debt service burden during an economic slowdown.
Yield: The rate of return on an investment over a specific period of time.
Yield Maintenance: It is a type of prepayment that is frequently accompanied by the payment of a sum of money designed to compensate investors for the loss of yield. Yield Maintenance is a present value calculation that enables investors to reinvest the loan payoff proceeds at the current treasury yields through the original loan maturity and maintain the same yield that they would have if the loan did not pay off early.
Zoning: Designation by local authorities as to the nature of activities permitted in an area. For instance, an area could be deemed single dwelling residential, multiple dwelling residential, commercial, retail, light manufacturing, etc. Zoning is a principal determinant of property value.
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