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15 Commercial Real Estate Terms You Should Know

Below are 15 Commercial Real Estate terms you should know:

  1. Capitalization Rate – The ratio of net operating income (NOI) to current market value of a property. (See our post on Cap Rates here!)
  2. Tenant Improvement – Any improvements made to a space to accommodate the tenant’s specific needs.
  3. Rent Roll – A list of tenants and their respective rents in a commercial property.
  4. Due Diligence – The investigation that a buyer performs to verify the condition of a property before purchase.
  5. Net Operating Income (NOI) – The income generated from a property after expenses are deducted.
  6. Gross Leasable Area – The total area of a property that is available for tenants to lease.
  7. Ground Lease – A lease of land only, without any buildings or improvements, to a tenant.
  8. Escalation Clause – A clause in a lease that provides for periodic increases in rent based on a formula.
  9. Triple Net Lease – A lease in which the tenant is responsible for all costs associated with the property, including taxes, insurance and maintenance.
  10. Credit Tenant – A tenant with an investment-grade credit rating.
  11. Debt Service Coverage Ratio – The ratio of cash flow available to cover mortgage payments.
  12. Due-on-Sale Clause – A clause in a mortgage that allows the lender to demand full payment if the borrower transfers the property.
  13. Subordination – Allowing a second lien to take a lower priority than a first lien.
  14. Leverage – The use of borrowed capital to increase the return on an investment.
  15. Amortization – The gradual reduction of debt through periodic payments.
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