15 Commercial Real Estate Terms You Should Know

15 Commercial Real Estate Terms You Should Know 150 150 CRE OneSource Intelligent Solutions for Commercial Real Estate

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.