Real Estate Finance Glossary

A

Absorption & Turnover Vacancy
Absorption vacancy accounts for the time it takes to lease up vacant space, while turnover vacancy refers to downtime between tenants. Both reduce a property's effective income.

Acquisition
Acquisition refers to the process of purchasing a property, including underwriting, financing, and closing. In real estate private equity, this process is typically executed by a designated “acquisitions team” and is one of the most coveted roles in the industry.

Amortization
Amortization is the process of gradually repaying loan principal over time, usually through scheduled payments that also include interest.

Ancillary Income
Ancillary income includes revenue from non-rent sources like parking, storage, or laundry. It’s added to base rent to determine total property income.

B

Base Rent
Base rent is the fixed minimum rent a tenant pays under a lease agreement, excluding reimbursements or escalations.

Base Year Stop
A base year stop limits the landlord’s responsibility for operating expenses to a specific “base year.” Tenants pay the increase in costs beyond that amount.

Breakeven Occupancy
Breakeven occupancy is the minimum occupancy a property must maintain to cover all operating expenses and debt payments.

Bridge Loan
A bridge loan is short-term financing used until permanent financing is secured or until a property is stabilized. It’s common in acquisitions or repositioning deals.

C

CAM Charges (Common Area Maintenance)
Common area maintenance (CAM) charges are tenant-paid fees that cover shared operating costs such as landscaping, security, and lobby maintenance.

Cap Rate (Capitalization Rate)
Cap rate is a property’s projected return based on its net operating income and purchase price, calculated as NOI divided by purchase price.

Capital Stack
The capital stack refers to the layers of capital used in a deal — typically debt, preferred equity, and common equity — each with its own risk and return profile.

Capstone Project
A capstone project is a final assignment where students apply everything they've learned to analyze or present a full real estate investment scenario.

Case Study
A case study involves analyzing a specific real estate deal using a pro forma or model to evaluate its risks, returns, and investment merits.

Cash-on-Cash Return
Cash-on-cash return measures how much cash an investor earns annually as a percentage of the initial equity investment.

Collection Loss
Collection loss refers to income lost when tenants fail to pay rent. It’s included with vacancy loss to adjust gross income.

Commercial Real Estate (CRE)
Commercial real estate (CRE) refers to income-generating property types such as office, industrial, retail, and multifamily.

Construction Loan
A construction loan is a short-term loan used to fund the building of a new property. It is often interest-only during the construction period.

Concessions
Concessions are incentives like free rent or tenant improvement allowances used to attract or retain tenants, reducing the effective rent received.

Core
Core assets are fully leased, stabilized properties in prime locations. They offer lower returns but lower investment risk.

Core-Plus
Core-plus assets are similar to core but with slight operational or physical risk. They offer moderately higher returns.

D

Debt Service
Debt service is the total loan payments due over a period, including both principal and interest.

Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio (DSCR) measures how well a property’s income can cover its debt obligations. A DSCR of 1.20x or higher is typically required by lenders.

Debt Yield
Debt yield is calculated as NOI divided by the total loan amount. It’s a lender-focused metric that doesn’t depend on interest rates or amortization.

Development
Development refers to constructing a property from the ground up, including planning, permitting, construction, and lease-up.

Development Budget
The development budget includes all costs for a project — land, construction, soft costs, reserves, and fees — used for financing and modeling.

Development Spread
The development spread is the difference between a project’s stabilized return-on-cost and the market cap rate. A positive spread means the project adds value.

Disposition Fee
A disposition fee is a fee paid to the sponsor or asset manager upon the sale of a property, usually as a percentage of the sale price, to compensate for managing the exit.

Double Net Lease (NN)
In a double net lease, tenants pay property taxes and insurance in addition to base rent, while the landlord covers maintenance and common area expenses.

Draw Schedule
A draw schedule outlines when loan funds will be released during a construction or renovation project. Funds are typically disbursed after reaching specific project milestones.

E

Effective Gross Income (EGI)
Effective gross income is a property’s potential gross income minus vacancy and credit loss, plus reimbursements and other income. It reflects the income the owner actually expects to collect.

Equity Multiple (EM)
Equity multiple shows how much total cash an investor receives relative to their original equity investment. For example, a 2.0x multiple means the investor doubled their money. This is the same thing as Multiple-on-Invested-Capital (MOIC).

Exit Cap Rate
The exit cap rate is the cap rate used to estimate the sale price of a property at the time of exit. It’s applied to projected NOI at sale to determine the sale price.

Expense Reimbursements
Expense reimbursements are payments from tenants to the landlord for a portion or all of the property’s operating expenses, often based on their leased square footage.

Expense Stops
Expense stops limit the landlord’s responsibility for certain expenses. Tenants cover any costs that exceed the stop amount, usually in gross or modified gross leases.

F

Federal Funds Rate
The federal funds rate is the interest rate banks charge each other for overnight lending. It influences broader interest rates, including those used in real estate lending.

Federal Reserve
The Federal Reserve is the central bank of the United States. It sets monetary policy, including interest rates, which can impact cap rates and borrowing costs.

Fixed & Variable Expenses
Fixed expenses remain constant regardless of occupancy (e.g. insurance), while variable expenses fluctuate with usage or occupancy (e.g. utilities or janitorial costs).

Full Service Lease
A full service lease includes all operating expenses in the tenant’s rent payment. The landlord pays for property taxes, insurance, and maintenance.

G

General Partner
The general partner (GP) is the sponsor or managing entity in a real estate partnership. They oversee the deal and typically receive a portion of profits through a promote structure.

Goal Seek
Goal Seek is an Excel function that solves for an unknown input to achieve a desired output. It’s often used to back into a purchase price, IRR, or loan amount.

Going-In Cap Rate
The going-in cap rate is the cap rate based on a property's first year of projected NOI divided by the purchase price. It’s used at acquisition to assess value.

Gross Lease
A gross lease includes all expenses in the tenant’s rent, meaning the landlord is responsible for paying property taxes, insurance, and maintenance.

H

Hard Costs
Hard costs refer to direct construction expenses such as labor, materials, and building systems. These differ from soft costs like legal or architectural fees.

Hotel
Hotels are commercial properties that generate revenue from nightly stays rather than leases. They’re valued based on room revenue, occupancy, and daily rate.

I

Industrial
Industrial properties include warehouses, distribution centers, and manufacturing facilities. They’re valued based on long-term leases and functional space use.

Interest-Only Period
An interest-only period is a loan phase where borrowers only pay interest, not principal. It’s common during construction or lease-up to preserve cash flow.

Internal Rate of Return (IRR)
IRR is the annualized return an investor earns over the life of a project, factoring in the timing and amount of all cash flows.

IRR Waterfall
An IRR waterfall is a profit-sharing structure where returns are distributed based on reaching specific IRR hurdles. It rewards sponsors for outperforming return targets.

L

Lease Abstract
A lease abstract is a summary of key lease terms like rent, lease duration, renewal options, and tenant responsibilities — used for underwriting and management.

Leasing Commissions (LCs)
Leasing commissions are fees paid to brokers for signing new tenants or renewing leases. They’re typically modeled as upfront capital costs.

Levered Returns
Levered returns reflect the investment performance after accounting for debt payments. They show the return to equity investors when leverage is used.

Loan
A loan is borrowed capital used to finance the purchase, development, or refinance of a property. In real estate, loans are typically secured by the property itself and repaid over time with interest, often structured as interest-only or amortizing debt.

Loan Constant
The loan constant is the ratio of annual debt service to the original loan amount. It’s used to evaluate how expensive a loan is on a cash flow basis.

Loan-to-Cost (LTC)
Loan-to-cost is the ratio of the loan amount to the total project cost. It’s often used in development deals to measure how much of the cost is financed by debt.

Loan-to-Value (LTV)
Loan-to-value is the ratio of the loan amount to the property’s value. A lower LTV indicates lower lender risk and lenders lend up to 80% of the property value.

M

Mezzanine Debt
Mezzanine debt is a type of subordinated financing that sits between senior debt and equity in the capital stack. It typically carries higher interest and more risk.

Mixed-Use Development
A mixed-use development combines multiple property types — like residential, retail, and office — in one project or site. These developments offer income diversification.

Modified Gross Lease
In a modified gross lease, tenants pay base rent and some operating expenses, while the landlord covers others. It’s a hybrid between a gross and triple net lease.

Multiple-on-Invested-Capital (MOIC)
MOIC shows how much total money an investor receives relative to their initial investment, without considering the time value of money. This is the same thing as Equity Multiple (EM).

Multifamily
Multifamily refers to residential buildings with multiple units under one roof — like apartments or duplexes — typically leased to tenants long-term.

N

Net Lease
A net lease is a lease agreement where the tenant pays base rent plus some or all of the property’s operating expenses, such as taxes, insurance, and maintenance. Common types include single net (N), double net (NN), and triple net (NNN) leases, each assigning more responsibility to the tenant.

Net Operating Income (NOI)
Net operating income is a property’s income after operating expenses but before debt service. It’s a key metric used in valuation and return analysis.

Net Present Value (NPV)
Net present value is the difference between the present value of future cash flows and the initial investment. A positive NPV means the deal creates value.

Net Rent
Net rent is the base rent a tenant pays before additional charges like reimbursements or escalations. It’s commonly used in triple net leases.

Non-Operating Expenses
Non-operating expenses are costs not related to day-to-day property operations, like loan interest or capital expenditures. These are excluded when calculating NOI.

O

Office
Office properties include buildings leased to businesses for professional use, like law firms or tech companies. They’re typically valued based on rental income and lease terms.

Office-to-Residential Conversions
This is the process of converting an existing office building into residential units. It’s common in markets where office demand is declining and housing demand is rising.

Operating Expenses
Operating expenses are the recurring costs of maintaining a property, including property taxes, insurance, repairs, utilities, and property management.

Other Income
Other income includes revenue from non-rent sources like late fees, application fees, or service charges. It’s added to EGI in a pro forma.

P

Parking Ratio
Parking ratio measures how many parking spaces are available per 1,000 rentable square feet. It’s a key metric in office, retail, and industrial underwriting.

Permanent Loan
A permanent loan is long-term financing used to replace a construction or bridge loan once a property is stabilized. It typically has a fixed interest rate and amortization schedule.

Physical Vacancy
Physical vacancy refers to the percentage of a building that is unoccupied. It affects potential income and is included in EGI calculations.

Preferred Equity
Preferred equity sits between common equity and mezzanine debt in the capital stack. It receives fixed or priority returns before common equity receives distributions.

Preferred Return
Preferred return is a target return that must be paid to investors before the sponsor shares in profits. It’s often set between 6–10% annually.

Prepayment Penalty
A prepayment penalty is a fee charged for paying off a loan early. It protects lenders from interest income loss and is common in commercial loans.

Present Value (PV)
Present value is the value today of a future cash flow, discounted using a specific rate. It’s a core concept in NPV and DCF models.

Pro Forma
A pro forma is a forward-looking financial model that projects a property’s income, expenses, and cash flows. It’s used to evaluate deal feasibility and investment performance.

Promoted Interest (Promote)
A promote is a share of profits above a certain return threshold that goes to the general partner (GP). It incentivizes strong performance in real estate partnerships.

Property Management Fee
The property management fee is paid to a manager or firm for overseeing day-to-day property operations. It’s often a percentage of effective gross income.

R

Real Estate Investment Trust (REIT)
A REIT is a company that owns, operates, or finances income-producing real estate. It allows investors to earn dividends from real estate without owning property directly.

Real Estate Private Equity (REPE)
REPE involves pooled capital from investors used to acquire, develop, or operate real estate. Firms typically manage portfolios and receive promote structures for returns.

Refinance
A refinance is when a borrower replaces an existing loan with a new one, often to secure better terms, lower payments, or return equity to investors.

Rent Concessions
Rent concessions are temporary incentives given to tenants, such as free rent or credits, to encourage lease-up. They reduce effective rental income.

Rent Escalation
Rent escalation refers to periodic increases in rent over time, either on a fixed schedule or tied to inflation. These are often outlined in the lease agreement.

Rent Roll
A rent roll is a summary of all leases in a property, including tenants, rental rates, lease start and end dates, and square footage. It’s used to analyze income.

Rentable Square Feet (RSF)
Rentable square feet includes both usable tenant space and a share of common areas. It’s used to calculate rent and allocate expenses in commercial leases.

Replacement Reserves (Capital Reserves)
Replacement reserves (capital reserves) are funds set aside to cover large capital expenses like roof replacements or HVAC systems. They’re included as a line item in many pro formas.

Residual Value
Residual value is the projected sale price of a property at the end of the holding period. It’s often calculated using the exit cap rate and stabilized NOI.

Retail
Retail real estate includes properties like strip malls, shopping centers, and standalone stores. Revenue depends on tenant sales, traffic, and location quality.

Return of Capital
Return of capital is when an investor receives their original investment back, not including any profits or returns. It’s typically returned before profits are distributed.

Return on Cost (Yield on Cost)
Return on cost measures stabilized NOI divided by total project cost. It’s used to assess the profitability of a development or renovation project.

S

Sale Proceeds
Sale proceeds are the net funds received after selling a property, minus expenses like broker fees and loan payoff. They’re distributed to investors and partners.

Sales Comparison Approach
The sales comparison approach estimates value based on recent sales of comparable properties. It’s common in appraisals and market analyses.

Sensitivity Analysis
A sensitivity analysis tests how changes in key assumptions (like rent growth or cap rate) affect investment returns. It’s used to understand deal risk and upside.

Single Net Lease (N)
A single-net lease is a lease agreement where the tenant pays base rent plus property taxes, while the landlord remains responsible for insurance, maintenance, and other operating expenses. It's less common than double or triple-net leases but shifts some financial responsibility to the tenant.

Soft Costs
Soft costs are indirect project expenses like architectural fees, permits, legal fees, and financing costs. They’re included in a development or renovation budget.

Sources and Uses
Sources and uses is a summary that shows where the money is coming from (sources) and how it will be spent (uses) in a real estate deal. Sources typically include equity and debt, while uses cover acquisition, construction, fees, reserves, and closing costs — ensuring the capital stack matches total project costs.

Sponsor
The sponsor is the deal lead or general partner (GP) who sources the opportunity, arranges financing, and oversees the asset. They typically earn fees and promote.

Stabilization
Stabilization occurs when a property reaches target occupancy and income levels after construction or lease-up. It’s often a trigger for refinancing or selling.

Stabilized NOI
Stabilized NOI is the expected net operating income once a property is fully leased and operating at market performance. It’s used to estimate value and returns.

Straight-Line Rent
Straight-line rent is an accounting method that averages rent payments over the lease term, smoothing out free rent periods and scheduled rent increases.

Submarket
A submarket is a smaller geographic area within a larger metro market, such as Midtown Manhattan within New York City. Analysts use submarkets to compare localized trends in rent, vacancy, and sales.

Subordination
Subordination refers to the ranking of claims in the capital stack. A subordinated position (like mezzanine debt) gets paid after senior debt but before equity.

T

Tenant Improvement (TI) Allowance
A tenant improvement allowance is money the landlord provides to help a tenant build out or customize their space. It’s often negotiated as part of the lease.

Tenant Mix
Tenant mix refers to the combination of businesses or residents in a property, especially in retail or mixed-use buildings. A strong tenant mix improves income stability and customer traffic.

Tenant Quality
Tenant quality reflects a tenant’s financial strength and likelihood to pay rent on time. Institutional tenants with good credit are often preferred by landlords and investors.

Terminal Value
Terminal value is the estimated resale value of a property at the end of the holding period. It’s typically calculated by dividing stabilized NOI by an exit cap rate.

Time Value of Money
The time value of money is the principle that money today is worth more than the same amount in the future. It’s the foundation of IRR, NPV, and discounted cash flow analysis.

Trade Area
A trade area is the geographic region from which a retail property draws customers. Understanding the trade area helps assess demand, competition, and pricing.

Triple Net Lease (NNN)
A triple-net lease requires the tenant to pay base rent plus property taxes, insurance, and maintenance. The landlord has minimal ongoing expenses, making NNN leases attractive for passive income.

U

Underwriting
Underwriting is the process of analyzing a property’s financials, market, and risks to determine whether an investment meets return targets. It often involves building a detailed pro forma.

Unlevered IRR
Unlevered IRR measures the return on an investment without using debt, showing how the property performs based purely on its own cash flows.

Unlevered Returns
Unlevered returns exclude the effects of financing, providing a clear view of how the asset performs on its own. They're useful for comparing deals across different capital structures.

Usable Square Feet (USF)
Usable square feet is the space the tenant can actually occupy and use. It excludes shared common areas like lobbies or restrooms.

V

Vacancy & Credit Loss
Vacancy and credit loss represent the expected loss of income due to unleased space or non-paying tenants. It’s subtracted from potential gross income to calculate effective gross income.

Value-Add
Value-add refers to real estate investments that require improvements — such as renovations, lease-up, or better management — to increase income and property value. These deals typically carry more risk than core properties but offer higher return potential.

W

Waterfall Structure
A waterfall structure is a profit-sharing arrangement that distributes cash flow among investors based on predefined return hurdles. It rewards the sponsor for exceeding return targets.

Weighted Average Lease Term (WALT)
WALT measures the average remaining lease duration across all tenants in a building, weighted by the size of each lease. It’s used to assess income stability.

Y

Yield on Cost
Yield on cost (same as return on cost) is calculated as stabilized NOI divided by total project cost. It’s used to evaluate the return on a new development or major renovation.

Z

Zoning
Zoning refers to local government regulations that dictate how a property can be used — for example, residential, commercial, or mixed-use. It impacts property value and development potential.