Boxer's Glossary of Commercial Real Estate Terms



A B C E F G I L M N O P R S T U W


Abated Rent

Rent that a tenant does not have to pay.  For example, a tenant may have received the first 3 months rent free in exchange for signing a 2 year lease.

Absorption

The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.

Acceptance of Premises

A document that that is signed by a landlord and a tenant to acknowledge that the space is in acceptable condition and it satisfies the obligations that each party has.

Add On Factor

Another term for Common Area Factor, refers to a percentage of the Useable Square Footage in a suite added on to calculate the Rentable Square Footage. The Add On Factor adjusts for Common Area space, which a tenant uses along with other tenants.

After Hours AC

Refers to air conditioning provided after a building’s regular working hours.  Although some buildings offer 24 hour air conditioning, most condition air only during typical working hours and may charge extra to provide conditioned air at other times.

Amortization of TI

Spreading the cost of a Tenant Improvement over the course of the lease.

Assignment

The transferring of one party’s rights and obligations under a lease to another party.  Assignment of a lease by an Original Tenant to a New Tenant typically requires consent of the Landlord.  Assignment is often accompanied by an explicit Assumption of the lease by the new party, and may include a Release from the Landlord of the Original Tenant.

Average Annual Effective Rate

The average annual effective rent divided by the square footage.

Average Annual Effective Rent

The tenant’s total effective rent divided by the lease term.

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B

Base Rent

The cost of renting a space.  The amount can be set to increase or remain constant, over the course of the lease.  Base rent is often just one component of the overall cost of leasing the space.  Other components of cost can include maintenance and other fees.

Base Year

The first year of the lease.  Escalations in rent are based on the base year. In general, a base year is calculated on a calendar year basis or the first 12 months of Tenant’s occupancy.

Broker

A broker is an agent, who represents a principal party to facilitate buying, selling, or leasing commercial property.

Building Class

Building classes refer to the desirability of location, modernization of the building, types of amenities, age, and some other factors.  Rent is above average for Class A rent is above average, Class B is average, and Class C is below average, in respect to the average market rate for office buildings.

Build-to-Suit

A property that has been developed specifically for the needs of a certain tenant.

Bullpen Office

An open work area that consists of desks that are usually grouped by department.  There are no walls or dividers in a bullpen.

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C

CAF

An acronym for "Common Area Factor," which is a figure expressed as a percentage, of shared space within a multi-tenant space. For example, if a pair of bathrooms are shared by 5 tenants, then each tenant would be responsible for paying rent on 20% of the square feet that make up the bathrooms. CAF can be figured among tenants in an entire building and on the individual floor.

CAM

CAM, an acronym for Common Area Maintenance, includes charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants.

CAM Fee

An acronym for Common Area Maintenance, which refers to the operating expenses that are incurred in the maintenance of the common areas of a building (maintenance of corridors/hallways, bathrooms, elevators, parking lots, and grounds/landscaping). It is often used as a catch-all term for building operating expenses.

CBD

An acronym for Central Business District, which is the central district in a city where there is a high concentration of businesses.

Circulation Factor

The space that is necessary to access work spaces. For example, a corridor provides a path that leads to all of the different offices.

Class A

Class A is a classification used to describe an extremely desirable building, in terms of location, amenities, and overall quality. Class A is the most desirable of the classes.

Class B

Class B is a classification used to describe a desirable building, in terms of location, amenities, and overall quality. Class B is the second most desirable of the classes.

Class C

Class C is a classification used to describe a desirable building, in terms of location, amenities, and overall quality. Class C is the third most desirable of the classes.

Commencement Date

The date on which the lease goes into effect.

Common Area

For lease purposes, the areas of a building (and its site) that are available for the nonexclusive use of all its tenants, such as lobbies, corridors and parking lots.

Common Area Factor

Common Area Factor is a figure expressed as a percentage, of shared space within a multi-tenant space.  For example, if a pair of bathrooms are shared by 5 tenants, then each tenant would be responsible for paying rent on 20% of the square feet that makeup the bathrooms. CAF can be figured among tenants in an entire building and on the individual floor.

Common Area Maintenance (CAM)

Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants.

Concessions

Concessions are incentives that landlords offer prospective tenants to try to sweeten an offer. For example, a landlord may offer free rent for the first 3 months for a tenant that signs a 2-year lease.

Contiguous Space

Space within a building that is or can be joined together to form a larger space.

Coworking

A style of working in shared environments. Typically those individuals in a coworking space are not employed by the same organization. In fact, many are freelancers who would normally office out of their home. Because coworkers tend to be freelancers, they share office space with like-minded professionals, which helps them feel less isolated and gives them the ability to network and bounce ideas off of one another, even collaborating on projects. The key aspects associated with coworking are social: collaborative and informal.

CPI

An acronym for "Consumer Price Index," which is an economic indicator that is used to measure inflation. Rental rates tend to increase annually, by at least the same rate that CPI increases.

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E

Escalation

A provision in a lease that increases the cost of rent for the tenant. Escalations are usually the result of increases in the Consumer Price Index (CPI), tax, and operating costs.

Executive Suite or Executive Suites

A collection of multiple tenants that share resources to create a fully functional office.

Expansion Option

A lease option that allows a tenant to expand a lease by acquiring more space. Two common expansion options are Right of First Refusal (ROFL) and Right of First Offer (ROFO).

Expense Stop

A cap that prohibits a landlord from escalating the rental cost beyond a certain level.

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F

Flex Space

This term commonly refers to industrial space that can be converted into office space. Most of the time, flex space is part warehouse and part office.

Full Service Lease

In a Full Service lease, the landlord pays everything: taxes, CAM, property insurance, and utilities. All operating expenses are covered by the base rent of the office lease. Even cleaning of the tenant’s space is typically included.  (It is important to note that the tenant is typically responsible for its proportionate share of any increase over the operating expenses beyond their level in the year the lease was signed.)

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G

Gross Lease

A gross lease is one in which all or most expenses associated with the property are included in the rent. A gross lease is a very common type of lease in multi-tenant office buildings, where it is unreasonable to expect the tenant to control or manage expenses. The two main types of gross leases are full service and modified gross.

Gross +E

A Modified Gross Lease is just what it sounds like: a Full Service Lease that is changed in some way. There are many such modifications, and in this case, the tenant is charged for electricity as well as any other costs named in the lease.

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I

Initial Term

The first time period in a lease agreement.

Insurance

Liability coverage on property in the event of damages or loss.

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L

Landlord Rep

A representative that markets commercial property on behalf of a landlord, in an effort to sell or lease commercial property.

Lease

A contract that creates the relationship of landlord and tenant. A contractually binding agreement that grants a right to exclusive possession or use of property, usually in return for a periodic payment referred to as “rent.”

Lease Buyout

The process by which a landlord, tenant, or third party pays to extinguish the tenant’s remaining lease obligation and rights under its existing lease agreement.

Lease Commencement Date

The date on which the lease goes into effect.

Lease Options

A clause in a contract that enables the lessor or lessee to exercise a right that is defined within the contract. Typical lease options include two types: expansion options and renewal options.

Lease Term

The duration of the lease agreement.

Lessee

The person renting or leasing the property. Also known as a tenant.

Load Factor

The ratio of rentable area to useable area. The load factor is a gauge by which a user can evaluate different sites with comparable rents. It is also known as the add-on factor or common area factor.

LOI

LOI is an acronym for "Letter of Intent," which is a document that expresses the intent of each party in a real estate agreement. It is not a legally binding contract, but it is aimed at reducing misunderstandings between the parties.

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M

Market Rent

A rental rate that a property would command on the open real estate market.

Modified Gross

A Modified Gross Lease is just what it sounds like: a Full Service Lease that is changed in some way.  There are many such modifications, but typical office lease changes include charging the tenant for electricity (sometimes referred to as a “Plus E Lease”), janitorial services, and other situation-specific costs.

MSA

An acronym for Metropolitan Statistical Area, which is an area that encompasses a major city and the surrounding cities.

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N

NNN Lease (Triple Net Lease)


In a NNN (Triple Net) Lease, the tenant typically pays a base rent plus an additional amount for property tax, property insurance, and maintenance costs, although the tenant is often not responsible for the repair to the building structure or roof. Again, Tenant typically pays utilities.

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O

Occupancy Date

The date that the tenant may move into the space.

Office Warehouse

An office warehouse consists of office space that is connected to a warehouse that typically has loading docks. This type of space is ideal for shipping intensive businesses.

Operating Expenses

Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.

Option Term

A lease option that allows a tenant to extend a lease.

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P

Parking

Vehicular parking availability, allowances, and limitations.

Pass Through

A provision in a lease that increases the cost of rent for the tenant. The escalation in rent is usually proportional to the space that the tenant occupies in comparison to the total space in the building. Escalations are usually the result of increases in the Consumer Price Index (CPI), tax, and operating costs.

Personal Guaranty

A guaranty from the person soliciting the contract on behalf of the entity.

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R

Referral Services

A service that refers prospective tenants and buyers to landlords.  For example, a lead generation website will list commercial property and sell the leads to a landlord.

Relocation

The process by which a tenant physically moves to a new location.

Renewal Option

An option in the lease that allows a tenant to extend the lease beyond the original time frame.

Rent

The amount that a tenant pays to rent office space. Depending on the type of lease, the amount can be inclusive of operating costs and maintenance fees and it can be exclusive as well.

Rent Commencement Date

The date on which the tenant begins to pay rent.

Rent Concession

A period of free rent given to the tenant by the lessor.

Rentable Area

The computed area of a building as defined by the guidelines of Building Owners and Managers Association (BOMA) and typically measured in square feet, including both core/structure and useable area. The actual square foot area for which the tenant will pay rent. It is the gross area of an office building, less uninterrupted vertical space (such as stairways and elevators). Unlike useable area, rentable area includes common areas such as lobbies, restrooms, and hallways as well as the measurement of structural columns and architectural projections.

Rentable Square Feet or Rentable Square Footage

Rentable Square Feet (RSF) refers to the sum of usable square feet and a portion of the common area.

Right of First Offer

In accordance to the lease agreement, the Right of First Offer requires the landlord to offer available office space to the tenant, who holds the right, before it is placed on the market.

Right of First Refusal

The Right of First Refusal requires the landlord to offer available office space to the tenant, who holds the right, once a prospective tenant has made an offer on that space.

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S

Security Deposit

A deposit that a tenant must pay before the commencement date.  Deposits are usually returned to the tenant after the agreement is terminated, if there are no obligations associated with the terms of the deposit.

Shell

Space without improvements or finishes. Shell office space usually consists of concrete, windows, walls, and a ceiling. It may include plumbing, electrical wiring, and HVAC.

SIC Code or Standard Industrial Classification Code

SIC, an acronym for Standard Industrial Classification, is a classification scheme used for general recording purposes by government and industry to categorize and account for economic and employment activity by sector using a series of standardized and universally accepted codes.

SNDA

A Subordination and Non-Disturbance Agreement (SNDA) is an agreement provided to a tenant by a prior lien holder, such as a lender. The lender agrees, with a SNDA, to treat the lease as having come before the loan on a property, and thus the leasehold interest is not disturbed by any foreclosure of the underlying debt.

Step Lease

A lease in which the rental amount paid by the lessee increases by a preset rate or set dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge against inflation and future maintenance or operational expenses.

Sublease

A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the property.

Subletting

To lease all or part of an existing leased property.

Submarket

A segment or portion of a larger geographic market defined and identified on the basis of one or more attributes that distinguish it from other submarkets or locations.

Subordination and Non-Disturbance Agreement

An agreement provided to a tenant by a prior lien holder, such as a lender. The lender agrees, with an SNDA, to treat the lease as having come before the loan on a property, and thus the leasehold interest is not disturbed by any foreclosure of the underlying debt.

Subrogation

Subrogation is when one party steps into the shoes of another, typically to pursue a claim against a third party. In commercial real estate, subrogation may apply where a Tenant suffers a loss (injury or property damage) and collects under its insurance policy rather than pursuing the Landlord. The insurance company might subrogate to the Tenant’s claim and pursue the Landlord in the Tenant’s place. In commercial leases, the term typically appears in a Waiver of Subrogation, in which the Tenant waives claims for losses that could be covered by Tenant’s insurance.

Suburban

A residential area that is typically just outside of a city.

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T

Tenant

A person or entity who has possession of the property though a lease. A tenant also may be referred to as a lessee.

Tenant Improvements

The preparation of leased premises prior to or during a tenant’s occupancy, which may be paid for by the landlord, the tenant, or both.

Tenant Rep

A representative that helps a prospective tenant find commercial property to lease or buy.

Term

The duration of the lease agreement.

Termination Option

The right to terminate a lease agreement.

TI

An acronym for Tenant Improvements, which refers to the preparation of leased premises prior to or during a tenant’s occupancy, which may be paid for by the landlord, the tenant, or both.

TI Allowance

An amount that the landlord is willing to pay for tenant improvements, which are renovations/upgrades to the space.

TI Credit

TI (Tenant Improvement) Credit, also referred to as a Tenant Improvement Allowance, is a dollar amount that the landlord will provide for tenant improvements on the space.

Time Value of Money or TVM

An economic principle recognizing that a dollar today has greater value than a dollar in the future because of its earning power.

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U

Usable Square Feet or Usable Square Footage (USF)

Usable Square Feet is the space volume that is exclusively used by the office tenant.

Useable Area

Rentable area, less certain common areas that are shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). Also defined in office buildings as the area that is available for the exclusive use of the tenant.  Useable area = rentable area × building efficiency percentage.

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W

Warm Shell

Space that is slightly upgraded beyond a shell or cold shell state, with minimal interior and finishings.

Work Letter

An addendum to a lease that spells out key points and issues related to a Tenant Improvement.

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