A Commercial Real Estate Glossary for Investors and Professionals

A comprehensive glossary of important commercial real estate terms and concepts. 

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Our glossary is an essential tool for navigating commercial real estate with confidence. Below, we’ll aim to demystify some of the CRE jargon and provide you with a comprehensive glossary of important commercial real estate terms and concepts. 

Amortization: This refers to the gradual repayments of loans over time through regular payments that include both principal and interest.

Capitalization Rate (Cap Rate): Capitalization rate is a metric used to evaluate the potential return on investment for commercial property and is expressed as a percentage. It is calculated by dividing the property’s net operating income by the current market value. 

Cash-on-cash Return: Cash-on-cash return measures the annual return on investment based on the amount of cash invested upfront. It is calculated by dividing the property’s annual cash flow before tax by the initial cash investment. 

Commercial Real Estate (CRE): CRE refers to non-residential properties that are used for business purposes including office buildings, industrial property, retails centers and mixed-use developments. 

Commercial Real Estate Broker: A CRE broker is a licensed professional who facilitates the buying, selling or leasing of commercial real estate on behalf of their client. In the case of Exis brokers, they are only working with tenants and end users of commercial property. 

Common Area Maintenance Charges (CAM): CAM charges are expenses incurred in management and maintenance of shared spaces, such as lobbies, hallways, entrances and parking lots. Read more about CAM

Due Diligence: This is a time period during which all parties thoroughly evaluate a property before completing a commercial real estate transaction. This typically involves inspecting the property and reviewing financial records. 

Gross Lease: In a gross lease a tenant pays a flat rental amount (this can be annual or monthly based on terms specified in the lease), and the landlord is responsible for all operating expenses. These operating expenses include property taxes, insurance, maintenance and other costs based on the lease requirements. ‘

Net Operating Income (NOI): This is the revenue of commercial property minus the operating expenses, typically calculated without accounting for tax. NOI provides crucial insight for buyers and owners regarding their property’s income generation potential. Cap Rate, influenced by NOI, serves as a key metric in evaluating a property’s investment potential.

Tenant Improvement Allowance (TIA): A TIA allowance is a financial incentive offered by the landlord to the tenant of commercial property to cover the cost of renovating the property to meet the specific needs of the tenant.  Learn more about TIA

Triple Net Lease (NNN): A triple net lease is an agreement where the tenant is responsible for paying rent, as well as all operating expenses, including property taxes, insurance and maintenance costs. 

Vacancy Rate: The vacancy rate is the percentage of available rental units or leasable space in a commercial property that is currently unoccupied.

Want to know more about commercial real estate or need advice as a commercial tenant? Don’t hesitate to reach out to one of our experts. 

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