Glossary of Terms
Available Space
The total amount of space that is currently available for lease or sale at in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date.
Build Out
Construction of Tenant Improvements (see TI’s).
Cap Rate
Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year’s net operating income (NOI) and the current market value of a property. The Cap Rate is calculated by dividing the annual NOI by the sales price (or asking sales price).
Full Service Rental Rate
Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance.
IRR
Internal Rate of Return. The internal rate of return is the interest rate received for an investment consisting of payments (equity, closing costs, etc.) and income that occur at regular periods (usually concluding with a building sale or refinancing).
Landlord Rep
(Landlord Representative). In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep.
Multi-Tenant
Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different tenant needs.
NCF
Net Cash Flow. NOI, less debt service, leasing & management expenses tenant improvements and capital reserves. NCF is not as commonly used as NOI, but presents a more realistic return of income generated by a property for investors.
Net Rental Rate
A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs.
NOI
Short for net operating income. The net rental income generated by a property, less real estate taxes and operating expenses. NOI does not include deductions for debt service, leasing expenses or tenant improvements.
Preleased Space
Space in a building that has been leased prior to its construction completion date, or certificate of occupancy (C of O) date.
ROI
Return on Investment. Calculated as the length of time an investment “pays for itself” through savings, income or other returns.
Quoted Rental Rate
The asking rate per square foot for a particular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following the negotiation of all terms and conditions in a specific lease.
Rentable Area
The total square footage that can be occupied by, or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally Rentable Area includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.
Tenant Rep
Tenant Rep stands for Tenant Representative. In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep.
TI’s
Tenant Improvements, usually expressed as a dollar amount per square foot. TI’s may refer to either the allowance a landlord contributes towards the build out of tenant’s space or the construction budget.
DISCOUNT RATE
Interest Rate used for determing Present Values. Theoretically the Discount Rate is equal to the return rate on invested money. For the purpose of this analysis, the Discount Rate must be equal to the Amortization Rate so that the present value and future value calculations are equivalent.
"CONSTANT" OCCUPANCY COSTS
The Constant Cost is equal to the Present Value (PV) amortized over the term of the lease. Constant Cost provides a fixed payment amount taking into account all initial concessions as well as all escalations over the term of the lease.
CORE FACTOR
Common Area Factor for the space. Usable SF x (1 + Core Factor) = Rentable Area
USEABLE SQUARE FEET
The acutal amount of squre feet in the premises. Does not include tenant's proportionale share of common areas.
NET PRESENT VALUE (NPV)
NPV equals the total costs over the term of the lease in today's dollars. The cost of future payments are discounted by the time value of money expressed as the Discount Rate.
TOTAL GROSS RENTAL
Total sum of costs over the term of the lease. No discounting for time value of money.
AMORTIZATION RATE
The rate used for amortizing up-front costs over the term of the lease, roughly equivalent to the borrowing rate. For the purpose of this analysis, the Amortization Rate must be equal to the Discount Rate so that the present value and future value calculations are equivalent.
RENTAL ABATEMENT
Months of free rent
CPI ESCALATION
Only used in the event the rental rate escalates by a percentage of the increase of the Consumer Price Index.
FIXED ANNUAL ESCALATION
Fixed rate for escalating the Base Rental Rate over the lease term.
LEASE YEAR
The twelve month period starting with the lease commencement date and each anniversary of the commencement date throughout the term of the lease.
BUILDING SIZE/RSF
Total rentable square footage of the building
BASE STOP
Operating Expenses & taxes paid by landlord for the purpose of calculating expense passthroughs. Frequently idential to the "Base Year"
PROJECTED OPERATING COSTS
Estimated Operating Expenses on a per rentable square foot basis.
PROJECTED REAL ESTATE TAXES
Estimated Real Estate Taxes on a per rentable square foot basis.
INFLATION RATE
EXPENSES, TAXES & PARKING Rate at which operating expenses, real estate taxes and parking costs are escalated over the analysis term.
OVERTIME HVAC RATE ($/HOUR)
Landlod's hourly charge to operate the building HVAC within the premises after building hours.
PROJECTED OVERTIME HOURS/YEAR
Estimated number of overtime hours per year the building HVAC will be used.
PROJECTED TOTAL BUILD OUT AND FEES
Estimated budget for hard and soft construction costs. Unless otherwise noted, this does not include moving, cabling, wiring, IT or FF&E.
IMPROVEMENT ALLOWANCE (PER SQ FT)
Landlord's contribution towards Build Out costs.