APPENDIX Real Estate Terminology Matching Exercise In your groups please match the following terms to the The best possible definition. terms for #27 are provided next to mortgage terms. Terms: Business Taxes, Return on Investment (ROI), Net Rent, Anchor, Gross Building Area (GBA), Density, Annual Debt Service, Term, Capitalization and Capitalization Rate, Vacancy, Net Effective Rent , Market Value, Common Area, Common Area & Maintenance Costs (CAM), Common Retail Unit (CRU), Tenant Improvements (TI’s), Occupied Space, Debt, Discounting and Discount Rate, Renewal, Efficiency, Equity, Operating Costs, Return on Equity (ROE), Floor Area Ratio (FAR), Gross Rent, Gross Rent Multiplier (GRM), Interim Financing, Internal Rate of Return (IRR), Inducements, Lead Tenant, Rent Step, Leverage, Loan to value ratio (LTV), Management Costs, Property Taxes, Market Rent, Mortgage, Net Absorption, Net Absorption Rate, Net Operating Income, Net Present Value, Net Rentable Area, Occupancy Rate, Percentage Rent, Vacancy Rate, Sub-lease Space, Site Area 1. A large (usually retail) tenant that often pays less rent, but is used to attract other retail tenants to the complex. 2. Is the annual periodic payment of interest and principal required to amortize a mortgage loan (sometimes referred to as the carrying charge). 3. A municipal tax that is charged directly to tenants. In Calgary, it is based upon a percentage of net rent. 4. This is calculated by dividing the net operating income by the sale price. This is often used an expression of expected risk and return. The market value of a property can be estimated by dividing its net operating income by this. 5. The non-rentable areas of a building, including lobbies, hallways, elevators, stairs, loading and parking facilities, maintenance and operational areas. 6. The portion of operating costs that excludes property taxes. This is portion that is controllable by the landlord. 7. A retail unit that is designed for no particular tenant and is commonly rented to smaller tenants. 8. The amount owing to lenders, associated with the acquisition or ownership of a property. 9. This is a process through which future revenues/costs may be valued in present dollars. These are used to convert future cash flows to present dollars; they are an expression of expected risk and return. 10. The ratio of building area to site area. Commercial density is often expressed as a floor area ratio (FAR). Residential density may be expressed in units per net or gross acre. 11. Net rentable area divided by gross building area. 1 APPENDIX 12. Is the interest an owner of real property has in its total assets. It represents the total value of the property less the outstanding debt. 13. The gross building area divided by the site area. 14. The total area of a building. 15. The total rent paid by a tenant for space. 16. The sale price of an apartment building divided by the gross rent of all of its dwelling units. 17. Temporary financing required by a purchaser, when committed to completing the purchase of a property on a specific date, but not having sufficient funds until a later date. 18. Is used to determine the economic feasibility of a project. Effectively, it is the discount rate that reduces the project’s net present value to zero. This is often used to compare two projects of different duration and size. 19. Tangible items offered to tenants to attract to a space, including free rent, tenant improvements, etc. 20. A large tenant that occupies a substantial portion of space in a building. 21. The extent to which an investment is supported by debt financing. Generally speaking, the higher this is, the higher the expected return on equity. 22. The ratio of the mortgage loan to the value of the security pledged. 23. The charge added by the landlord to operating costs to cover their management of the building. This is usually expressed as a percentage of common area and maintenance costs. 24. The typical rent that a landlord would receive in the marketplace today. 25. The typical price that a vendor would receive for the sale of their asset. 26. A legal instrument for pledging a described property interest for the performance of the repayment of a loan under certain terms and conditions. This is not a loan but the security for a loan. They can be classified by priority of claims, e.g. first, second, etc. 27. Mortgage Types: Interest Only Mortgage, Conventional, Convertible Mortgage, High Ratio, Vender Take Back a. generally refers to a mortgage arranged through a lending institution where the amount does not exceed 75% of the value of the property. b. generally refers to a mortgage arranged through a lending institution where the amount exceeds 75% of property value. c. a mortgage that the unpaid vendor of the property has taken from the purchaser as a part payment of the purchase money for the property. 2 APPENDIX d. an amortizing loan in which the lender receives only interest during the term of the loan and recovers the principal in a lump sum at the time of maturity. e. a mortgage in which the lender may choose to take an equity interest in the real estate in lieu of cash amortization payments by the borrower. 28. The change in occupied space from one period to the next. 29. The change in occupied space in a market divided by the NLA within that market. The net absorption rate is an indicator of market change. 30. The rent available to the landlord from rented space after the costs of TI’s and other inducements have been subtracted from the net rent. 31. Is the difference between a property’s revenues and expenses, excluding depreciation, interest, principal payments, and income taxes. 32. Is the sum of all revenues and costs associated with a multi-year investment, expressed in present dollars after adjusting for risk. 33. The rent paid by a tenant for space, excluding operating costs. 34. The area that the tenants pay rent on in the building. 35. The space that the tenants actually occupy in the building. 36. Net rentable space in the building under contract divided by the total net rental space in the building. 37. The costs of operating the building’s common areas, including utilities and property taxes. 38. A rent adjustment that is based upon retail sales and is usually applied when sales reach particularly high levels. 39. A municipal tax that is directly charged to building owners and usually recouped from tenants through operating costs. 40. The signing of a new lease by an existing tenant. 41. A point within the lease term when the rent changes (e.g. increases). 42. Is a measure of the income generating capacity of an investment. It is calculated by dividing a property’s net income by the value of the investment. 43. Is a measure of the income generating capacity of a property relative to the equity invested by the property owner. It is calculated by dividing a property’s net income by the equity invested. 44. The land area of the subject property. 45. Space that is under lease, but not being used by a tenant and available for rent. The amount of sub-lease space in the market is an indicator of market change. 3 APPENDIX 46. The cost of improvements to rentable space paid for by the landlord. 47. Refers either to the length of a lease; or the period within which a loan is outstanding. 48. Rentable space that is not under lease. 49. Building vacancy divided by Net Leasable Area. 4 APPENDIX 1 Real Estate Terminology Anchor: A large (usually retail) tenant that often pays less rent, but is used to attract other retail tenants to the complex. Annual Debt Service – is the annual periodic payment of interest and principal required to amortize a mortgage loan (some time referred to as the carrying charge). Business Taxes: A municipal tax that is charged directly to tenants. In Calgary, it is based upon a percentage of net rent. Capitalization and Capitalization Rate: The capitalization rate of a sale can be calculated by dividing the net operating income by the sale price. The capitalization rate is often used an expression of expected risk and return. The market value of a property can be estimated by dividing its net operating income by an assumed capitalization rate. Common Area: The non-rentable areas of a building, including lobbies, hallways, elevators, stairs, loading and parking facilities, maintenance and operational areas. Common Area & Maintenance Costs (CAM) – The portion of operating costs that excludes property taxes. This is portion that is controllable by the landlord. Common Retail Unit (CRU) – A retail unit that is designed for no particular tenant and mostly commonly is rented to smaller tenants. Debt: The amount owing to lenders, associated with the acquisition or ownership of a property. Discounting and Discount Rate: Discounting is a process through which future revenues/costs may be valued in present dollars. Discount rates are used to convert future cash flows to present dollars; they are an expression of expected risk and return. Density: The ratio of building area to site area. Commercial density is often expressed as a floor area ratio (FAR). Residential density may be expressed in units per net or gross acre. Efficiency: Net rentable area divided by gross building area. Equity: is the interest an owner of real property has in its total assets. It represents the total value of the property less the outstanding debt. Floor Area Ratio (FAR): The gross building area divided by the site area. Gross Building Area (GBA): The total area of a building.