Commercial Lending Terminology:

The following terms are applicable to a conventional bank as well as to a bridge loan company and a commercial hard money lender.

PERCENTAGE LEASE – commonly used for large retail stores. Rent payments include a minimum or "base rent" plus a percentage of the gross sales "overage." Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume.

PHASE I – an assessment and report prepared by a professional environmental consultant who reviews the property – both land and improvements – to ascertain the presence or potential presence of environmental hazards at the property, such as underground water contamination, PCB’s, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This Environmental Site Assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II Environmental Site Assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken.

POINTS (LOAN DISCOUNT POINTS) – each point is equal to 1% of the total amount of a mortgage.

POTENTIAL GROSS RENT – gross income of a building if fully rented.

PRE–LEASED % – to obtain lease commitments in a building or complex prior to its being available for occupancy.

PREPAYMENT PENALTY – fees paid by borrowers for the privilege of retiring a loan early.

PRIME RATE – the rate at which banks lend to their most creditworthy customers.

PRINCIPAL – 1. The amount of debt, not including interest, left on a loan. 2. The face amount of the mortgage.

PRO FORMA – (from Latin pro forma, "according to form"). financial statements showing what is expected to occur.

PROPERTY ADMINISTRATOR – person in broker's employ who is responsible for updating and renewing a property listing, if it is different from the contact name.

PROPERTY GRADE – a stratification of property type that is indicative of the property’s ability to command rental rates.

PROPERTY SUBTYPE – a property description that provides additional information to the lender.

PROPERTY TAX – taxes based on the market value of a property. Property taxes vary from state to state. 

R

R & D – these facilities are generally used in high technology markets and are broadly defined to include wide variations in markets across the country. R & D properties could have lab facilities, offices, warehouse facilities, or services such as carpentry or machine repair. Typically, each property allows a variable combination of office and other uses. The percentage of office space ranges from 20 to 100 percent, depending on the market and individual needs of the user.

RAIL SERVED – whether the building is served by railroad.

RANCH – land devoted to raising livestock under range conditions with forage grass as main source of feed.

RATE INDEX – an index used to adjust the interest rate of an adjustable mortgage loan (e.g., the change in U.S. Treasury securities (T–Bills) with 1–year maturity. The weekly average yield on said securities, adjusted to a constant maturity of 1 year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the "index" for the change in a specific Adjustable Mortgage Loan).

RECOURSE – personal liability.

RECREATIONAL LAND – land devoted to commercial outdoor sporting activity and relaxation.

REFINANCE – to replace an old loan(s) with a new loan(s).

REGIONAL CENTER – a shopping center with one or two department stores and a variety of smaller stores. It is larger than 300,000 square feet and draws from an eight mile radius or more.

RENT ROLL – a list of tenants leasing a property, which details terms of lease, area leased, and the amount of rent being paid.

RENT STEP–UP – a lease agreement in which the rent increases every period for a fixed amount of time or for the life of the lease.

RENTABLE SQUARE FEET (same as Net Leasable Area) – in a building or project, floor space that may be rented to tenants. The area upon which rental payments are based. Generally excludes common areas and space devoted to the heating, cooling, and other equipment of a building.

REPLACEMENT RESERVES – an amount set aside from net operating income to pay for the eventual wearing out of short–lived assets. Monthly deposits that a lender may require a borrower to a reserve in an account, along with principal and interest payments for future capital improvements of major building systems; i.e., HVAC, parking lot, carpets, roof, etc.

RESERVE FUNDS – in CMBS, portion of the bond proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement (also referred to as "reserve accounts").

RETAIL – a property type which sells goods to consumers.

RV (REVERSIONARY VALUE) – the value of property at the expiration of a certain time period. In transportation, recreational vehicle. 

S

SALES BROKER – commercial real estate broker that represents client in the sale or purchase of commercial real estate property.

SECOND MORTGAGE – a mortgage that is second in priority because of the time of recording the mortgage or of the subordination of the mortgage.

SECONDARY MORTGAGE MARKET – the buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value ("par") or above, but are usually sold at a discount. Not to be confused with a "second mortgage."

SELF–STORAGE – (also called Mini–Storage) provides personal storage for lease by consumers.

SELF–AMORTIZING MORTGAGE – one that will retire itself through regular principal and interest payments. Contrast with balloon mortgage or interest–only loan.

SENIOR HOUSING – (includes Assisted Listing, Congregate Care, Senior Apartments and Skilled Nursing Centers) multi–residential property specifically designed for care of senior citizens and/or physically disabled persons.

SHADOW ANCHORED – a unanchored shopping center located near an anchored shopping center.

SINGLE WIDE – a mobile home consisting of one unit.

SITE WORK – the location or place of a plot of ground set aside for a particular type of land use.

SKILLED NURSING – a type of senior housing which offers on–site medical care.

SOLE PROPRIETORSHIP – ownership of a business, with no formal entity as a vehicle or structure.

SPREAD – number of basis points over a base rate index.

SPRINKLER – existence of fire suppression systems in the building.

STABILIZED OPERATING PROPERTY – the income generated on an annual basis from the commercial property is stable, consistent and reliable.

STRIP CENTER – a string of stores in a commercial area, totaling less than 30,000 square feet, without central leasing, management, or theme.

STRUCTURAL/ENGINEERING REPORT – a property Condition Report that outlines the current structural stability or instability of a property. The report will outline immediate costs needed to repair the property, as well as a maintenance program to maintain the property at its current status.

SUBURBAN – describes a town or unincorporated developed area in a close proximity to a city.
Suburbs, largely residential, are often dependent on the city for employment and support services; generally characterized by low–density development relative to the city. 

T

TAX & INSURANCE IMPOUND – monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance.

TENANT – one who is given possession of real estate for a fixed period or at will.

TENANT IMPROVEMENTS (TI) – the expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant.

TERM – the length of a mortgage.

THIRD PARTY COSTS – costs resulting from third party reports, whether it be appraisal reports, environmental reports or structural engineering reports.

TIMBERLAND – land used for production of forest stands for commercial use.

TITLE – the actual legal document conferring ownership of a piece of real estate.

TITLE INSURANCE – an insurance policy that insures you against errors in the title search – essentially guaranteeing your, and your lender’s, financial interest in the property.

TOTAL ANNUAL OPERATING INCOME – total yearly income less operating expenses, adjustments, etc., but before mortgage payments, tenant improvements and leasing commissions.

TOTAL ANNUAL ROOM INCOME – a hotel definition that represent the gross annual receipts from room revenue.

TRAFFIC COUNT – the amount of incoming and outgoing traffic a retailer or self–storage building generates over a fixed period of time.

TRIPLE–NET LEASE (NNN) – a lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as "Net Net Net Lease").

TRIPLE–WIDE – a mobile home consisting of three units which have been fastened together along their length. 

U

U.S. TREASURY BILL – Treasury Bills, or T–Bills, are short term securities with maturities of up to one year. They are issued by the U.S. Government at a discount from face value. The price is quoted in yield, not dollars. At maturity, T–Bills are redeemed for full face value. T–bills are issued in three month, six month and 1 year maturities and are backed by the full faith and credit of the U.S. Government.

U.S. TREASURY BOND – Treasury Bonds are long–term securities with maturities greater than 10 years. Treasury bonds are coupon bearing securities that pay interest on a semiannual basis. Treasury bonds are backed by the full faith and credit of the U.S. Government.

U.S. TREASURY NOTE – Treasury Notes are intermediate term securities issued with 2, 3, 5, and 10 year maturities. Treasury notes are coupon bearing securities that pay interest on a semiannual basis. Treasury notes are backed by the full faith and credit of the U.S. Government.

UNANCHORED – a tenant in a shopping center, which doesn’t have an anchored tenant.

UNDERWRITING – the process of deciding whether to make a loan based on property cash flow, credit, and/or other factors.

V

VACANCY PERCENT – the percentage of all units or space that is unoccupied or not rented. On a pro–forma income statement a projected vacancy rate is used to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income.

VACANCY – unoccupied units as a percentage of the total number. 

Y

YIELD – the rate of return on a security, taking into consideration annual interest payments, purchase price, redemption value, and the time remaining until maturity.

YIELD MAINTENANCE – a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers.

YIELD TO AVERAGE LIFE – yield calculation used, in lieu of "Yield to Maturity" or "Yield to Call," where books are retired systematically during the life of the issue, as in the case of a "Sinking Fund," with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirements if the bonds are trading below Par, there is, to that extent, automatic price support for such bonds; they therefore tend to trade on a yield–to–average–life basis.

YIELD TO MATURITY (YTM) – concepts used to determine the rate of return an investor will receive if a long–term, interest–bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount rate at which the present value of all future payments would equal the present price of the bond (also referred to as "internal rate of return"). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM can be approximated using a bond value table (also referred to as a "bond yield table") or can be determined using a programmable calculator equipped for bond mathematics calculations.

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