back to back escrow:
An escrow set up to facilitate the simultaneous purchase of one property and the sale of another property by the same party.
back to back settlement:
Transactions involving selling one home and purchasing another on the same day, usually within hours of one another.
basis:
The rent basis designates what operating expenses are included and excluded in the rent. The most common rent bases are:
Full Service: All costs of operation are paid by the landlord up to a base year or expense stop. In some parts of the U.S., this rent basis is called Full Service Gross.
Triple Net: All costs of operation including, but not limited to, real estate taxes, insurance and common area maintenance are borne by the tenant on a pro rata basis.
Modified Gross: any arrangement whereby the tenant pays one or more of the expenses covered by the landlord in a Full Service lease, but not all of the expenses as in a Triple Net lease. Modified Gross leases cover a range of lease types and terminologies used in various markets around the nation. Some of the more common are Industrial Gross, Single Net and Double Net. The definitions of these bases vary from market to market depending on the expenses they include or exclude.
Net of Electric: A popular form of Modified Gross, this is like a Full Service lease, but the tenant pays for his or her electric charges either to the utility company (according to a meter) or to the landlord on a pro rata basis. In the Northeast, this arrangement is called Full Service Gross Plus Electric. Acronyms: Full Service (FS), Triple Net (NNN).
blind pool:
A securities offering of interests in a property or group of properties that have yet to be acquired.
bond loan:
A state sponsored method of assisting low income borrowers and first time homeowners in the purchase of a home at a reduced interest rate.
bondable net lease:
A long term absolute net lease with a tenant who has a very high credit ceiling. The lease must be noncancellable and must call for a net rental equal to or above the amount of debt service.
capital market:
The financial market for buying and selling long term investments (those with maturities of greater than one year), such as mortgages, Treasury bonds, and certificates of deposit.
capitalization:
The conversion of a future net income stream into present value by using a specific desired rate of earnings as a discount rate.
capitalization analysis:
The analysis based on the conversion of a future net income stream into present value by using a specific desired rate of earnings as a discount rate.
capitalization rate:
The rate of return on net operating income considered acceptable for an investor and used to determine the capitalized value. This rate should provide a return on, as well as a return of, capital. Also known as "cap rate."
capitalized value:
The estimated market value of business assets in terms of the present value of anticipated earnings.
capped rate:
A rate commitment by a lender which locks in a maximum rate but allows the borrower to relock if market rates decrease. Also referred to as cap and float.
cash equivalent value:
A method of calculating the appraised value of a property that considers sales and financing concessions when evaluating comparable properties. There is no standard in the appraisal industry for measuring cash equivalent value, but investors and mortgage insurers sometimes insist that cash equivalency be incorporated in appraised values.
cash flow (after taxes):
Cash received less cash paid out, including income taxes paid.
cash flow (before taxes):
Cash received less cash paid out, before any consideration for income taxes.
cash market:
A market where mortgages and/or mortgage backed securities are bought and sold for immediate delivery and cash payment. Also called spot market.
cash on cash return:
The rate of return on an investment as measured by cash returned to the investor, based on the investor's cash investment and without regard to income tax savings or the use of borrowed funds.
class A buildings
Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.
class B buildings
Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area and systems are adequate, but the building cannot compete with Class A at the same price.
discount rate:
An annual competitive rate of return on total invested capital necessary to compensate the investor for the risks inherent in a particular investment. A yield rate used to convert future payments or receipts into net present value (NPV).
NPV returns the net value of the cash flows represented in today's dollars. Because of the time value of money, receiving a dollar today is worth more than receiving a dollar tomorrow. NPV calculates that present value for each of the series of cash flows and adds them together to get the net present value.
The formula for NPV is:
Where n is the number of cash flows, and i is the interest or discount rate.
debt coverage ratio:
A ratio of effective annual net income to annual principal and interest payments. Also called "debt service coverage."
debt/equity ratio:
The proportion of capital borrowed to the amount of capital invested out-of-pocket or obtained through the sale of common stock. Also called "leverage ratio."
dry funding:
Any advance of new funds to a mortgage banker for funding or purchasing mortgage loans where the collateral package is in the possession of the collateral agent and is free of lien or bailment.
environmental impact statement (EIS):
A document required by many federal, state, and local environmental land use laws, containing an analysis of the impact that a proposed change may have on the environment of a specific geographic region. It examines a wide variety of physical, social, and economic conditions that would be affected by the proposed development. The analysis covers effects that cannot be avoided, alternatives to the proposed change, short-term versus long-term uses and long term productivity, irreversible commitments of resources, and the benefits to be derived from the proposed change.
environmental impairment insurance:
A special form of insurance desired to protect an insured against claims for liability and clean up costs related to pollution. Coverage may be granted for gradual and sudden and accidental pollution, and is always written on a claims made form.
Environmental Protection Agency (EPA):
The agency responsible for enforcing environmental liability.
equity component:
Property value less mortgage component.
equity dividend:
The dollar return to the equity component:
Net Operating income - Debt Service = Equity Dividend
equity dividend rate:
Rate of return to the equity component:
NOI - Debt Service = Equity Dividend / Equity Investment = Equity Dividend Rate
exculpatory clause:
A clause in a contract holding a specified party harmless in the event of default. For example, the provision in a note that the debtor will not be held personally liable in the event of default.
flex space:
A building providing its occupants the flexibility of utilizing the space. Usually provides a configuration allowing a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse etc.
force majeure insurance:
A specialized form of coverage for owners and contractors to protect against damage or delays caused by unpredictable events such as war, strikes, or those perils not normally insured under "all risk" policies.
haircut:
The difference between the market value of a mortgage and the amount of money a lender will advance against it.
hazard waste risk:
A financial or health risk that is created due to any substance such as asbestos, urea formaldehyde foam insulation, transformers containing polychlorinated biphenyls (PCBs) in excess of 50 parts per million, lead paint, or any substance deemed hazardous, toxic, or required to be disclosed, reported, treated, removed, disposed of, or cleaned up by any applicable hazardous material law.
preforeclosure sale:
Settlement of a mortgage default where the borrower allows the mortgage insurance company or servicer to sell the property securing the mortgage rather than foreclose on it.
present value:
The current value of cash received at a definite point or points in the future.
private conduit:
A private market entity (without ties to the federal government) that increases the availability of real estate financing by purchasing and selling mortgages and mortgage backed securities. Private conduits match lender and investor needs, allowing for the sale or securitization of loans by mortgage bankers to a national market.
strict foreclosure:
A type of foreclosure proceeding used to some states in which title to the foreclosed property is invested directly in the mortgagee by court decree, without holding a foreclosure sale.
strict foreclosure:
A type of foreclosure proceeding used to some states in which title to the foreclosed property is invested directly in the mortgagee by court decree, without holding a foreclosure sale.
subordination (lease) provision:
A clause in a lease by which the tenant acknowledges that its interest in the lease premises is inferior to the interest of the lender whose mortgage encumbers the leased premises.
subrogation:
The right of a party to proceed against another for recovery.
submortgage:
The use of one mortgage as collateral to obtain another.
subordinate lien:
A lien or encumbrance (for example a second mortgage or mechanic's lien) on real estate whose priority is inferior to another's recorded interest in the same property.
subordinated ground lease:
A lease in which rights of the lessor of the ground are junior to the rights of the holder of the first mortgage.
subordination:
The act of a party acknowledging by written record, that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights, and any other types of debt instruments.
subordination agreement:
A document by which parties acknowledge, by written record, that the debt of one is inferior to the debt or interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights, and any other types of debt interests.
superfund:
The term "Superfund" is frequently used to refer to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enacted in 1980, and modified by the Superfund Amendments and Reauthorization Act (SARA) to 1986. Under this federal statutory framework, the U.S. Environmental Protection Agency (EPA) is empowered to determine which locations are contaminated by hazardous waste, respond appropriately to protect public health and the environment, and allocate liability for associated response costs.
weighted average coupon (WAC):
The weighted average of the gross interest rates of the mortgages in a mortgage pool, as of the issue date, with the balance of each mortgage used as a weighing factor.
weighted average maturity (WAM):
The weighted average of the remaining terms to maturity of the mortgages in a mortgage pool as of the issue date.
wet funding:
Any advance of new funds to a mortgage banker for funding or purchasing mortgage loans where the collateral package is not in possession of the collateral agent or is not free of lien or bailment.
wraparound mortgage:
A refinancing technique involving the creation of a second mortgage which includes the balance due on any existing mortgages, plus the amount of the new secondary or junior lien.
