CRE Finance Glossary
Commercial Real Estate Finance Glossary
63 terms every commercial real estate borrower should know, written by a working broker rather than a textbook. Each entry covers the definition, the formula where there is one, what different lender types actually require, and how the term changes your proceeds, pricing, or structure.
Capital Stack & Loan Products
Capital Stack & Loan Products
Agency Debt
Agency debt is multifamily mortgage financing provided through Fannie Mae an…
Bridge Loan
A bridge loan is short-term commercial real estate financing, typically one …
CMBS Loan
A CMBS loan, or commercial mortgage-backed securities loan, also called a co…
Capital Stack
The capital stack is the complete structure of capital financing a commercia…
Construction-to-Perm
A construction-to-permanent loan is a single financing that funds a project'…
Hard Money Loan
A hard money loan is short-term commercial real estate financing from privat…
Mezzanine Debt
Mezzanine debt is a loan positioned between senior debt and equity in the ca…
Mini-Perm Loan
A mini-perm loan is intermediate-term financing, usually three to five years…
Preferred Equity
Preferred equity is an ownership investment in a commercial real estate vent…
Senior Debt
Senior debt is the first-priority loan in a commercial real estate capital s…
Leases & Property Income
Leases & Property Income
Anchor Tenant
An anchor tenant is the largest and most traffic-generating tenant in a shop…
CAM Charges
CAM charges (common area maintenance charges) are the amounts commercial ten…
Credit Tenant
A credit tenant is a tenant whose lease obligations are backed by an investm…
Effective Gross Income
Effective gross income (EGI) is a property's total revenue after subtracting…
Gross Lease
A gross lease is a commercial lease in which the tenant pays a single, all-i…
Ground Lease
A ground lease is a long-term lease of land only, typically 50 to 99 years, …
Modified Gross Lease
A modified gross lease is a hybrid commercial lease in which the tenant pays…
Percentage Rent
Percentage rent is additional rent a retail tenant pays as a share of gross …
TI/LC
TI/LC stands for tenant improvements and leasing commissions, the two princi…
Triple Net Lease
A triple net lease (NNN) is a commercial lease in which the tenant pays base…
Loan Structure & Terms
Loan Structure & Terms
Amortization
Amortization is the scheduled repayment of a loan's principal balance throug…
Bad-Boy Carve-Outs
Bad-boy carve-outs are exceptions to a non-recourse loan that make the borro…
Balloon Payment
A balloon payment is the lump-sum principal balance due when a commercial lo…
Defeasance
Defeasance is a prepayment mechanism that releases a property from a commerc…
Interest-Only Period
An interest-only period is a stretch of a loan's term, ranging from one year…
Prepayment Penalty
A prepayment penalty is a fee a borrower pays to retire a commercial loan be…
Rate Lock
A rate lock is a lender's binding commitment to hold a loan's interest rate,…
Recourse vs Non-Recourse
Recourse and non-recourse describe whether a lender can pursue a borrower's …
SOFR
SOFR, the Secured Overnight Financing Rate, is the benchmark index for float…
Step-Down Prepayment
A step-down prepayment penalty charges a fixed percentage of the outstanding…
Yield Maintenance
Yield maintenance is a prepayment penalty designed to make a lender economic…
Process & Documentation
Process & Documentation
Estoppel Certificate
An estoppel certificate is a signed statement in which a tenant confirms the…
Income Cap Approach
The income capitalization approach is an appraisal method that values commer…
LOI
A letter of intent, or LOI, is a preliminary document that outlines the key …
Loan Commitment
A loan commitment is a binding written agreement in which a lender formally …
Phase I ESA
A Phase I Environmental Site Assessment is a due diligence report, prepared …
Pro Forma
A pro forma is a forward-looking financial statement that projects a commerc…
Rent Roll
A rent roll is a property-level report that lists every unit or tenant space…
SNDA
An SNDA, or subordination, non-disturbance and attornment agreement, is a th…
Sources and Uses
A sources and uses statement is a two-sided table that accounts for every do…
Term Sheet
A term sheet is a written, mostly non-binding summary of the terms on which …
T-12
Trailing twelve months, or T-12, refers to a property's actual operating per…
Strategy, Tax & Special Topics
Strategy, Tax & Special Topics
1031 Exchange
A 1031 exchange is a transaction under Section 1031 of the Internal Revenue …
Basis Points
A basis point is one one-hundredth of one percentage point: 1 basis point eq…
CEMA
A CEMA, or Consolidation, Extension and Modification Agreement, is a New Yor…
Cash Management and Lockbox
Cash management and lockbox provisions are loan structures that route a prop…
Core to Opportunistic
Core, core-plus, value-add, and opportunistic are the four standard risk-ret…
Cost Segregation
Cost segregation is an engineering-based tax study that breaks a commercial …
Cross-Collateralization
Cross-collateralization is a loan structure in which two or more properties …
Exit Cap Rate
The exit cap rate, also called the terminal or reversion cap rate, is the ca…
Loan Assumption
A loan assumption is a transaction in which a property buyer takes over the …
Replacement Reserves
Replacement reserves are funds set aside, usually in a lender-held escrow fu…
Value-Add
Value-add is a commercial real estate investment strategy that targets prope…
Underwriting Ratios & Metrics
Underwriting Ratios & Metrics
Cap Rate
The capitalization rate (cap rate) is a property's net operating income divi…
Cash-on-Cash
Cash-on-cash return is a property's annual pre-tax cash flow after debt serv…
DSCR
The debt service coverage ratio (DSCR) measures a property's net operating i…
Debt Yield
Debt yield is a commercial real estate lending metric that measures a proper…
Equity Multiple
The equity multiple is the total cash returned by an investment, all distrib…
IRR
The internal rate of return (IRR) is the annualized discount rate at which t…
Loan Constant
The loan constant is a loan's total annual debt service, principal plus inte…
LTC
The loan-to-cost ratio (LTC) is a loan amount expressed as a percentage of a…
LTV
The loan-to-value ratio (LTV) is a loan amount expressed as a percentage of …
NOI
Net operating income (NOI) is a property's effective gross income minus its …
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