Glossary (click letters)
See common area maintenance.
The maximum amount for which the tenant pays its share of common area maintenance
costs. The owner pays for any CAM expenses exceeding that amount.
See cash flow after tax.
See cash flow before tax.
See capitalization rate.
Property improvements that cannot be expensed as a current operating expense for tax
purposes. Examples include a new roof, tenant improvements, or a parking lot—such items
are added to the basis of the property and then can be depreciated over the holding period.
Distinguished from cash outflows for expense items such as new paint or plumbing repairs
(operating expenses) that can be expensed in the year they occur. Also see operating
Taxable income derived from the sale of a capital asset. It is equal to the sales price less
the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of
straight-line cost recovery.
The supply and demand for resources to invest in real estate and other investments.
Any tax on a change in capital value (including capital gains tax, estate tax, or inheritance
tax); as distinguished from a tax on income.
A percentage that relates the value of an income-producing property to its future income,
expressed as net operating income divided by purchase price. Also referred to as cap rate.
The net cash received in any period, taking into account net operating income, debt service,
capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.
Cash flow after tax/es (CFAT)
For properties, it is the result of first calculating the net operating income, less mortgage
and construction loan interest, less cost recovery for improvements and personal property,
less amortization of loan points and leasing commissions to arrive at real estate taxable
income. Next, real estate taxable income is multiplied by the applicable marginal tax rate
to result in the tax liability (savings). Then, from the net operating income, annual debt
service is subtracted to equal the cash flow before taxes (CFBT). Finally, the cash flow after
taxes (CFAT) is calculated from the CFBT, less the tax liability (savings), plus investment
tax credit. The Cash Flow Analysis Worksheet can be used to calculate a property’s gross
operating income, net operating income, real estate taxable income and tax liability or
(savings), CFBT, and CFAT.
Net operating income
– Cost recovery
– Amortization of loan points
Real Estate taxable income
× Investor’s marginal tax rate
Tax liability (savings)
Net operating income
– Annual debt service
Cash flow before taxes
– Tax liability (savings)
Cash flow after taxes
Cash flow before tax/es (CFBT)
For properties, it is the result of calculating the effective rental income, plus other income
not affected by vacancy, less total operating expenses, less annual debt service, funded
reserves, leasing commissions, and capital additions. The Annual Property Operating Data
form can be used to calculate a property’s effective rental income, gross operating income,
total operating expenses, net operating income, and cash flow before taxes.
Cash flow model
The framework used to determine the cash flow from operations and the cash proceeds
Cash proceeds from sale
The sales price less sales costs, mortgage balance, and tax liability on sale. Also known as
sales proceeds after tax.
A return measure that is calculated as cash flow before taxes divided by the initial equity
Central place theory
A location theory that accounts for the size, distribution, and organization of settlements,
places, market areas, and establishments in a competitive and interdependent urban
system, to explain differences in the locational tendencies and preferences of businesses as
they seek to maximize market accessibility, sales, and profits.
An urban settlement or system containing various functions, agents, institutions, and
components which interact and work together to satisfy the wants and needs of its
inhabitants (as well as a portion of the population in surrounding rural areas).
The useful economic life of an asset set by the Internal Revenue Service.
Third stage of four-stage transaction management process pertaining to bringing the parties
together and consummating an agreement. The acronym CLOSE represents the
contingencies, legal instruments, obstacles, signatures, and execution involved in the close
Commercial real estate
Any multifamily residential, office, industrial, or retail property that can be bought or sold in
a real estate market.
For lease purposes, the areas of a building (and its site) that are available for the nonexclusive
use of all its tenants, such as lobbies, corridors, and parking lots. (Real Estate
Common area maintenance (CAM)
Charges paid by the tenant for the upkeep of areas designated for use and benefit of all
tenants. CAM charges are common in shopping centers. Tenants are charged for parking
lot maintenance, snow removal, and utilities.
A community center is a retail property type that typically offers a wider range of apparel
and other soft goods than the neighborhood center does. Among the more common
anchors are supermarkets, super drugstores, and discount department stores. Community
center tenants sometimes contain off-price retailers selling such items as apparel, home
improvement/furnishings, toys, electronics, or sporting goods. The center is usually
configured as a strip, in a straight line, “L”, or “U” shaped. Of the eight center types,
community centers encompass the widest range of formats. For example, certain centers
that are anchored by a large discount department store refer to themselves as discount
centers. Others with a high percentage of square footage allocated to off-price retailers can
be termed off-price centers.
The principle that cities or regions tend to produce those items or support those activities
for which they have the greatest advantage over other areas as defined by the factors of
production, demand, supporting industries, and quality of life considerations, as defined in
relation to human, financial, and physical resources, and opportunity costs—costs expressed
in terms of opportunities foregone.
A market condition or setting in which numerous firms compete for a share of the retail
market in a given geographic area; a term which is also used to denote rivals or
Interest computed on the original principal and accumulated interest.
A type of calculation in which interest earned is reinvested and earns additional interest.
Confidence range method (95%)
A statistical method of estimating a range of vacancy rates with a 95% confidence such that
the expected vacancy rate for the next time period falls within that range (using the sample
mean vacancy rate and corresponding standard deviation as input).
The total rental obligation, expressed in dollars, as specified in a lease. Also known as base
rent. (Real Estate Information Standards)
The actual dollar amount paid for a property or the amount needed to build or improve it at
a specified time in the future.
A method of determining the market value of a property by evaluating the costs of creating
a property exactly like the subject.
Cost approach improvement value
The current cost to construct a reproduction of, or replacement for, the existing structure
less an estimate for accrued depreciation from all causes. [Appraisal Institute]
Cost of capital
See weighted average cost of capital.
Cost of occupancy
Expenditures that are required to assume and maintain occupancy of a space. Such
expenditures include rent and/or mortgage payments, and recurring costs, such as real
estate taxes, repairs, operating expenses, and other outgoings directly resulting from the
use of the property. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)
An annual deduction based on the class life of an asset.
Cost recovery recapture
According to the Taxpayer Relief Act of 1997, for properties sold after May 6, 1997, a
Non-corporate taxpayer will have to recapture, or pay taxes on, any straight-line cost
recovery taken during the holding period, to the extent there is any gain.
Cross-over (office use) demand
Industrial space that is used as office space in order to lower the rental rate of a property.
Also known as flex space.
A visual representation of the relationship between the costs of leasing and owning at
varying discount rates.
An approach to estimating the retail trade area (and sales/revenue potential) for a given
establishment or center based on the location of existing customers via point-of-sale
information (by obtaining customer address or zip code data) or customer surveys (by
interviewing customers as they enter the store); data which can later be mapped to
determine the extent of the trade area.