Key Terms

THE CARLSON COMPANY TERMS

1 | A | D | E | F | I | L | O | P | Q | R | T

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-12 +12 Annual Property Analysis: A proprietary Carlson Company analysis tool/report comparing the investment returns of a property from the previous 12 months to projected returns for the next 12 months. The Carlson Company typically provides this no cost service to clients annually.

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After-Tax Cash Flow: In terms of Investment Real Estate is defined as net operating income less debt service (also known as Pre-Tax Cash Flow) less income tax liability. Income tax liability is determined after factoring allowable depreciation and interest expense deductions.

Asset Allocation: Apportioning of investments funds among categories of assets such as cash, stock, fixed-income investments, real estate, precious metals and collectibles. Asset allocation affects both risk and return and is a central concept in personal financial planning and investment management.

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Debt/Loan Impact: Refers to the impact on overall investment returns the loan has on an owner's/investor's real property investment. Depending on the loan-to-value, loan interest rate, capitalization rate of property, amortization, etc. the loan can/will significantly effect investment returns on an owner's/investor's equity-capital.

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Equity Allocation Strategies: A key concept in building wealth in real estate. The focus is where equity-capital is best invested to achieve an owner's/investor's specific goals and objectives. Depending on whether cash flow, growth, tax benefits is the priority (or a combination thereof) equity-capital allocation adjustments are needed.

Equity-Capital: Defined as the market value of real property, less the amount of existing liens.

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Four Engines: Refers to the four key elements of pre-tax cash flow, income tax burden, debt/loan impact and appreciation that cumulatively determine the overall investment return on an owner's/investor's equity-capital invested in real property.

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Income Tax Burden: In terms of Investment Real Estate refers to the income tax liability (amount due). Adjustments to net operating income are made based on allowable depreciation and interest expense deductions. This net amount is defined as taxable income. Finally, the owner's/investor's applicable ordinary income tax rate is use to calculate income taxes due (income tax burden).

Invested Capital (equity): Defined as the amount the owner/investor has invested in real property. Does not include any loan amount or borrowed money.

Investment Property Analysis (IPA): A proprietary Carlson Company term (acronym) describing the analysis process of an owner's/investor's current real estate holdings both individually and cumulatively. From that point strategic alternatives are considered that will improve the investments returns of the owner/investor. Typically, this would include both cash-out refinance/reinvest and sell/buy scenario or a combination of the two.

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Leverage: Leverage is the result of borrowing money at a constant rate lower than the net operating income generated by the investment property. The constant payment includes both interest and principal, and reflects the payment in relation to the original amount of the principal owed. The constant rate is a function of time and interest and as one changes the constant rate changes. When the net operating income of an investment property exceeds the constant payment, leverage has been introduced, and the interest yield on the invested capital will now exceed the yield on an all cash investment.

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One-Stop Investment Real Estate Service Provider: A term describing our firm's capability and expertise in being able to provide the full spectrum of services necessary in order to competently advise, execute and oversee the owner's/investor's investment real estate portfolio as well as general wealth needs. In cooperation with a client's trusted advisors in tax, legal and other specialty areas The Carlson Company offers the benefit and convenience of being able to function as the "quarterback" or primary point of contact for many of our clients.

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Pre-Tax Cash Flow: In terms of Investment Real Estate is defined as Net Operating Income less debt service. All known as cash flow before taxes.

Projected Appreciation: Refers to the believed increase in future value of an asset.

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Quick View Property Analysis: A proprietary Carlson Company analysis tool/report used to calculate the performance (investment return) of a given property. Pre-tax cash flow, income tax burden, debt/loan impact and appreciation are all examined.

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Real Estate Wealth Building Analysis Summary: A proprietary Carlson Company analysis tool/report used to summarize the investment returns of an owner's/investor's properties both individually and cumulatively. Additionally, strategic alternatives are analyzed and summarized comparing projected returns to the existing situation.

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Tenant-In-Common (TIC): An undivided ownership in real estate by two or more persons. The interest need not be equal, and, in the event of the death of one of the owners, no right of survivorship in the other owners exist.

The Commercial Loan Process: A term used to describe the systematic process followed by The Carlson Company when preparing, packaging, processing, placing, negotiating and coordinating the loan application and funding process for a client.

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REAL ESTATE, FINANCE & INVESTMENT TERMS

1 | A | B | C | D | E | F | G | H | I | J | L | M | N | O | P | Q | R | S | T | U | V | W | Z

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1031 Exchange: Section 1031 of the Internal Revenue Code allows for the disposition of interests in commercial real estate assets on a tax free basis so long as the proceeds from sale are transferred into "like kind" assets within a time period certain in compliance with IRC section 1031.

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Absorption Rate: The rate (speed) at which vacant space is either leased or sold to users in the marketplace. This rate is usually expressed in square feet per year or in the case of multi-family housing, in the number of units per year.

Adjustable Rate Loans: Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. Also called Adjustable Rate Mortgages, Variable Rate Loans and Adjustable Mortgage Loans.

Agency: Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter.

Alienation Clause: A type of acceleration clause, calling for debt under a mortgage or deed of trust to be due in its entirely upon transfer of ownership of the secured property. As called "due-on-sale" clause.

American Land Title Association (ALTA): An association representing more than 2,100 title abstractors, title insurance companies, title insurance agents, and associate members that was founded in 1907. Members of the association use standardized title insurance forms developed by ALTA to provide uniformity within the industry.

Amortization: The repayment of a mortgage debt over a period of time in a series of periodic installments. It should be noted that a portion of each payment consists of a blend of interest and amortization of principal. Specifically, this is the payback of the principal portion of the loan owed to the lender. The effect of amortization is to build up the paper value of the owner's equity while reducing the debt obligation.

Annual Debt Service: Yearly amount of principal and interest payments of debt service.

Annual Loan Constant: The ratio of the annual debt payment on a loan to the original amount borrowed. The loan constant is also referred to as a mortgage constant.

Annual Percentage Rate (APR): The actual cost of borrowing money, expressed in the form of an annual interest rate. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points, and other credit costs paid to the lender.

Annuity: A payment of money (usually annually) of a given amount for a given period of time.

Appraisal: An estimate of opinion and value based upon a factual analysis of a property by a qualified professional who preferably possesses an MAI designation.

Appreciation: The increased value of an asset.

Arbitration Clause: A clause in contracts calling for the decision of a third party (arbiter) regarding disputes.

Arm's Length Transaction: A transaction without collusion or duress between the parties involved.

Assignment: A transfer to another of any property, real or personal, of any rights or estates in said property.

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Balloon Payment: A large principal payment that typically becomes due at the conclusion of the loan term. Generally, it reflects a loan amortized over a longer period than that of the term of the loan itself (i.e. payments based on a 25 year amortization with the principal balance due at the end of 5 years).

Basis Points: One-100th of 1 percent. Used primarily to describe changes in yield or price on debt instruments including mortgages and mortgage-backed securities.

Boot: Generally referred to in exchanges. Something given other than the major properties in order to equalize value. Often results in a taxable event for the exchanger.

Bridge Loan: A loan which enables a buyer to purchase a property, then allow for time to rehab and/or increase NOI prior to placement of permanent financing or enables buyer to get financing to make a down payment and pay closing costs before selling the present property. Also called "gap" financing.

Building Classifications: Building classifications in most markets refer to Class "A", "B", "C" and sometimes "D" properties. While the rating assigned to a particular building is very subjective, Class "A" properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking.

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Cancellation Clause: A clause in a contract, setting forth the conditions under which either party may cancel or terminate the agreement.

Capital (Reserves) Expenditure (CAP-X): A major improvement that will have a life of more than one year. Capital expenditures are generally depreciated over their useful life, as distinguished from operational repairs, which are subtracted from income during the year in which they were expended.

Capital Gains: Gains realized from the sale of capital assets. Generally, the difference between the cost and selling price, less certain deductible expenses. Used mainly for income tax purposes.

Capitalization (Capitalization Approach): A method of determining value of real property by considering net operating income divided by a predetermined annual rate of return.

Capitalization Rate: The rate that is considered a reasonable return on investment (on the basis of both the investor's alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. Also called "free and clear return".

Carrying Charges: The costs involved in keeping a property, which is intended to produce income but has not yet done so.

Cash Flow: In investment property, the actual cash the investor will receive after deduction of operating expenses and debt service (loan payment).

Closing Costs: Various fees and expenses payable by the seller and buyer at the time of a real estate closing, (also termed transaction costs). These costs include brokerage commissions, lender fees, title insurance, recording fees, prepayment penalty, inspection and appraisal fees, and attorney's fees.

Commercial Property: Property, which is zoned "commercial" (for business use). Properties such as stores, restaurants, etc. falling between residential and industrial.

Commitment Letter: An official notification from a Lender to a Borrower indicating that the Borrower's loan application has been approved. It will state in detail the terms and conditions of the prospective loan.

Common Area Maintenance (CAM): This is the amount of Additional Rent charged to the tenant, in addition to the Base Rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc.

Condominium Conversion: The changing of rental property (two or more units) to condominium ownership. Physical changes, as well as paperwork, may be necessary to conform to building and safety codes.

Constant: Percentage of the original loan paid in equal annual payments that provides principal reduction and interest payments over the life of the loan.

Construction Loan: A short-term, interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as work progresses. Typically a recourse loan to the borrower.

Consumer Price Index ("CPI"): Measures inflation in relation to the change in the price of a fixed market basket of goods and services purchased by a specified population during a "base" period of time. It is not a true "cost of living" factor and bears little direct relation to actual costs of building operation or the value of real estate. The CPI is commonly used to increase the base rental periodically as a means of protecting the landlord's rental stream against inflation.

Contingency: Commonly, the dependence upon a stated event, which must occur before a contract, is binding.

Conveyance: Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.

Cost Approach: A method of appraising real property whereby the replacement cost of a structure is calculated using current costs of construction.

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Debt Service Coverage Ratio (DSCR): The relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender's viewpoint, the higher the ratio, the better.

Debt Service: The periodic payment (monthly, quarterly, or annually) necessary to pay the interest and principal on a loan, which is being amortized over a longer term (usually 25-30 years).

Deed Of Trust: An instrument used in many states in place of a mortgage by which real property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), to secure repayment of a debt.

Deed: A legal instrument transferring title to real property from the seller to the buyer upon the sale of such property.

Default Ratio: The point at which income producing property fails to carry itself (paying operating expenses and mortgage payments). It is determined as the ratio of occupied units to total units.

Defeasance: In defeasance, the lender replaces the cash flows of the original loan with actual Treasury Securities. The borrower pays the lender enough money to buy these securities and the lender goes out in the bond market and buys the right combination of bonds. After this is done, and the lender has a security interest in the treasuries, the property is released as collateral for the loan and the treasuries become the new loan collateral.

Deferred Maintenance: Repairs necessary to put a property in good condition. A concern of a purchaser. An owner may have an account for such maintenance.

Deferred Payments: Payments to begin at a future time.

Depreciation: Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence.

Discount Rate: The rate of interest charged to banks that buy money from the Federal Reserve System. Also, a compound interest rate used to convert expected future income into a present value income.

Dual Agency: The representation of apposing principals (buyer and seller) at the same time. Typically, a full disclosure must be made.

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Earnest Money: The monetary advance by a buyer of part of the purchase price to indicate the intention and ability of the buyer to carry out the contract.

Economic Feasibility: building or project's feasibility in terms of costs and revenue, with excess revenue establishing the degree of viability.

Economic Rent: The market rental value of a property at a given point in time, even though the actual rent may be different.

Effective Gross Income (EGI): Term used for an income-producing property, derived from the potential gross income, less a vacancy factor and a collection loss amount.

Effective Rent: The actual rental rate to be achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.

Encumbrance: Any right to, or interest in, real property held by someone other than the owner, but which will not prevent the transfer of fee title (i.e. a claim, lien, charge or liability attached to and binding real property).

Equity Participation: The right of a Lender to a share in the gross profits, net profits or net proceeds in the event of a sale or refinance of a property on which the Lender has made a loan. Also known as an "equity kicker."

Equity: The market value of real property, less the amount of existing liens. (3) Any ownership investment (stocks, real estate, etc.) as opposed to investing as a lender (bonds, mortgages, etc.).

Escalation Clause: A clause in a lease which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs, etc. This may be accomplished by several means such as fixed periodic increases or increases tied to the Consumer Price Index.

Escrow Agreement: A written agreement made between the parties to a contract and an escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the monies (or other things of value) to be deposited in escrow, and instructs the escrow agent concerning the disposition of the monies deposited.

Estoppel Certificate: A signed statement certifying that certain statements of fact are correct as of the date of the statement and can be relied upon by a third party, including a prospective lender or purchaser. In the context of a lease, a statement by a tenant identifying that the lease is in effect and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified).

Exclusive Agency Listing: A written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased or sold during the listing period. The broker need not be the procuring cause of the lease.

Execute: To complete; to fulfill a purpose, such as to execute an instrument, meaning to sign and deliver.

Expense Ratio: A comparison of the operating expenses to potential gross income. This ratio can be compared over time and with that of other properties to determine the relative operating efficiency of the property considered.

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Fair Market Value: The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Also known as FMV.

Feasibility Study: A study before a project is started to determine the probable financial success of the project.

Fee Simple: An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

Fiduciary: One acting in a relationship of trust, regarding financial transactions.

Finance Charge: The amount paid for the privilege deferring payment of goods or services purchased, including any charges payable by the purchaser as a condition of the loan.

First Mortgage: The senior mortgage, which, by reason of its position, has priority over all junior encumbrances. The holder of the first or senior mortgage has a priority right to payment in the event of default.

Fixed Expenses: Expenditures such as property taxes, license fees, and property insurance that are not directly affected, by the occupancy of the property. Fixed expenses along with operating expenses are subtracted from effective gross income to determine the net operating income of property.

Forward Commitment: An agreement between a permanent lender and an interim (typically construction) lender wherein the permanent lender issues a conditional commitment that will replace the construction loan once a given set of terms and conditions have been achieved.

Full Disclosure: In real estate revealing all the known facts, which may affect the decision of the buyer or tenant.

Full Recourse: A loan on which an endorser or guarantor is liable in the event of default by the borrower.

Fully Amortized Mortgage (Loan): A loan that is fully repaid at maturity by periodic (monthly) reductions of the principal. The first part of each monthly payment covers interest on the outstanding debt as of the payment due date and the remainder of the payment goes to reduce the outstanding debt.

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Gap Financing: Also known as interim financing.

General Partner: A member of a partnership who has authority to bind the partnership. A general partner also shares in the profits and losses of the partnership.

Grant: To bestow or transfer an interest in real property by deed or other instrument; either the fee or a lesser interest, such as an easement.

Grantee: One to whom a grant is made.

Grantor: The person making the grant.

Gross Income Multiplier: A figure which, when multiplied by the annual gross income, will theoretically determine the market value. A general rule of thumb, which can vary tremendously between specific properties.

Gross Rent Multiplier: The quotient of the sale price divided by the gross rent. Generally expressed as the yearly gross rent in multifamily, commercial, office and industrial property.

Guarantor: One who makes a guaranty.

Guaranty: Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so.

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Hard Cost: The cost of actually constructing the improvements (i.e. construction costs).

Highest and Best Use: The use of land or buildings, which will bring the greatest economic return over a given time, which is physically possible, appropriately supported, financially feasible.

Holdback: Portion of the loan held back by the lender until a contingency is met.

Holding Period: The time period use by the IRS to determine a long or short term capital gain.

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Impound Account: Account held by a lender for payment of taxes, insurance, or other periodic debts against real property.

Income Approach (Income Capitalization Approach): See Capitalization (Capitalization Approach).

Indirect Costs: Development costs, other than material and labor costs which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs.

Inheritance Tax: A tax on the transfer of property from a deceased person; based on the right to acquire the property rather than the property itself.

Installment Contract: A method of purchasing by installment (usually monthly) payments. When referring to real property, it is usually called a land contract.

Internal Rate of Return (IRR): The true annual rate of earnings on an investment. Equates the value of cash invested with cash returns. Considers compound interest.

Investment Bank: A lending institution that is both a direct lender as well as an intermediary.

Investment Property: Generally, any property purchased for the primary purpose of profit. The profit may be from income and/or from resale.

Investment Yield: The gain from an investment in real property, including both income and resale. Expressed as a percentage of the amount invested.

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Joint Tenancy: An undivided interest in property, taken by two or more joint tenants. The interests must be equal, accruing under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgment Lien: An encumbrance that arises by law when a judgment for the recovery of money attaches to the debtor's real estate.

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Lease: An agreement whereby the owner of real property (i.e., landlord/lessor) gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).

Legal Description: A geographical description identifying a parcel of land by government survey, metes and bounds, or lot numbers of a recorded plat including a description of any portion thereof that is subject to an easement or reservation.

Letter Of Intent: A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.

Lien: A claim or encumbrance against property used to secure a debt, charge or the performance of some act. Includes liens acquired by contract or by operation of law. Note that all liens are encumbrances but all encumbrances are not liens.

Like-Kind Property: A term used in an exchange of property held for productive use in a trade or business or for investment. Unless cash is received, the tax consequences of the exchange are postponed pursuant to Section 1031 of the Internal Revenue Code.

Limited Partnership: A type of partnership comprised of one or more general partners who manage the business and who are personally liable for partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running the business and incur no liability over the amount contributed.

Loan Package: The file of all items necessary for the lender to decide to give or not give a loan.

Loan To Value Ratio: The ratio, expressed as a percentage, of the amount of the loan to the value or selling price of real property.

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Margin: In an adjustable rate loan, the difference between the index rate and the interest rate of the loan.

Market Rent: The rental income that a property would command on the open market with a landlord and a tenant ready and willing to consummate a lease in the ordinary course of business; indicated by the rents that landlords were willing to accept and tenants were willing to pay in recent lease transactions for comparable space.

Market Study: A forecast of future demand for a certain type of real estate project that includes an estimate of the square footage that can be absorbed and the rents that can be charged. Also called "Marketability Study".

Market Value: The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale with the buyer and seller each acting prudently and knowledgeably in the ordinary course of trade.

Marketable Title: A title which is free from encumbrances and could be readily marketed (i.e., sold) to a reasonably intelligent purchaser who is well informed of the facts and willing to accept such title while exercising ordinary business prudence.

Mixed-Use: Space within a building or project providing for more than one use (i.e., a loft or apartment project with retail, an apartment building with office space, an office building with retail space).

Mortgage Banker: A company providing mortgage financing with its own funds rather than simply acting as an intermediary between a lender and borrower, as does a mortgage broker.

Mortgage: A written instrument creating an interest in real estate and that provides security for the performance of a duty or the payment of a debt. The borrower (i.e., mortgagor) retains possession and use of the property.

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Negative Cash Flow: When the income from an investment property does not equal expenses and mortgage payments.

Net Operating Income (NOI): The difference between the effective (also called adjusted) gross income of a property, and the operating expenses (not including debt service and book depreciation).

Non-Recourse Loan: A loan, which bars a lender from seeking a deficiency judgment against a borrower in the event of default. The borrower is not personally liable if the value of the collateral for the loan falls below the amount required to repay the loan.

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Operating Expenses: The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlord's definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.

Ordinary Income: A term having meaning only in relation to income tax. The regular graduated scale of tax is paid on income which is called "ordinary", as opposed to capital gains or any other income taxed differently.

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Pass Throughs: Refers to the tenant's pro rata share of operating expenses (i.e. taxes, utilities, repairs) paid in addition to the base rent.

Prepayment Penalty: A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid off before it is due.

Pro Forma: Refers to the presentation of data where certain amounts are hypothetical or subjective. Often seen in Real Estate Income and Expense Statements in regards to analyzing variable data.

Property Management: The branch of the real estate business dealing with the management of property.

Purchase Agreement: An agreement between a buyer and seller of real property, setting forth the price and terms of the sale.

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Quitclaim Deed: A deed operating as a release that is intended to pass any title, interest, or claim that the grantor may have in the property, but not containing any warranty or professing that such title is valid.

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Real Property: Land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing and heating fixtures, or other items which would be personal property if not attached.

Recapture: When the IRS recovers the tax benefit of a deduction or a credit previously taken by a taxpayer, which is often a factor in foreclosure since there is a forgiveness of debt.

Recording: Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or other interested parties.

Recourse: The right of a lender, in the event of a default by the borrower, to recover against the personal assets of a party who is secondarily liable for the debt (e.g. endorser or guarantor).

Rehab: An extensive renovation of a building or project, which is intended to cure obsolescence of such building or project.

Rental Concession: Concessions a landlord may offer a tenant in order to secure their tenancy. While rental abatement is one form of a concession, there are many others such as: increased tenant improvement allowance, signage, lower than market rental rates and moving allowances are only a few of the many.

Rent-Up Period: That period of time, following construction of a new building, when tenants are actively being sought and the project is approaching its stabilized occupancy.

Replacement Cost: The current cost to construct a building having the same utility as the subject building but using modern techniques and material.

Representation Agreement: An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation.

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Sale-Leaseback: An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back and continue to occupy space as a tenant. Although the lease technically follows the sale, both will have been agreed to as part of the same transaction.

Second Mortgage: A mortgage on property that ranks below a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal sequence priority, indicated by the date of recording, determines the designation first, second, third, etc.

Security Deposit: A deposit of money by a tenant to a landlord to secure performance of a lease. This deposit can also take the form of a Letter of Credit or other financial instrument.

Soft Cost: That portion of an equity investment other than the actual cost of the improvements themselves (i.e. architectural and engineering fees, commissions, etc.) and which may be tax-deductible in the first year.

Specific Performance: A requirement compelling one of the parties to perform or carry out the provisions of a contract into which he has entered.

Survey: The process by which a parcel of land is measured and its boundaries and contents ascertained.

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Tax Base: The assessed valuation of all the real property that lies within the jurisdiction of a taxing authority, which is then multiplied by the tax rate or mill levy to determine the amount of tax due.

Title Insurance: A policy issued by a title company after searching the title and which insures against loss resulting from defects of title to a specifically described parcel of real property, or from the enforcement of liens existing against it at the time the title policy is issued.

Title: The means whereby the owner of lands has the just and full possession of real property.

Treasury Notes: Interest bearing federal obligations with a maturity of one to ten years. One of the most common indices used in commercial mortgage lending.

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Under Contract: A property for which the seller has accepted the buyer's offer to purchase is referred to as being "under contract". Generally, the prospective buyer is given a certain period of time in which to perform its due diligence and finalize financing arrangements. During the period of time the property is under contract, the seller is precluded from entertaining offers from other buyers.

Unencumbered: Describes title to property that is free of liens and any other encumbrances. Free and clear.

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Vacancy Factor: The amount of gross revenue that pro forma income statements anticipate will be lost because of vacancies, often expressed as a percentage of the total rentable square footage available in a building or project.

Vacancy Rate: The total amount of available space compared to the total inventory of space and expressed as a percentage. This is calculated by multiplying the vacant space times 100 and then dividing it by the total inventory.

Variance: Refers to permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship. Included would be such things as the particular physical surroundings, shape or topographical condition of the property and when compliance would result in a practical difficulty and would deprive the owner of the reasonable use of the property.

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Warranty Deed: A deed used in many states to convey fee title to real property.

Weighted Average Rental Rates: The mean proportion or medial sum made out of the unequal rental rates in two or more buildings within a market area.

Wood Frame Construction: Buildings in which the walls, roof, and floors are framed with wood, although metal, stucco, or other material may cover the framing. Construction type is often a concern with lenders (especially with older buildings). Wood Frame Construction is typically seen as a positive.

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Zoning: The division of a city or town into zones and the application of regulations having to do with the structural, architectural design and intended use of buildings within such designated zone (i.e. a tenant needing manufacturing space would look for a building located within an area zoned for manufacturing).

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