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Absorption Rate
Absorption RateWhat is the Absorption Rate? The Absorption Rate is a measure of supply and demand in the commercial real estate market, most often segmented on a per-sector basis. In short, the absorption rate is th...
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Adjusted Funds from Operations (AFFO)
Adjusted Funds from Operations (AFFO)What is AFFO? Adjusted Funds from Operations (AFFO) measures the financial performance of real estate investment trusts (REITs), particularly in their capacity to support the issuance of dividends to...
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AFFO Yield
AFFO YieldWhat is AFFO Yield? The AFFO Yield is the ratio between the AFFO per share of a REIT and its current market price, expressed as a percentage.
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After Tax Cash Flow (ATCF)
After Tax Cash Flow (ATCF)What is After Tax Cash Flow? The After Tax Cash Flow is the residual income generated by a real estate property investment once tax obligations have been fulfilled.
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After-Repair Value (ARV)
After-Repair Value (ARV)What is After-Repair Value? The After-Repair Value (ARV) of a commercial rental property is the market value of the property upon completing repairs, renovations, and related improvements.
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Average Daily Rate (ADR)
Average Daily Rate (ADR)What is the Average Daily Rate? The Average Daily Rate (ADR) measures the average revenue generated per occupied room or rental unit, expressed on a per-day basis.
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Before-Tax Cash Flow (BTCF)
Before-Tax Cash Flow (BTCF)What is Before-Tax Cash Flow? The Before-Tax Cash Flow (BTCF) is the rental income generated by a property prior to the deduction of income taxes.
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Breakeven Occupancy Ratio
Breakeven Occupancy RatioWhat is Breakeven Occupancy? The Breakeven Occupancy Ratio is the minimum occupancy rate threshold of a property to ensure its operating expenses and debt service obligations are met, expressed as a p...
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Bridge Loan
Bridge LoanWhat is Bridge Loan? A Bridge Loan is a source of short-term financing until the borrower secures long-term financing or removes an existing credit facility altogether. The short term bridge loan is b...
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Bullet Loan
Bullet LoanWhat is a Bullet Loan? For a Bullet Loan, the entire principal of the debt obligation is repaid in a single, “lump sum” payment on the date of maturity.
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Cap Rate Compression
Cap Rate CompressionWhat is Cap Rate Compression? Cap Rate Compression occurs if the cap rates of properties in a particular real estate market decline relative to historical levels. The downward pressure placed on the c...
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Cap Rate Expansion
Cap Rate ExpansionWhat is Cap Rate Expansion? Cap Rate Expansion refers to the scenario in which the capitalization rate of real estate assets such as properties collectively rise.
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Cap Rate Primer
Cap Rate PrimerWhat is Cap Rate? Cap Rate—short for Capitalization Rate—is a measure of the expected rate of return on a real estate investment, such as a commercial rental property. In simple terms, the cap rate co...
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Cap Rate Spread
Cap Rate SpreadWhat is Cap Rate Spread? The Cap Rate Spread is the delta between the 10-year Treasury note yield and cap rates in the broader real estate market.
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Cap Rate vs. Cash on Cash Return
Cap Rate vs. Cash on Cash ReturnCap Rate vs. Cash on Cash Return: What is the Difference? The Cap Rate and Cash-on-Cash Return are two common return metrics in commercial real estate (CRE) used to measure the viability of a rental p...
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Cap Rates and Interest Rates
Cap Rates and Interest RatesWhat are Cap Rates and Interest Rates? Cap Rates and Interest Rates in the commercial real estate (CRE) market are two highly correlated variables in historical periods. Comprehending the relationship...
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Capital Stack
Capital StackWhat is Capital Stack? The Capital Stack is the structure of financing sources used to fund a real estate investment, such as a commercial property acquisition or development project.
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Cash Available for Distribution (CAD)
Cash Available for Distribution (CAD)What is Cash Available for Distribution (CAD)? Cash Available for Distribution (CAD) quantifies the cash on hand that a real estate investment trust (REIT) can distribute in the form of dividends to s...
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Cash on Cash Return
Cash on Cash ReturnWhat is Cash on Cash Return? The Cash on Cash Return, or “Cash Yield,” compares a real estate investment property’s annual pre-tax cash flow to the initial equity investment.
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Combined Loan to Value (CLTV)
Combined Loan to Value (CLTV)What is Combined Loan to Value (CLTV)? The Combined Loan to Value (CLTV) is an underwriting ratio that measures risk by comparing the total secured loan balance on a property (i.e. liens) to its appra...
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Commercial Mortgage-Backed Securities (CMBS)
Commercial Mortgage-Backed Securities (CMBS)What is CMBS Loan? Commercial Mortgage-Backed Securities (CMBS) are a structured finance product, whereby a collateralized loan is secured by income-generating commercial mortgages. In the commercial...
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Commercial Real Estate Interview (CRE)
Commercial Real Estate Interview (CRE)Commercial Real Estate Interview Questions (CRE) We’ve put together the most frequently asked commercial real estate (CRE) interview questions in the following post to help candidates prepare fo...
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Common Area Maintenance (CAM)
Common Area Maintenance (CAM)What is Common Area Maintenance? Common Area Maintenance (CAM) refers to the fees incurred by tenants on top of their base rent that are used to cover routine charges to maintain the shared spaces of...
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Cost Approach
Cost ApproachWhat is Cost Approach? The Cost Approach is a real estate appraisal method that estimates a property’s valuation based on the cost to replace or reconstruct the property, minus accumulated depre...
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Debt Service
Debt ServiceWhat is Debt Service? Debt Service is the total principal and interest payment owed on a financial obligation, such as a commercial mortgage loan, expressed on an annual basis.
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Debt Service Coverage Ratio (DSCR)
Debt Service Coverage Ratio (DSCR)What is DSCR? The Debt Service Coverage Ratio (DSCR) measures if the income generated by a commercial property is sufficient to fulfill its annual debt burden. The debt service coverage ratio (DSCR) i...
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Debt to Income Ratio (DTI)
Debt to Income Ratio (DTI)What is Debt to Income Ratio? The Debt to Income Ratio (DTI) measures the creditworthiness of a consumer by comparing their total monthly debt payment obligations to their gross monthly income.
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Debt Yield (DY)
Debt Yield (DY)What is Debt Yield? The Debt Yield measures the riskiness of a real estate loan by estimating the return earned by the lender to recoup the original investment in the event of property foreclosure (i....
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Development Spread
Development SpreadWhat is Development Spread? The Development Spread is the difference between a real estate development project’s yield on cost and the market cap rate, expressed as a percentage.
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Development Yield
Development YieldWhat is Development Yield? The Development Yield represents the potential return earned on a development property investment, expressed as a percentage.
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Direct Capitalization
Direct CapitalizationWhat is Direct Capitalization? Direct Capitalization is a real estate appraisal method that converts a property’s stabilized net operating income (NOI) into an estimated valuation.
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Economic Vacancy
Economic VacancyWhat is Economic Vacancy? Economic Vacancy is the difference between the gross potential rent (GPR) of a property and the actual rental income it generates, expressed as a percentage.
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Effective Gross Income (EGI)
Effective Gross Income (EGI)What is Effective Gross Income? The Effective Gross Income (EGI) is defined as the total potential revenue generated by a real estate rental property investment, net of any vacancy and credit losses.
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Equity Dividend Rate (EDR)
Equity Dividend Rate (EDR)What is Equity Dividend Rate? The Equity Dividend Rate (EDR) on a real estate property investment irepresents the ratio between the before-tax cash flows (BTCF) and the initial equity contribution, ex...
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Equity Multiple
Equity MultipleWhat is Equity Multiple? The Equity Multiple is the ratio between the total cash distribution collected from a property investment and the initial equity contribution. Formulaically, the equity multip...
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Exit Cap Rate
Exit Cap RateWhat is Exit Cap Rate? The Exit Cap Rate is the anticipated rate of return on an investment property at the end of the hold period, which is used to forecast the implied terminal value of the property...
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Fair Market Value (FMV)
Fair Market Value (FMV)What is Fair Market Value? The Fair Market Value (FMV) refers to the current price that interested buyers in the open market are willing to pay to purchase a certain asset, such as property.
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Fixed-Rate Mortgage
Fixed-Rate MortgageWhat is a Fixed-Rate Mortgage? A Fixed-Rate Mortgage is a loan wherein the interest rate pricing remains constant across the entire term of the borrowing.
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Floor Area Ratio (FAR)
Floor Area Ratio (FAR)What is the Floor Area Ratio? The Floor Area Ratio (FAR) is the size of a building in proportion to the land on which the property is located. In commercial real estate (CRE) development, the floor ar...
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Forward NOI
Forward NOIWhat is Forward NOI? The Forward NOI is a pro forma projection of a rental property’s net operating income (NOI) using various operating drivers, such as occupancy and vacancy rates.
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Funds Available for Distribution (FAD)
Funds Available for Distribution (FAD)What is Funds Available for Distribution? Funds Available for Distribution (FAD) estimates the capacity of a REIT to generate sufficient cash to distribute dividends to its shareholders, or unit holde...
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Funds from Operations (FFO)
Funds from Operations (FFO)What is FFO? Funds from Operations (FFO) measures the operating performance of real estate investment trusts (REITs) and their capacity to generate cash.
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Going-In Cap Rate
Going-In Cap RateWhat is Going-In Cap Rate? The Going-In Cap Rate in real estate is the ratio between a property’s stabilized net operating income (NOI) and the project cost, expressed as a percentage.
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Gross Income Multiplier (GIM)
Gross Income Multiplier (GIM)What is Gross Income Multiplier? The Gross Income Multiplier (GIM) is a real estate metric that compares the sale price of a property to its annual income.
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Gross Operating Income (GOI)
Gross Operating Income (GOI)What is Gross Operating Income? Gross Operating Income (GOI) in real estate is the total income generated by a property after deducting vacancy and credit losses.
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Gross Potential Rent (GPR)
Gross Potential Rent (GPR)What is Gross Potential Rent? The Gross Potential Rent (GPR) measures the maximum rental income that a real estate investment property could generate. Conceptually, the gross potential rent (GPR) sets...
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Gross Rent Multiplier (GRM)
Gross Rent Multiplier (GRM)What is Gross Rent Multiplier? The Gross Rent Multiplier (GRM) compares a property’s fair market value to its expected gross annual rental income. Conceptually, the GRM is the ratio between a real est...
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Gross Rental Yield
Gross Rental YieldWhat is Gross Rental Yield? The Gross Rental Yield measures the profit potential and return on a property investment before adjusting for operating expenses.
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Home Equity Line of Credit (HELOC)
Home Equity Line of Credit (HELOC)What is a HELOC? A Home Equity Line of Credit (HELOC) is a secured loan, where the borrowing capacity is set based on a percentage of the borrower’s home equity. The lender provides the borrower of th...
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Income Approach
Income ApproachWhat is Income Approach? The Income Approach is a valuation method used by real estate appraisers to estimate the fair market value of a property based on the income it can generate. Under the income...
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Leasehold Improvements (LI)
Leasehold Improvements (LI)What are Lease Improvements? Leasehold Improvements are expenditures that relate to the improvement of a leased property, which are amortized over either the lease term or the estimated useful life.
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Leasehold Interest
Leasehold InterestWhat is a Leasehold Interest? Leasehold Interest is defined as the right of a tenant to use or claim a real estate asset, such as property or land, for a pre-determined leasing period.
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Lessor vs. Lessee
Lessor vs. LesseeWhat is Lessor vs. Lessee? The Lessor vs. Lessee difference is that the lessor lends an asset, such as equipment or property, to the lessee in exchange for periodic interest payments throughout the bo...
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Levered IRR
Levered IRRWhat is Levered IRR? Levered IRR analyzes the expected rate of return on an annualized basis for investments where leverage is part of the transaction structure.
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Loan Amortization Schedule
Loan Amortization ScheduleWhat is Amortization Schedule? The Loan Amortization Schedule outlines the interest expense obligation and principal payments owed on a loan, such as a mortgage, including the outstanding balance of t...
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Loan Sizing
Loan SizingWhat is Loan Sizing? Loan Sizing is the underwriting process by which commercial real estate lenders estimate the appropriate amount of financing to offer to a particular borrower.
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Loan to Cost Ratio (LTC)
Loan to Cost Ratio (LTC)What is Loan to Cost Ratio? Loan to Cost (LTC) is the ratio between the total size of a loan and the total development cost of a real estate project, expressed as a percentage. In practice, the LTC ra...
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Loan to Purchase Price (LTPP)
Loan to Purchase Price (LTPP)What is Loan to Purchase Price? Loan to Purchase Price (LTPP) is a real estate underwriting ratio that compares the size of a requested loan and the property purchase price.
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Loan to Value Ratio (LTV)
Loan to Value Ratio (LTV)What is Loan to Value Ratio? The Loan to Value Ratio (LTV) is a credit risk metric that compares the size of a mortgage loan to the appraised value of a property as of the present date. Simply put, th...
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Loss to Lease (LTL)
Loss to Lease (LTL)What is Loss to Lease? Loss to Lease (LTL) is a multi-family real estate metric that quantifies the loss in potential revenues attributable to a difference between a property’s market rental rate and...
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Mortgage Constant
Mortgage ConstantWhat is Mortgage Constant? The Mortgage Constant measures the annual debt service on a fixed-rate loan relative to the total principal amount, expressed as a percentage. The mortgage constant, or “loa...
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Negative Leverage
Negative LeverageWhat is Negative Leverage? Negative Leverage in commercial real estate (CRE) refers to the situation where the unlevered cash-on-cash return exceeds the levered cash-on-cash return. The cash-on-cash r...
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Net Absorption
Net AbsorptionWhat is Net Absorption? Net Absorption measures the supply and demand in the commercial real estate market by tracking the change in tenant demand relative to the supply available in the market.
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Net Asset Value (NAV)
Net Asset Value (NAV)What is Net Asset Value? Net Asset Value (NAV) estimates the market value of an investment fund, namely mutual funds, and is equal to the total value of assets held minus the total liabilities.
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Net Effective Rent
Net Effective RentWhat is Net Effective Rent? The Net Effective Rent is the actual rental cost paid by a renter, factoring in deductions related to concessions and promotions.
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Net Income Multiplier (NIM)
Net Income Multiplier (NIM)What is Net Income Multiplier? The Net Income Multiplier (NIM) is a real estate investing metric that compares the purchase price of a property to its annual net operating income (NOI).
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Net Operating Income (NOI)
Net Operating Income (NOI)What is Net Operating Income? The Net Operating Income (NOI) is a real estate metric that measures the profitability of income-generating rental properties. Often abbreviated as “NOI” for...
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NOI Margin
NOI MarginWhat is NOI Margin? The NOI Margin is a profitability ratio that compares a real estate property’s net operating income (NOI) to its revenue, expressed as a percentage.
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NOI vs. EBITDA
NOI vs. EBITDAWhat’s the Difference Between NOI vs. EBITDA? NOI and EBITDA are two similar measures of profitability in real estate with some key differences.
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NOI Yield
NOI YieldWhat is NOI Yield? The NOI Yield is the net operating income (NOI) of a property divided by the purchase price of said property, expressed as a percentage.
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Occupancy Cost Percentage
Occupancy Cost PercentageWhat is Occupancy Cost Percentage? The Occupancy Cost Percentage is the ratio between the total occupancy cost incurred by a tenant and the gross sales generated at the property.
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Occupancy Rate
Occupancy RateWhat is Occupancy Rate? The Occupancy Rate is the percentage of occupied rental units relative to the total number of units available for rent in a rental property. The occupancy rate formula comprise...
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Operating Expense Ratio (OER)
Operating Expense Ratio (OER)What is Operating Expense Ratio? The Operating Expense Ratio (OER) measures the proportion of a real estate investment property’s gross income that is allocated towards operating expenses.
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P/FFO Multiple
P/FFO MultipleWhat is P/FFO? The P/FFO Multiple is a REIT valuation ratio that compares the market price of a REIT and its funds from operations (FFO).
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Percentage Lease
Percentage LeaseWhat is a Percentage Lease? A Percentage Lease is a leasing arrangement whereby the tenant must pay the agreed-upon base rent plus a set percentage of its gross sales. A percentage lease agreement in...
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Physical Occupancy
Physical OccupancyWhat is Physical Occupancy? Physical Occupancy measures the number of vacant units in a real estate property, relative to the total number of units in the rental property, expressed as a percentage.
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Positive Leverage
Positive LeverageWhat is Positive Leverage? Positive Leverage in real estate refers to the occurrence where the return on an equity investment exceeds the cost of debt attributable to financing the property purchase....
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Potential Gross Income (PGI)
Potential Gross Income (PGI)What is Potential Gross Income? Potential Gross Income (PGI) represents the hypothetical total earnings that could be realized on a real estate rental property, assuming a full occupancy rate and on-t...
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Price Per Square Foot (PPSF)
Price Per Square Foot (PPSF)What is Price Per Square Foot? The Price Per Square Foot (PPSF) is the ratio between the market value of a real estate property and its corresponding total square footage. Since the price per square f...
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Price-to-Rent Ratio
Price-to-Rent RatioWhat is Price-to-Rent Ratio? The Price-to-Rent Ratio compares the purchase price of a property to its rental income to estimate the potential return on a rental investment.
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Proof of Funds (POF)
Proof of Funds (POF)What is Proof of Funds? Proof of Funds (POF) refers to documentation – typically in the form of a letter – confirming that a buyer has sufficient funds to complete the transaction.
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Property Value
Property ValueWhat is Property Value? The Property Value is the estimated fair market value (FMV) of a real estate property, such as a commercial office building, as of the present date.
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Real Assets vs. Financial Assets
Real Assets vs. Financial AssetsWhat are Real Assets? Real Assets are tangible resources, namely real estate, infrastructure, and commodities, with an intrinsic value tied to their utility, i.e. ability to produce goods or services.
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Real Estate Interview Questions
Real Estate Interview QuestionsTop 25 Real Estate Interview Questions (and Answers) Our Real Estate Interview Guide is a compilation of the most commonly asked technical interview questions to prepare candidates recruiting for comp...
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Real Estate Investment Firms
Real Estate Investment FirmsWhat are Real Estate Investment Firms? If you’ve ever purchased a single-family home, you are likely already familiar with the parties involved in real estate: You have the seller (usually just...
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Real Estate Investment Payback Period
Real Estate Investment Payback PeriodWhat is Real Estate Investment Payback Period? The Real Estate Investment Payback Period is the time required on an investment to generate enough money to recoup the original cost.
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Real Estate Investment Trust (REIT)
Real Estate Investment Trust (REIT)What is a REIT? A Real Estate Investment Trust (REIT) is a company that owns a portfolio of properties across a range of sectors such as offices, retail, apartments, hospitals, and hotels. REITs activ...
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Real Estate Multifamily Acquisition Financial Model
Real Estate Multifamily Acquisition Financial ModelReal Estate Multifamily Acquisition Model Introduction In this article, we will walk you through a back-of-the-envelope (“BoE”) Multifamily Acquisition Model that introduces some of the co...
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Real Estate Private Equity (REPE)
Real Estate Private Equity (REPE)What is Real Estate Private Equity? Real Estate Private Equity (REPE) refers to firms that raise capital to acquire, develop, operate, improve, and sell buildings in order to generate returns for thei...
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Real Estate Waterfall
Real Estate WaterfallWhat is a Real Estate Waterfall? A Real Estate Waterfall is a tier-based model for measuring the proper distribution of proceeds between a general partner (GP) and its limited partners (LPs). The peck...
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REIT Valuation Methods
REIT Valuation MethodsREIT Valuation Methods REIT Valuation is commonly performed by analysts using the following 4 approaches: Net asset value (“NAV”) Discounted cash flow (“DCF”) Dividend discount model (“DDM”) Multiples...
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Rentable Square Footage (RSF)
Rentable Square Footage (RSF)What is Rentable Square Footage? Rentable Square Footage (RSF) refers to the usable square footage (USF) of a property plus the pro rata share attributable to a particular tenant for access to a commo...
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Rental Yield
Rental YieldWhat is Rental Yield? The Rental Yield is a real estate metric that compares the rental income generated by a property to its fair market value, expressed as a percentage.
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REPE Book Recommendations
REPE Book RecommendationsWhat are the Best Real Estate Books? As a real estate private equity professional, I have certain "must-read" books on my bookshelf. Below is a list of those books, broken down by book types. Disclaim...
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Replacement Reserves
Replacement ReservesWhat are Replacement Reserves? Replacement Reserves refer to the funds placed aside in anticipation of incurring capital expenditures (Capex) for the repair work or replacement of a property’s s...
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Return on Cost (ROC)
Return on Cost (ROC)What is Return on Cost? The Return on Cost (ROC) is the expected annual yield on a real estate value-add or development project once the underlying property investment is at stabilization.
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RevPAR
RevPARWhat is RevPAR? RevPAR, or “revenue per available room”, measures the revenue each room available for occupancy in a hotel generates over a specified period of time.
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Sale Leaseback
Sale LeasebackWhat is a Sale Leaseback? A Sale Leaseback is a transaction where the owner sells a property to a buyer, but soon afterward signs a new lease with the new owner.
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Seller Financing
Seller FinancingWhat is Seller Financing? Seller Financing, or a “seller note”, is a method for buyers to fund the acquisition of a business by negotiating with the seller to arrange a form of financing.
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Stabilized NOI
Stabilized NOIWhat is Stabilized NOI? The Stabilized NOI is the anticipated pro forma net operating income (NOI) of a property upon reaching a state of normalization.
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Tenant Improvement (TI)
Tenant Improvement (TI)What is Tenant Improvement? A Tenant Improvement (TI) is a structural modification made to a property to better meet the custom preferences of a particular tenant.
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Tenant Turnover Rate
Tenant Turnover RateWhat is Tenant Turnover? The Tenant Turnover Rate represents the percentage of existing occupants at a given property that decide to vacate their unit at the end of their lease term.
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Terminal Cap Rate
Terminal Cap RateWhat is Terminal Cap Rate? The Terminal Cap Rate is a real estate yield metric relied upon to estimate the anticipated sale price of a given property. Conceptually, the terminal cap reflects the rate...
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Vacancy Loss
Vacancy LossWhat is Vacancy Loss? Vacancy Loss refers to the rental income lost by a property owner from unoccupied space, i.e. vacant units with no tenants.
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Vacancy Rate
Vacancy RateWhat is Vacancy Rate? The Vacancy Rate refers to the percentage of unoccupied units relative to the total number of rental units available at a property over a specified period. An unoccupied unit doe...
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Yield on Cost (YoC)
Yield on Cost (YoC)What is Yield on Cost? The Yield on Cost (YoC) represents a real estate property’s stabilized net operating income (NOI) divided by its total cost, expressed as a percentage. Conceptually, the yield o...