CRE Lingo: 10 Need-to-Know Terms

Commercial real estate (CRE) lingo can be overwhelming for all but the most seasoned brokers. Hundreds (literally) of terms and acronyms make up this intimidating bowl of alphabet soup also known as the CRE dictionary. Fortunately, we narrowed down a comprehensive list of need-to-know terms that will make you and your CRE colleagues sound like you actually know what you’re talking about during your next meeting.

• 1.Absolute Triple Net Lease
  A net lease under which the lessee assumes all expenses for operating a property, including: fixed and variable expenses, taxes, insurance, and maintenance (including roof and structure).
• 2.Common Area Maintenance (CAM)
  This is the amount of additional rent that is charged to the tenant to maintain the common areas of the property shared by the tenants. Typical examples involve work such as landscaping, snow removal, exterior lighting, as well as insurance and property tax. In most cases, this does not include capital improvements made to the property.
• 3.Pass-Throughs
  Refers to the tenant’s pro rata share of operating expenses (taxes, utilities, repairs) which are paid in addition to the base rent. These are expenses incurred by the landlord, however the tenant is proportionately responsible due to measure, interest, or liability.
• 4.1031 Exchange
  Broadly stated, a 1031 exchange is a swap of one business or investment asset for another. While most swaps are taxable as sales, a 1031 exchange will either have no tax or limited tax due at the time of the exchange.
• 5.Usable vs Rentable Square Feet
  Usable square footage is the amount of space rented and used exclusively by the tenant, with no exclusions for entry/exit doors or structural columns. Rentable square footage is the area of the enclosed interior space of the building other than holes in the floor, such as stairwells, and elevator and mechanical duct space.
• 6.Letter of Intent
  This is an informal and preliminary agreement between the tenant and the landlord indicating intent to move forward with negotiations. The primary utility of a LOI is to set binding ground rules for a negotiation. A secondary use is to raise issues or allude to special circumstances in a nonbinding fashion to provide context to the interest of the parties.
• 7.Escalation Clause
  A clause in a lease which allows the landlord to raise the rental rate in the future to reflect changes in expenses paid by the landlord, such as real estate taxes, operating costs, etc. This can take three forms: fixed periodic increases, adjustments based on the Consumer Price Index (cost of living increases), and an increase tied to increased operating costs of the property.
• 8.Net Operating Income (NOI)
  The amount of annual income generated from an income-producing property after taking into account all income collected from operations. NOI equals all revenue from the property minus all reasonably necessary operating expenses.
• 9.Efficiency Factor
  This number represents the total percentage of net rentable square feet devoted to the buildings common areas (lobbies, restrooms, corridors, etc). This factor can be computed for an entire building or just a single floor of a building. Also known as a core factor, it is calculated by dividing the rentable square footage by the usable square footage.
• 10.Full Service Gross Lease
  In a gross lease, the rent is all inclusive. The landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out of the rent received from the tenant. The tenant is still responsible for paying their own property insurance and taxes.