Glossary of Real Estate Terms

Acquisition and Development Loan (A&D Loan): This is a loan that provides for the purpose and the preparation of raw land for subdivision use. It may also be used in the development of income property land. It usually includes the streets and all utilities. The source of repayment is a construction loan or sale of the property. Baltimore Financial arranges financing on A&D loans.

Apartment Building: A type of property intended for permanent residents who lease a specific space or unit. Payment for use of the space is referred to as rent. 

Assisted Living: Refers to providing the elderly various services that they are no longer able to do independently; for instance, food preparation, cleaning, and personal hygiene. However, care provided in an assisted living facility does not rise to the level of nursing home care, since the elderly using assisted living services are still somewhat independent.

Big Box: A large retail store occupying at least 100,000 square feet of space or more. Big boxes refer to those retailers who use a warehouse or warehouses/ showroom approach to selling of merchandise. Big box retailers include Home Depot, Target, and Wal-Mart. Some retailers who have stores smaller than 100,000 square feet but who utilize the warehouse and warehouse/ showroom concept called small boxes. Small boxes include such companies as: Comp USA, Office Depot, and Staples. 

Bridge Loan: A loan that spans a gap between two other loans. A bridge loan can arise if a builder decides to pay off the higher interest construction loan but not sell the project for few years, when he feels the interest rates will improve. This type of loan is usually outstanding for two to five years and can be prepaid with little or no penalty. Baltimore Financial arranges financing for bridge loans.

Commercial Mortgage Backed Securities (CMBS): Securities sold to investors which are collateralized by commercial mortgages. Mortgages are pooled, securitized and sold to investors. 

Community Shopping Center: A shopping center, usually a strip, housing at least two anchors - typically a supermarket and a discount retailer. Community shopping centers range from 100,000 to 300,000 square feet according to the ICSC. 

Condominium: A system of ownership of individual units in a multiunit structure, combined with joint ownership of commonly used property (sidewalks, hallways, stairs, etc. 

Conduit: An aggregator of commercial mortgage loans. A conduit generally aggregates commercial loans and then arranges for the securitization of those loans and the sale to Wall Street. 

Construction Loan: A Construction loan, is a loan for the purpose of constructing new property or an addition to existing property. A construction loan is a short-term loan, usually less than two years; funded through a series of draws as construction occurs. Construction loans are often interest-only loans with the interest capitalized. The interest rates on these loans are often variable, using such things as an index and a margin over the index. Baltimore Financial arranges financing for construction loans.

Congregate Care: Refers to multifamily housing, living units designed for seniors who pay some congregate services as a part of the monthly fee or rental rate and who require little, if any assistance with activities of daily living.  

Co-op: Where an association (a corporation) owns a housing unit and members rent from the association. Members have the right to rent by virtue of the membership in the association. When members leave the unit, they can sell their membership to outsiders, but the outsider usually must be approved by the association. 

Credit Company: A lending organization whose source of funds is the stock market, the commercial paper market, commercial banks and the bond market. 

Debt/Equity Combination Mortgages: Where the lender requires a share of the equity in a project as well as interest and repayment of principal. Baltimore Financial arranges financing for debt & equity.

Equity: The ownership interest in a commercial property, generally expressed as the difference between the value or cost of a property and the outstanding balance of any indebtedness on the property. 

Fixed Rate Mortgage: A loan with a promissory note that reflects an interest rate that remains constant for the entire term. 

Flex Space: A building providing its occupants the flexibility of utilizing the space. Usually provides a configuration allowing a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse distribution, etc. Typically also provides the flexibility to relocate overhead doors. Generally constructed with little or no common areas, load-bearing floors, loading dock facilities and high ceilings. 

Floating Rate Mortgage: A loan with a promissory note that reflects an interest rate that may be adjusted periodically. For example, the interest rate on certain commercial loans may be tied to a short-term index rate like prime or LIBOR (London Interbank Offered Rate). 

Forward Commitment: A pledge from a lender to provide a loan at a future date, sometimes loans. 

Gap Financing: An interim loan made to provide funding during the time between the end of loans extended during the development stage of a project and the beginning of the permanent mortgage extended to the buyer. Baltimore Financial arranges financing for gap loans.

Hard Money Loan: Also know as Private Money, Hard money loans are considered a non-bankable loan. For a hard money loan, the underwriting decisions are based on the borrower’s hard assets (real estate). Hard money loans typically close relatively quickly. Baltimore Financial arranges financing for hard money loans.

Industrial Property: Property used for industrial purposes, such as factories. 

Institutional Equity: Investment in real property that is provided by institutions such as pension funds, life companies or, corporations. 

Interim Loan: A short term real estate loan of any type, payable generally in two years or less. 

Joint Venture (JV): A financial partner who provides capital for a project and shares in the project’s profits. LC’s and other institutional or private lenders may fund joint ventures in which most of the developer’s costs are covered. Typically a lender would be entitled to a percent of the ownership. Joint Venture lenders often require that their return be a proffered return. 

Land Loan: A loan in which the security for the deal is entitled or unentitled raw land. Baltimore Financial arranges financing for land loans.

Life Company: A life company invests its capital in and provides real estate debt and equity. 

Loan-To-Value ratio (LTV): The amount of debt as compared to the value of the property. A higher loan to value ratio means higher leverage and thus greater risk. The ratio is calculated by dividing the loan amount by the appraised value of the property. Required loan to value ratios vary by property type, guarantees regulation and competition.  

Lock-in: A loan provision providing that the loan cannot be paid off for a specific period of time. 

Mezzanine Loan: A mezzanine loan is a second mortgage loan that is subordinate to a first mortgage on a property. Typically used to maximize leverage on a property and/or to meet a first mortgage lender’s qualification requirements. Baltimore Financial arranges financing for Mezzanine loans.  

Mini-Perm Loan: An intermediate term loan that sometimes bridges the gap between construction and permanent financing to allow occupancy and income to stabilize. The mini-perm may have a two-tiered payment structure including, small interest only for several years and then payment based on some amortization period. A mini-perm is a loan that does not fully amortize and, accordingly, requires a balloon payment upon maturity. The terms for mini-perms are usually from three to seven years. 

Mixed Use: A property that contains more than one type of commercial space. For example, a building with retail, office and apartment space is a mixed-use facility. 

Mortgage: A lien on a borrower's real estate required by a lender to secure its debt to the borrower. 

Mortgage Broker: A company which locates borrowers and lenders and arranges the financing between the two. The mortgage broker takes no risk or loss and doesn’t service the loan. Mortgage brokers can shop lenders much more effectively than borrowers. Brokers are in the market everyday, where developers are in the market a few times during the year. Brokers receive price information from lenders daily as a matter of course. They have a relationship with multiple lenders and are therefore well positioned to find and compare among the lenders offering particular features on the most competitive basis. 

Multi Family Housing: A structure consisting of housing units for a number of different family units. Quite often zoning ordinances require a special zoning classification for multifamily housing. 

Neighborhood Shopping Center: A shopping center, typically a strip, with at least one anchor. Developers normally anchor neighborhood centers with a supermarket and sometimes a pharmacy. Neighborhood centers range in size from 30,000 to 100,000 square feet. 

Net Lease: A lease where the lessee pays certain expenses directly. The most common form is the triple net lease, where the tenant pays operating costs, taxes, and insurance. Triple-net leases are found in situations where the tenant leases all the property. 

Net Operating Income (NOI): Net operating income is effective gross income less direct operating costs but excluding depreciation, amortization, and interest expense. It is synonymous with operating cash flow before debt service. Expenses below NOI are sometimes referred to as “Below the Line” items. 

Non-Recourse: An indebtedness that is secured by specific collateral (the real estate) and one that does not permit the lender access to the borrower's or borrower principal's assets in the event of default. 

Office Building: A structure used primarily for the carrying on of business. 

Planned Unit Development (PUD): A master-planned mixed-use property, which generally includes such things as single family lots, commercial office buildings, retail, church sites, and schools. A homeowner’s association owns common areas of the PUD. Each property owner owns a non-exclusive right to use association’s common areas. 

Participating Mortgage: Many lenders offer this mortgage, which is similar to a traditional fixed rate mortgage, but which includes a kicker for the lender. The kicker is usually a percentage participation in the increases in gross income above the scheduled gross. Most of the borrower’s costs can be covered with these loans. 

Pension Funds (PF’s): 1) Accumulated capital, investments and other assets held by private corporations, unions, society, public agencies, etc., for the present and future payment of retirement benefits to employees; 2)  The organization within each company, union, society, public agency, etc., which is responsible for these monies and for their collection, investments and disbursal. A pension fund invests in and provides real estate debt and equity. 

Real Estate Investment Trust (REIT): A REIT is a special corporate form of entity permitted by the Internal Revenue Code (IRC). In order to qualify as a REIT, the company must meet certain mandated requirements. Generally REIT’s are not taxed as long as they met those mandated requirements. REIT’s provide debt and equity on existing real estate. 

Refinancing: The repaying of a debt with the proceeds from a new loan using the same property as collateral. The reason generally, for refinancing is to get a lower interest rate or to increase the loan amount. 

Specialty Stores: Stores that specialize in selling some specific product as opposed to department stores, which sell a little bit of everything. Johnson & Murphy, the shoe seller, is an example of a specialty shoe seller and Barnes & Noble is an example of a specialty bookstore. 

Standby Commitment: The lender makes a commitment while not expecting to fund unless the project gets into trouble. The terms are sometimes rough. While no actual funding is usually involved, a developer can use a standby commitment to get a construction loan, that otherwise would be unattainable. 

Step-Down Prepayment Penalty (PPP): A step down prepayment penalty is graduated and steps down each subsequent year- for example, 5% in the first year that prepayment is allowed, 4% in the second, etc. It is, accordingly, reversed tiered. 

Strip: A neighborhood or community shopping center built on a strip of land (hence the name). Developers generally anchor neighborhood centers with a supermarket and community shopping centers with a supermarket and one or more discount retailers.  

Subdivision: A parcel of land that has been divided into two or more smaller lots. An example would include a 500-acre tract that has been platted and made ready for the building of homes. The subdivision has been recorded in the land records of the county where the land is located and is available for individuals to purchase the lots and or builders to purchase the lots and in turn construct houses on the lots. 

Super-Regional Centers:  Large shopping centers that offer a variety of shopping alternatives. A super-regional may include several anchor department stores and a variety of specialty stores. Developers may construct super-regional centers as enclosed malls, open-air malls or large strips with a number of buildings and out-parcels.  

Yield Maintenance Provision:  A form of prepayment found in commercial mortgage loans. A Yield Maintenance Provision in most cases requires that the mortgagor pay the mortgagee, an equal amount equal to the discounted differences between a specified risk-free borrowing rate and the note rate. 

Warehouse: A building used to receive and store goods and merchandise. In terms of classifying such property, warehouses are normally located in an area zoned for either commercial or industrial property. 

Wraparound: A mortgage in which the lender assumes the first mortgage. The debtor makes one mortgage payment to the wrap around lender who, in turn, sends the proper portion to the first mortgagee. The wrap lender usually receives a portion of his yield from the amortization of the first mortgage.