Common area maintenance
The maximum amount that the tenant pays for its share of common area maintenance costs. The owner pays any CAM expenses exceeding that amount.
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. They are 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. See operating expenses.
Taxable income derived from the sale of a capital asset. It equals the sale price less the costs 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.
Tax on a change in capital value, including capital gains tax, estate tax, or inheritance tax. It is 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 known as cap rate.
A return measure that is calculated as cash flow before taxes divided by the initial equity investment.
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 taxes (CFAT)
For properties, it is the result of several steps (see following formula), 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, tax liability (savings), CFBT, and CFAT.
Net operating income
Amortization of loan points Real estate taxable income Investor’s marginal tax rate Tax liability (savings)
Then Net operating income
Annual debt service cash flow before taxes
Tax liability (savings) cash flow after taxes
Cash flow before taxes (CFBT)
For properties, it is the result of several steps; 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. See cash flow after taxes.
Cash flow model
The framework used to determine the cash flow from operations and the cash proceeds from sale.
Cash proceeds from sale
The sale price less sales costs, mortgage balance, and tax liability on sale. Also known as sale proceeds after tax.
The smallest geographic area for which census data is collected.
Census block group
Agglomerations of census blocks with approximately three or four block groups on average per census tract; block groups are convenient areas for market analysis and are the smallest area for which detailed census information is available to the public.
The largest contiguous geographic areas below the county level for which census data is available; census tracts are agglomerations of census block groups.
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. It explains differences in the locational tendencies and preferences of businesses as they seek to maximize market accessibility, sales, and profits.
A point on a map that typically represents the population center of a defined region. (A centroid also could be used to identify the center point of any criteria of concern, not just population. For example, a centroid might identify the source of regional sales.)
Cash flow after taxes
Cash flow before taxes
An urban settlement or system containing various functions, agents, institutions, and components that 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).
City as a system
A complex and structured urban environment composed of highly diverse, interacting, and interdependent parts and activities aggregated or organized in such a way as to serve a common purpose and/or satisfy the needs and wants of people residing in and dependent upon that system. Also known as urban system.
The useful economic life of an asset defined by the Internal Revenue Service.
Third stage of the 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 stage. See add value, MATCH, and QUALIFY.
Consolidated Metropolitan Statistical Area
Commercial real estate
Any multifamily (residential income), office, industrial, or retail property that can be bought or sold in a real estate market.
Commercial strip property
A strip of commercially zoned land divided into parcels to be developed for retail use. These properties usually have a fairly narrow trade area and offer a variety of products and services.
Areas within a building and its site, such as lobbies, hallways, grounds, and parking lots, that are available for non-exclusive use by all tenants.
Common area maintenance (CAM)
Charges the tenant pays for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers, where tenants are charged for items such as parking lot maintenance, snow removal, and utilities.
Retail property type that typically offers a wider range of apparel and other soft goods than neighborhood centers. Among the more common anchors are supermarkets, super drugstores, and discount department stores. Community center tenants sometimes are 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, or L- or U-shaped. Of the eight shopping center types, community centers encompass the widest range of formats. For example, certain centers anchored by a large discount department store refer to themselves as discount centers. Others with a high percentage of space devoted to discount retailers are termed off-price centers.
The principle that cities or regions tend to produce items or support activities for which they have the greatest advantage over other areas based on the factors of production, demand, supporting industries, and quality-of-life considerations, in relation to human, financial, and physical resources, and opportunity costs—costs expressed in terms of foregone opportunities.
A market condition or setting in which numerous firms compete for a share of the retail market in a given geographic area. The term also denotes rivals or competitors.
Interest computed on the original principal and accumulated interest.
A type of calculation in which interest earned is reinvested and earns additional interest.
Concentric circle theory
A theory that most cities have a clearly visible core that serves as the central business district (CBD) where office buildings, major department stores, and government offices are located. The second area, which surrounds the CBD, represents a zone of transition where some manufacturing takes place and where some low income housing is located. The third area or ring is low-income residential. The outermost ring contains middle and higher-income housing. See axial growth theory.
Confidence range method (95%)
A statistical method of estimating a range of vacancy rates with 95% confidence, using sample mean vacancy rate and corresponding standard deviation, such that the expected vacancy rate for the next time period falls within that range.
Consolidated Metropolitan Statistical Area (CMSA)
A combination of two or more MSAs. See Metropolitan Statistical Area (MSA).
The total monetary rental obligation specified in a lease. See base rent.
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 it.
Cost approach improvement value
The current construction cost to reproduce or replace an existing structure, less the estimate of all accrued depreciation.
Cost of capital
See weighted average cost of capital.
An annual deduction based on the class life of an asset.
According to the Internal Revenue Service Taxpayer Relief Act of 1997, for properties sold after May 6, 1997, a noncorporate 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.
A visual representation of the relationship between the costs of leasing and owning at varying discount rates.
Industrial space that is used as office space in order to lower the rental rate of a property. See flex space.
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 later can be mapped to determine the extent of a trade area.