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A 1031 exchange, also known as a like-kind exchange or a tax-deferred exchange, refers to a provision in the United States Internal Revenue Code (Section 1031) that allows individuals or businesses to defer the recognition of capital gains tax on the exchange of certain types of property.

The 1031 exchange allows taxpayers to defer the capital gains tax liability that would typically arise from the sale of the property. By reinvesting the proceeds into a similar property, the taxpayer can continue to defer the tax until a future taxable event occurs, such as selling the replacement property without reinvesting the proceeds in another like-kind property.

3rd Party Reports

Third-party reports are independent assessments or evaluations conducted by external entities on various aspects of a property. They are essential for mortgage lenders to assess the risks and value before finalizing a loan. They provide an independent and expert opinion, helping lenders mitigate potential issues and make informed lending decisions.

Common types of third-party reports include property appraisals, environmental assessments, and engineering reports.


AAA Tenant

The term “AAA tenant” is typically used in commercial real estate to describe a tenant with a very strong credit rating, indicating they are a low-risk and reliable lessee.


Absorption refers to how quickly available properties are leased or sold. It measures the demand and health of the market. High absorption means properties are being leased or sold fast, indicating a strong market. Low absorption suggests slower demand and potential oversupply. Mortgage lenders use absorption rates to assess the risk of financing real estate projects. Higher absorption means lower risk for lenders, indicating a stronger market and better chances of loan repayment.


In real estate, absorption refers to the amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market. It is typically reported as the absorption rate. Used as a method for determining the feasibility of new construction in an area.

Accounts Payable

Accounts Payable in the context of real estate refers to the financial obligations a company has to pay its creditors for services or goods received, particularly related to the maintenance and operation of property assets. This could include expenses such as utility bills, property management fees, or maintenance services.

Accounts Receivable

In terms of real estate, Accounts Receivable refers to the money that is owed to a company by its customers or tenants for goods or services provided or for the use of property. It represents the income that the company expects to receive within a certain period, usually within one fiscal year.

Accrued Interest

Accrued interest is the interest that builds up on a loan or investment but hasn’t been paid yet. Lenders earn income from accrued interest, and borrowers need to consider it when calculating their total owed amount.

Accrued Interest

Accrued interest in real estate typically refers to the interest that accumulates on a mortgage loan between the payment periods. It’s the amount of interest that is recognized by the lender but has not yet been paid by the borrower.


An industry-accepted document summarizing key information about an insurance policy. Lenders typically require Property coverage to be shown on an ACORD 28 form, and liability coverage to be shown on an ACORD 25.

Add Value

Adding value means taking action to make the property or loan more valuable. By adding value, both lenders and borrowers benefit from a better property or loan, leading to increased profitability and satisfaction.

Agency Lender

An agency lender is a financial intermediary that connects borrowers and investors. They offer competitive loan terms, follow government guidelines, and package loans into securities for sale which provides stable financing options and promotes the flow of capital in the market.

AM Best Rating

A rating assigned to insurance carriers based on their financial strength. Lenders require that the carrier providing property and/or liability insurance have a minimum rating (typically at least A-/XV) as determined by AM Best.


The process of gradually reducing or paying off a debt or loan through scheduled, periodic payments over a specified period of time. It involves the systematic repayment of both the principal amount borrowed and the accrued interest charges.

It’s important to note that the specific terms and conditions of an amortizing loan, including interest rates, payment frequency, and any prepayment penalties, are outlined in the loan agreement. Borrowers should review these terms carefully and consult with lenders or financial professionals to fully understand the implications of the amortization process.

Amortization Schedule

An amortization schedule is a plan that outlines how you will pay off a loan. It shows how much you need to pay each month and how much of that payment goes towards reducing the loan balance (principal) and how much goes toward interest. As you make payments, the amount going toward the principal increases, while the interest portion decreases. This schedule helps you understand how your loan gets paid off over time, how much interest you’ll pay, and the remaining balance owed at any given point of the loan term.

Assessed Value

Assessed Value is the estimated worth of a property for tax purposes. It’s determined by government assessors based on factors like location, physical attributes, and comparable sales. Mortgage lenders may consider the assessed value to evaluate a property’s worth for lending, but it’s different from the market value, which is the actual price in a sale.


Balloon Payment

A balloon payment is a large payment that is due at the end of a loan term. It’s called a “balloon” because it’s bigger than the regular payments made during the loan. In this type of financing, borrowers pay smaller amounts during the loan term but have to pay a large lump sum at the end. This can be risky because borrowers need to have a plan to handle the big payment when it’s due, either by paying it off or getting a new loan.

Base Rent

Base rent is the basic amount of money a tenant pays to lease commercial real estate. It’s the minimum fixed rent before any additional charges. Mortgage lenders consider base rent when assessing the property’s value and the borrower’s ability to repay the loan. It’s important because it determines the property’s income and the tenant’s ability to generate enough money for mortgage payments.

Basis Point

A basis point (often abbreviated as “bps” and referred to as “bips”) is a financial unit of measurement used to describe the interest rate of a loan. One basis point is equal to one-hundredth of one percent or 0.01%.

410 basis points = 4.10% rate. If an interest rate increases by 25 basis points, it means the rate has increased by 0.25%.

Bridge Lender

A bridge lender provides short-term financing to fill the gap between buying or refinancing a property and securing long-term financing. Bridge lenders consider the borrower’s creditworthiness, property value, and repayment plans. They offer fast financing with flexible criteria.

Bridge Loan

A bridge loan is a short-term loan that helps people buy a new property before selling their current one. Mortgage lenders offer this type of loan, which is based on the value of the existing property and the potential value of the new one. It provides immediate funds and is secured by the borrower’s real estate assets. Bridge loans have higher interest rates and fees and last for a few months to a year. They are used to quickly secure a property and are repaid once the borrower sells their current property or obtains long-term financing.

Business Income/Loss of Rents

Insurance coverage required by lenders to compensate for the reduction in cash flow/rental income following an insurance loss. Typically, 12-24 months ALS (Actual Loss Sustained) coverage required by lenders.


CAP Rate

The capitalization rate, commonly referred to as the CAP rate, is a key metric used to assess the potential return on investment for an income-producing property. It provides a measure of the property’s net operating income (NOI) relative to its purchase price or value.
The CAP rate is expressed as a percentage and is calculated by dividing the property’s net operating income by its current market value or purchase price.

The formula for calculating the CAP rate is as follows:

CAP Rate = Net Operating Income / Property Value

Cash Flow

Cash flow is the net amount of money generated by a property after deducting all expenses and mortgage payments. It provides an indication of the property’s profitability and ability to generate a steady income stream. Positive cash flow means the property is generating more money than it costs to operate and finance, making it an attractive investment. Negative cash flow indicates that the property expenses and mortgage payments exceed the income it generates, which can be a cause for concern for mortgage lenders.

Cash-on-Cash Return

Cash-on-Cash Return is a way to measure the profitability of a commercial real estate investment. It focuses on the return generated from the cash invested in the property. To calculate it, you divide the property’s net operating income by the total cash invested which gives you a percentage that represents the annual return on the cash invested.

A higher Cash-on-Cash Return means a better investment opportunity, indicating a higher return relative to the cash invested. Lenders use this metric to assess the borrower’s financial situation and determine if the investment can generate enough cash flow to cover the mortgage payments and provide a satisfactory return.


A Commercial Mortgage-Backed Security (CMBS) is a type of fixed-income security backed by a bundle of commercial real estate loans. Unlike residential mortgage-backed securities (RMBS), which are backed by residential mortgages, CMBS specifically involve commercial properties such as office buildings, hotels, malls, apartment buildings, and factories.

Co-GP Equity

Co-GP equity is a form of joint venture where two or more entities act as general partners to manage the day-to-day operations of a commercial real estate project. This structure allows partners to share expertise, costs, and risks based on the terms of their agreement. Typically, partners contribute different resources to the project, such as land, capital, or experience in development or management. Co-GP equity is a useful tool for smaller companies to participate in larger projects they could not afford alone, and for larger companies to access niche markets and local knowledge.

Common Area Maintenance

Common Area Maintenance (CAM) expenses in commercial real estate are costs associated with the upkeep and maintenance of the common areas of a property that are shared by all tenants. These expenses can include cleaning, landscaping, snow removal, repairs, security, and utilities for common areas. The costs are typically divided among the tenants based on their pro-rata share, which is determined by the proportion of the total rentable square footage that their leased space occupies.

Construction Loan

A commercial construction loan is a financing option designed to fund the development of real estate projects, such as apartment complexes, office buildings, or shopping centers. This type of loan provides the necessary capital to start construction, allowing developers to break ground and begin building before securing long-term financing. However, due to the higher risk associated with these loans, lenders often charge higher interest rates than traditional loans.


Debt Service Coverage Ratio (DSCR)

The Debt Service Coverage Ratio (DSCR) is a way to measure if someone or a business can afford their debts as it looks at the income they have versus the payments they need to make. If the ratio is above 1, it means they can cover their debt payments comfortably but if it’s below 1, they may struggle to make their payments. Lenders and investors use the DSCR to decide if a borrower is reliable. A higher DSCR is better because it shows they can easily repay their debts, while a lower DSCR suggests they might have trouble meeting their financial obligations.

DSCR = NOI / annual debt service

Debt Yield

A metric used by lenders to evaluate the level of risk and measure the return associated with a loan. Debt yield is calculated by dividing the Property’s Net Operating Income by the Loan Amount (NOI/Loan Amount = Debt Yield).


Defeasance in commercial real estate and mortgage lending refers to the process of replacing a property as collateral for a loan with other assets. It provides a way for borrowers to fulfill their loan obligations and sell or refinance the property without penalties while protecting the lender’s interests.


Depreciation is the process of spreading out the cost of a long-term asset over its useful life and recognizing that assets lose value over time due to various factors. Depreciation allows businesses to allocate the cost gradually, instead of expensing the entire cost upfront. By doing so, it matches the asset’s cost with the revenue it generates, providing a more accurate picture of financial performance. Depreciation is recorded as an expense on the income statement, reducing net income and reflecting the asset’s decreasing value. It helps businesses track the true cost of using assets and supports proper financial reporting and decision-making.

Distressed Asset

A distressed asset refers to a property or loan in financial trouble or at risk of default. It happens when the owner or borrower can’t meet financial obligations due to economic downturns or mismanagement. These assets include properties facing foreclosure, bankruptcy, or struggling to attract tenants or generate income. Lenders see them as high-risk and may restructure the loan, foreclose on the property, or sell it at a lower price to minimize losses. Distressed assets can also attract investors who specialize in fixing troubled properties or buying them at a discount.

Due Diligence

Due diligence means doing thorough research and investigations before making a financial commitment. It involves gathering and analyzing information about the property, such as legal documents, financial statements, and physical inspections. conducting due diligence, lenders can make informed decisions and minimize risks associated with the property and borrower.



Escrow is a financial arrangement where a neutral third party holds funds and documents until all conditions are met. It safeguards both the buyer and seller or borrower and lender and provides protection and ensures obligations are met before releasing funds or documents.


Estoppel is a legal rule that stops someone from changing their position if it would be unfair to others who relied on their previous actions or statements. It ensures that tenants cannot later deny important facts in a lease agreement, and it helps lenders verify the information before providing financing. Estoppel prevents disputes and promotes transparency in these transactions.


Fannie Mae

Fannie Mae, or the Federal National Mortgage Association (FNMA), is a government-backed organization in the US that supports the market by assisting lenders and borrowers, ensuring stability and accessibility. It gives money back into the lenders’ funds so they can keep lending to borrowers and has guidelines for lenders to follow when giving out loans. By purchasing these loans, Fannie Mae takes on the risk, which allows lenders to offer more loans.

First Lien Position

The first lien position means that a lender has the highest priority to get repaid if the borrower defaults. It’s like being first in line. The lender with the first lien position has the first claim on the property’s value when it’s sold. This gives them an advantage because they’re more likely to recover their investment compared to lenders in lower lien positions.

Freddie Mac

Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, is a government-sponsored enterprise that plays a significant role in the United States housing finance system. Its primary focus is on the residential mortgage market, but it also has an impact on the commercial real estate sector.

Freddie Mac helps lenders by buying their loans and turning them into investment products called mortgage-backed securities. This allows lenders to get money back quickly and provide new loans for commercial real estate projects. Freddie Mac’s role is to ensure there’s enough money available for commercial real estate investments, making the market more stable and efficient.


Ground Lease

A ground lease refers to an arrangement in commercial real estate where a property owner (landlord) leases the land to a tenant (usually a developer or business) for an extended period, typically ranging from 30 to 99 years. The tenant has the right to use and develop the land during the lease term, constructing buildings or making other improvements. However, ownership of the land remains with the landlord.

This type of lease is useful because it allows tenants to have a long-term location without buying the land upfront. Mortgage lenders are interested in ground leases because they assess the lease terms when considering the tenant’s creditworthiness and property value. Lenders can secure loans against either the tenant’s leasehold interest, or the landlord’s fee simple interest of the land.


Hard Money

Hard money is a type of loan given by private investors or specialized lenders. It’s secured by the property itself and is easier to qualify for than traditional bank loans. Hard money loans are fast to approve but have higher interest rates because they rely on the property’s value instead of the borrower’s creditworthiness. They’re an alternative option for borrowers who don’t meet the requirements of regular lenders.


Interest Rate

An interest rate in lending refers to the percentage charged by a lender on the amount of money borrowed by a borrower. It represents the cost of borrowing and is typically expressed as an annual percentage rate (APR). The interest rate is a critical component of a loan agreement, determining the additional amount the borrower must pay back to the lender on top of the principal amount borrowed.


Joint Venture (JV)

In real estate development, a joint venture (JV) involves a collaboration between two or more entities pooling their resources, including capital, expertise, and property assets, to create a new project. This type of partnership allows the partners to share both the risk and reward of the project, which is governed by the terms of the agreement. Joint ventures can be a powerful way to achieve strategic goals, access new markets, or leverage complementary strengths and expertise. They can also help to diversify risk, increase economies of scale, and generate attractive returns for all parties involved.



LIBOR, which stands for London Interbank Offered Rate, is an interest rate benchmark widely used in the financial industry. LIBOR is often used to set variable interest rates on loans. This means that the interest rates on these loans can fluctuate over time, as the LIBOR rate changes.

It is worth noting that in recent years, efforts have been made to transition away from LIBOR to alternative reference rates such as SOFR due to concerns about its reliability and potential manipulation.

Loan Commitment

A loan commitment is a formal agreement made by a lender to extend credit or provide financing to a borrower. It outlines the terms and conditions under which the lender is willing to provide funds to the borrower. Typically, a loan commitment specifies the amount of the loan, the interest rate, the repayment terms, any collateral requirements, and other relevant terms and conditions.

Loan Servicing

Loan servicing is the management and overseeing of a loan which involves collecting payments, maintaining records, and handling customer inquiries.

Loan servicers act as intermediaries between the borrower and lender, ensuring the loan runs smoothly. They track payments, manage escrow accounts, and provide statements to borrowers, and can handle loan modifications, refinancing, and foreclosure proceedings if needed.

Loan to Cost (LTC)

Loan-to-Cost (LTC) is a financial metric that measures the ratio of the loan amount to the total cost of a real estate project. The total cost includes the purchase price of the property as well as any additional expenses related to acquisition, development, construction, and improvements.

Lenders utilize LTC as a risk assessment tool to evaluate the amount of financing they are willing to provide for a project. A higher LTC indicates a higher level of risk for the lender since it implies a larger loan relative to the overall project cost. Lenders typically have maximum LTC thresholds based on their risk appetite and the type of property being financed.

For example, if a commercial real estate project has a total cost of $1 million and the lender offers a loan of $800,000, the LTC would be 80% ($800,000 / $1,000,000).

Loan-to-Value (LTV)

Loan-to-Value (LTV) is a financial metric that measures the ratio between the loan amount and the appraised value or purchase price of the property being financed. LTV is calculated by dividing the loan amount by the property’s value and expressing it as a percentage.

For example, if a property is valued at $1 million and a lender provides a loan of $800,000, the LTV ratio would be 80% ($800,000 divided by $1,000,000).

Lenders consider LTV as an important factor when determining the risk associated with a loan. Higher LTV ratios indicate greater risk because the borrower has less equity invested in the property. Lenders often set maximum LTV limits to mitigate their risk exposure. Lower LTV ratios, on the other hand, suggest lower risk and may lead to more favorable loan terms, such as lower interest rates or easier approval.


Maturity Date

The maturity date in lending is the specific date when a loan agreement reaches its completion, and the borrower is required to repay the entire outstanding principal amount along with any accrued interest and other associated fees. It signifies the end of the loan term and marks the point at which the borrower must fulfill their financial obligation to the lender. The lender sets the maturity date at the time of loan origination, and it is an essential aspect of the loan contract, outlining the deadline by which the borrower must make the final repayment.

Mezzanine (Mezz) / Pref

A mezzanine loan is a powerful tool to achieve higher leverage on commercial projects than what traditional sources like conduits, banks, and life insurance companies offer. This type of loan is typically subordinate to senior debt and can be secured by the corporation that owns the property. With a mezzanine loan, borrowers can obtain the financing they need while keeping ownership of their company intact, as long as they repay the debt promptly.

Unlike traditional loans, mezzanine loans typically require very little collateral from borrowers, which means that lenders may charge higher interest rates to compensate for the added risk. However, this type of financing can be a valuable option for businesses looking to pursue growth opportunities that require significant capital investments. With a mezzanine loan, borrowers can access the funding they need to execute their plans while preserving their ownership structure and retaining control over their business.

Mezzanine Debt

Mezzanine debt is a type of financing that fills the gap between a traditional mortgage and equity investment. It’s a loan that sits below senior debt but above equity in terms of priority for repayment. Mezzanine lenders provide this loan, which is secured by a second charge on the property. They take on higher risks and charge higher interest rates. If the borrower defaults, mezzanine lenders may have the option to take ownership of the property. It’s a way for borrowers to get additional funding when senior lenders aren’t willing to provide it.


Net Operating Income (NOI)

Net Operating Income (NOI) is a key measure that shows the income a property generates after subtracting operating expenses but before financing costs and taxes. It helps determine a property’s profitability and cash flow potential. Lenders use NOI to assess a property’s loan eligibility. A higher NOI means a more financially stable property, increasing the chances of favorable financing terms. Investors and lenders rely on NOI to make informed decisions in commercial real estate and mortgage lending.

Non-Recourse Loan

A non-recourse loan is a type of loan where the borrower is not personally liable for repaying the debt in the event of default. Instead, the lender’s only recourse for recovering the outstanding balance is typically limited to the collateral securing the loan.


Occupancy Rate

The occupancy rate in commercial real estate refers to the percentage of available rental space that is currently leased or occupied. It is a key indicator of the property’s financial health and can influence investment decisions.

Off-Site Improvements

Off-site improvements in commercial real estate are enhancements made to the surrounding infrastructure that benefit a property. These can include upgrades to public utilities, roads, sidewalks, and other amenities that are not located directly on the property but improve its accessibility, functionality, or appeal.

On-Site Improvements

The occupancy rate in commercial real estate refers to the percentage of available rental space that is currently leased or occupied. It is a key indicator of the property’s financial health and can influence investment decisions.

Operating Statement

An Operating Statement is a financial document that provides a comprehensive overview of the income, expenses, and profitability of a business or property. It is a crucial component of the underwriting process for commercial loans and is used by lenders to assess the financial health and viability of a borrower or a property on a monthly, annual, or year-to-date basis. It helps lenders assess if the property generates enough income to cover costs and repay the mortgage, and if the property is a good investment. This is also sometimes referred to as a Profit and Loss Statement, or an Income Statement.


Personal Financial Statement

A Personal Financial Statement summarizes a person’s financial situation and includes information about their assets, debts, income, and expenses. Lenders use this document to evaluate the person’s ability to repay a loan and assess the risk involved.

Phase 1 Report

A Phase 1 report is also known as a Phase 1 Environmental Site Assessment (ESA). This report is done before property transactions to identify potential environmental risks that could affect the property’s value or pose liabilities for the lender.

Phase 2 Report

A Phase 2 Report is a detailed investigation conducted after the Phase 1 Report. The report involves testing of the property itself, such as an analysis of soil and groundwater, to determine if there are any contamination issues or environmental hazards present. By providing information on liabilities and estimated cleanup costs, the report helps lenders make informed decisions about financing the property.

Preferred Equity

Preferred equity is a type of investment where investors provide financing alongside mortgage lenders. It combines aspects of debt and equity, and preferred equity partners have a higher priority in receiving returns and some protections in case of default. They don’t have ownership rights like common equity holders, but it helps bridge the gap between the mortgage loan and project costs. This reduces risk for lenders and allows borrowers to secure financing with lower interest rates. It’s an alternative financing option that benefits both lenders and borrowers in commercial real estate projects.

Preferred Equity

Preferred equity is a form of funding in which an investor invests in a real estate project and receives preferred returns on their investment. The preferred return is a set percentage of the project’s cash flow or profits, which the investor receives before the developer or owner receives any returns. This type of financing is ideal for developers or owners who want to raise capital for a project but do not want to give up ownership or control. It can also be used to bridge the gap between traditional debt financing and common equity, enabling developers or owners to obtain more favorable terms and interest rates.

Prepayment Penalty

A prepayment penalty on commercial loans is a fee charged by the lender if the borrower pays off the loan before its scheduled maturity date. This penalty is designed to compensate the lender for the potential loss of interest income resulting from early repayment of the loan.

Prepayment penalties can vary in structure and terms depending on the loan agreement, but they typically involve a percentage of the remaining loan balance or a certain number of months’ worth of interest payments. The penalty may be triggered if the borrower refinances the loan, sells the property securing the loan, or makes a significant principal payment that exceeds a specified limit.


The PRIME rate is the interest rate charged by banks to their best customers. It acts as a benchmark for determining interest rates on loans for commercial real estate and mortgages. Lenders add a margin to the PRIME rate to accommodate varying levels of risk. So, borrowers in these industries pay the PRIME rate plus the lender’s margin. Changes in the PRIME rate directly affect the cost of borrowing for real estate developers, investors, and homeowners, as it impacts the interest payments on their loans.

Pro Forma

Pro forma refers to a financial estimate that predicts the potential income, expenses, and profitability of a property or loan. It helps investors and lenders assess the expected future financial performance based on assumptions and hypothetical scenarios.


Pro-Rata, in commercial real estate, typically refers to the proportional allocation of expenses, income, or liabilities among tenants based on their share of the total space. For example, in a shopping center, a tenant’s pro-rata share of Common Area Maintenance (CAM) expenses would be calculated based on the percentage of the shopping center’s total square footage that their leased space occupies.


Real Estate Crowdfunding

Real Estate Crowdfunding refers to the practice of pooling funds from multiple individuals or investors through an online platform to collectively invest in commercial real estate projects. In this context, it typically involves financing the purchase or development of commercial properties such as office buildings, retail centers, or apartment complexes. It gives regular individuals the chance to invest in real estate that was once limited to wealthy investors.

Real Estate Investment Trust (REIT)

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating properties. It allows people to invest in real estate without directly owning the properties. REITs typically generate income from rent or interest payments on mortgages, and they are required by law to distribute a significant portion of their taxable income as dividends to shareholders.


Recourse refers to a legal term that describes the ability of a lender or creditor to seek additional payment or recovery of funds beyond the collateral or assets securing a loan or debt. In simple terms, when a loan or debt has recourse, the lender can hold the borrower personally liable for the debt. This means that if the borrower fails to repay the loan, the lender can not only seize and sell the collateral but also pursue the borrower’s other assets or income to recover the remaining amount owed.

Rent Roll

A rent roll is a document that shows how much money a property makes from renting. It includes tenant details like names, lease dates, and rental rates. Lenders use rent rolls to decide if a property qualifies for a loan and helps them see if the rental income can cover the mortgage payments. Rent rolls also help lenders understand tenant stability, identify risks or vacancies, and estimate the property’s value and potential for growth.

Rentable Square Footage

Rentable Square Footage in commercial real estate refers to the total area that a tenant is charged for, which includes the Usable Square Footage plus a pro-rata share of the building’s common areas, such as lobbies, restrooms, and hallways. This is the space for which rent is actually paid, as opposed to the gross square footage which includes areas not available for rent.

Rental Abatement

Rental abatement is a provision in a lease agreement that allows for a reduction or suspension of rent payments under certain conditions. It’s often negotiated into commercial leases and can be triggered by events such as damage to the property, construction that limits access to the property, or other factors that impede the tenant’s ability to use the space as intended.

Risk-Adjusted Return

Risk-adjusted return refers to assessing the profitability of an investment while considering the associated risks. It helps determine if the potential returns are worth the level of risk involved. By factoring in the likelihood of losses, investors and lenders can make informed decisions about the trade-off between risk and reward. A higher risk-adjusted return indicates a more favorable balance between the potential gains and the level of risk taken.


Schedule of Real Estate

The Schedule of Real Estate or SREO refers to a detailed document that provides key information about all properties owned by a borrower. For each property, it will typically include property addresses, asset types, how long the borrower has owned the properties, what percent of ownership they have in each property, the original purchase prices, the current market values, current cashflows, current month debt payments, existing loan maturity dates, and sometimes even more detail. These schedules are important to help lenders understand how healthy the borrower’s real estate portfolio is on a valuation, cashflow, and existing debt basis.

Schedule of Values

Also referred to as “SOV”, a Schedule of Values is required for blanket insurance policies to show the allocated property and loss of rent coverage amounts per collateral.

Second Lien Position

The second lien position refers to the order of priority that lenders have if a borrower defaults. The first lien holder has the first claim on the property’s value, while the second lien holder has a secondary claim. If the property is sold to repay the debt, the first lien holder gets paid first, and the second lien holder gets paid afterward, if anything is left. Being in the second lien position is riskier, so second lien lenders charge higher interest rates to compensate.


Commercial loan securitization is a financial process in which commercial loans, typically issued to businesses or for commercial real estate purposes, are pooled together and packaged into securities that can be sold to investors. These securities represent ownership interests in the cash flows generated by the underlying pool of commercial loans. (See CMBS)


SOFR stands for the Secured Overnight Financing Rate, and it is a benchmark interest rate that has been developed as a replacement for the LIBOR. It determines the interest rate on loans and is based on overnight borrowing costs secured by U.S. Treasury securities.

SOFR is considered a more reliable and transparent benchmark compared to LIBOR, and the transition from LIBOR to SOFR is part of a global effort to enhance the integrity and stability of financial markets. It is important for commercial real estate borrowers and mortgage lenders to understand and adapt to this new benchmark to ensure accurate and fair interest rate calculations.

Soft Quote

A soft quote is an initial estimate provided by a lender to a borrower that gives a rough idea of the potential loan terms, such as interest rate, loan amount, and repayment period.

Stabilized Property

A stabilized property is financially stable, generates consistent income, and has high occupancy rates. Mortgage lenders prefer financing these properties due to their reduced risk and reliable cash flow. Lenders assess a property’s stability based on occupancy history, rental income, leases, and market conditions. Financing a stabilized property lowers the risk of loan default as the property’s income can be used for repayment.

Step Down Prepayment Penalty

A step-down prepayment penalty is a provision in a loan agreement that imposes a fee or penalty on borrowers who pay off their loan before the end of the loan term or a specified timeframe described in the loan agreement. The penalty typically starts at a higher rate and decreases incrementally each year until it eventually reaches zero which provides an incentive for borrowers to keep the loan for the initial years, allowing lenders to generate interest income for a longer period.

For example, a loan may have a step-down prepayment penalty of 5% in the first year, 4% in the second year, 3% in the third year, and so on until the penalty is completely eliminated.


The SWAP Rate refers to the interest rate at which lenders exchange fixed-rate and floating-rate loan obligations. It represents the difference between the fixed interest rate and the floating interest rate. It helps lenders manage their risk of interest rate fluctuations by swapping their fixed rate for a floating rate based on a benchmark index. The SWAP Rate is expressed as a percentage and allows lenders to offer borrowers the stability of a fixed rate while managing their own exposure to changing interest rates.


Tax Abatement

Tax abatement refers to a temporary reduction or elimination of property taxes that local governments can offer to encourage development or redevelopment in certain areas. It can also be used as an incentive for businesses to locate in a particular area or for homeowners to renovate or improve their properties.


Tenancy refers to the legal arrangement where an individual or entity, known as the tenant or lessee, occupies and possesses real property owned by another party, known as the landlord or lessor, in exchange for payment of rent. This contractual agreement typically outlines the terms and conditions governing the tenant’s use of the property, including the duration of the tenancy, the amount of rent to be paid, and any rights and responsibilities of both parties.

Tenant Improvements (TI)

Tenant Improvements are modifications or enhancements made to a commercial property to meet a tenant’s specific needs. These can include interior build-outs, fixtures, and other customized changes within the space.

Treasury Rate

The Treasury Rate is the interest rate on U.S. government bonds. It acts as a benchmark for commercial real estate loans. Mortgage lenders use the Treasury Rate as a reference point to set interest rates. When the Treasury Rate goes up, it means borrowing costs increase, and borrowers may face higher rates for commercial real estate loans.

Triple Net (NNN)

A triple net lease, often abbreviated as “NNN” is a commercial real estate agreement where the tenant is responsible for paying not only the base rent but also the property’s operating expenses, including property taxes, insurance, and maintenance costs. In a triple net lease arrangement, the landlord passes on these expenses directly to the tenant, hence the term “net-net-net,” which signifies the three primary expenses.


In commercial real estate, “turnkey” refers to a property or space that is fully completed, equipped, and ready for immediate occupancy or use by a tenant or buyer. Essentially, it implies that the property is move-in ready and requires little to no additional work or customization before it can be utilized for its intended purpose.



Underwriting in commercial lending refers to the process of evaluating the creditworthiness and risk associated with a business or borrower applying for a commercial loan. During this assessment, the lender or underwriter analyzes various financial factors, business performance, and potential risks to determine if the loan request should be approved, and if so, under what terms and conditions.

The underwriting process involves a comprehensive review of the business’s financial statements, cash flow, assets, liabilities, credit history, and industry outlook. The goal is to assess the borrower’s ability to repay the loan and to mitigate any potential risks for the lender.

Based on the underwriter’s evaluation, the lender may approve the loan, specify the loan amount, set the interest rate, and establish the repayment terms. The underwriting process plays a crucial role in ensuring responsible lending practices and safeguarding the interests of both the lender and the borrower in commercial lending transactions.

Urban Land Institute (ULI)

The Urban Land Institute (ULI) is a global, member-driven organization comprising real estate and urban development professionals dedicated to shaping the future of the built environment for transformative impact in communities worldwide. ULI provides leadership in the responsible use of land and in creating and sustaining thriving communities. It is known for its research, education, and advocacy programs focused on issues of land use, real estate development, and urban planning.

Usable Square Footage

Usable square footage refers to the actual area that a tenant can occupy and use within a property. This is different from Rentable Square Footage, which includes common areas such as lobbies, restrooms, and hallways that are shared among tenants. The ratio of rentable to usable square feet is known as the add-on factor or load factor, and it’s an important metric for understanding how much of a building’s total area is available for exclusive tenant use versus shared or non-usable space.


Vacancy Permit Endorsement

A Property insurance endorsement required when all or a percentage of a subject property is vacant which adds protection in case of an insurance loss claim.

Vacancy Rate

The percentage of all available units in a rental property, such as an apartment complex, office building, or retail centers, that are vacant or unoccupied over a certain period. It is an important metric for investors and property managers to gauge the property’s performance and the overall health of the real estate market.



In real estate, yield typically refers to the annual income generated by an investment property, expressed as a percentage of the property’s value or cost. It’s a measure of the return on investment for real estate assets.

Yield Curve

In the context of real estate, a yield curve is a graphical representation that shows the relationship between the yield (interest rates) of bonds of equal credit quality but different maturity dates. In real estate, this concept can be applied to show the relationship between the return on investment for properties over different periods.

Yield Maintenance

Yield Maintenance refers to a financial provision that allows lenders to recoup the potential loss of interest income when a borrower pays off a loan before its maturity date. It ensures the lender’s financial position is maintained despite the early loan repayment, allowing them to secure their anticipated yield or return on investment and it is commonly used in situations where the borrower wants to prepay a fixed-rate loan. It is an alternative prepayment penalty structure to step down prepayment penalties and defeasance prepayments.