Invest in Real Estate Using Your Qualified Plans

Face Rental Rate: The “asking” rental rate published by the landlord.

Facilitator: A professional who facilitates 1031 exchange transactions. May also called a Qualified Intermediary (QI) or "Accommodator"

Fair Market Value: The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Also known as FMV.

Finance Charge: The amount paid for the privilege deferring payment of goods or services purchased, including any charges payable by the purchaser as a condition of the loan.

Finder’s Fees: Referral or lender’s fees are generally considered transaction based compensation. Any transaction based commission or compensation paid to an individual or firm involved in recommending, offering or selling TIC investments is compensation that can be paid only to a licensed registered securities broker or representative.

First Generation Space: Generally refers to new space that is currently available for lease and has never before been occupied by a tenant. See also "Second Generation Space".

First Mortgage: The senior mortgage which, by reason of its position, has priority over all junior encumbrances. The holder of the first or senior mortgage has a priority right to payment in the event of default.

First Refusal Right or Right Of First Refusal (Purchase): A lease clause giving a tenant the first opportunity to buy a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept.

First Refusal Right or Right Of First Refusal (Adjacent Space): A lease clause giving a tenant the first opportunity to lease additional space that might become available in a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept. This right is often restricted to specific areas of the building such as adjacent suites or other suites on the same floor.

Fixed Costs: Costs, such as rent, which do not fluctuate in proportion to the level of sales or production.

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.

Floor Area Ratio (FAR): The ratio of the gross square footage of a building to the land on which it is situated. Calculated by dividing the total square footage in the building by the square footage of land area.

Force Majeure: A force that cannot be controlled by the parties to a contract and prevents said parties from complying with the provisions of the contract. This includes acts of God such as a flood or a hurricane or, acts of man such as a strike, fire or war.

Foreclosure: A procedure by which the mortgagee (“lender”) either takes title to or forces the sale of the mortgagor’s (“borrower”) property in satisfaction of a debt. See also "Deed In Lieu Of Foreclosure".

Full Recourse: A loan on which an endorser or guarantor is liable in the event of default by the borrower.

Full Service Rent: An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount. See also "Pass Throughs".

Future Proposed Space: Space in a proposed commercial development which is not yet under construction or where no construction start date has been set. Future Proposed projects include all those projects waiting for a lead tenant, financing, zoning, approvals or any other event necessary to begin construction. Also may refer to the future phases of a multi-phase project not yet built.

Gain: An accounting term used to describe the amount a property has appreciated since being purchased (plus the amount of any depreciation allowable over the term of ownership).

General Contractor: The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, (e.g., plumbing, electrical, etc.), coordinates all work, and is responsible for payment to subcontractors.

General Partner: A member of a partnership who has authority to bind the partnership. A general partner also shares in the profits and losses of the partnership. See also “Limited Partnership”.

Graduated Lease: A lease, generally long term in nature, which provides that the rent will vary depending upon future contingencies, such as a periodic appraisal, the tenant’s gross income or simply the passage of time.

Grant: To bestow or transfer an interest in real property by deed or other instrument; either the fee or a lesser interest, such as an easement.

Grantee: One to whom a grant is made.

Grantor: The person making the grant.

Gross Absorption: A measure of the total square feet leased over a specified period of time with no consideration given to space vacated in the same geographic area during the same time period. See also “Net Absorption”.

Gross Building Area: The total floor area of the building measuring from the outer surface of exterior walls and windows and including all vertical penetrations (e.g. elevator shafts, etc.) and basement space.

Gross Lease: A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.

Ground Rent: Rent paid to the owner for use of land, normally on which to build a building. Generally, the arrangement is that of a long-term lease (e.g. 99 years) with the lessor retaining title to the land.

Guarantor: One who makes a guaranty. See also “Guaranty”.

Guaranty: Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so. Differs from a surety agreement in that there is a separate and distinct contract rather than a joint undertaking with the principal. See also "Guarantor".

Hard Cost: The cost of actually constructing the improvements (i.e. construction costs). See also “Soft Cost”.

Highest and Best Use: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability.

High Rise: In the Central Business District, this could mean a building higher than 25 stories above ground level but in suburban sub-markets, it generally refers to buildings higher than 7 or 8 stories.

Hold Over Tenant: A tenant retaining possession of the leased premises after the expiration of a lease.

HVAC: The acronym for “Heating, Ventilating and Air-Conditioning”.

Identification Period: The period during which the Exchanger must identify Replacement Property in a 1031 exchange. The Identification Period starts on the day the Exchanger transfers the first Relinquished Property and ends at midnight on the 45th day thereafter.

Improvements: In the context of leasing, the term typically refers to the improvements made to or inside a building but may include any permanent structure or other development, such as a street, sidewalks, utilities, etc. See also “Leasehold Improvements”. See also “Leasehold Improvements” and "Tenant Improvements".

Indirect Costs: Development costs, other than material and labor costs which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs.

Interests in Real Property: All interests, benefits, and rights inherent in the ownership of physical real estate; the bundle of rights with which the ownership of the real estate is endowed. In some states, real property is defined by statute and is synonymous with real estate.

1. Fee Simple: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers or taxation, eminent domain, police power, and escheat.
2. Leased Fee: An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.
3. Leasehold: The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.
4. Subleasehold: An agreement in which the lessee in a prior lease conveys right of use and occupancy of a property to another, the sublessee.

Internal Rate of Return (IRR): The annualized yield rate or rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership. The IRR is the rate of discount that makes the net present value of the investment equal to zero. The IRR discounts all returns from the investment, including returns from its termination, to equal the original capital outlay. This rate is similar to the equity yield rate. As a measure of investment performance, the IRR is the rate of discount that produces a profitability index of one and a net present value of zero. It is often used to measure profitability after income taxes, i.e., the after-tax equity yield rate. In addition IRR is the rate of return which would equate all of the cash inflows (including the sale proceeds) of a property with all the cash outflows (including the purchase price) – i.e. the brake even rate of return.

Inventory: The total amount of rentable square feet of existing and any forthcoming space (whether it be a tenant vacating space or new buildings coming on the market), in a given category, for example, all warehouse space in a specified submarket. Inventory refers to all space within a certain proscribed market without regard to its availability or condition, and categories can include all types of leased space such as office, flex, retail and warehouse space.

Investor Suitability: Registered securities brokers/representatives who recommend an investment to a customer have a suitability obligation with respect to that recommendation. This duty requires a registered securities broker/representative to have a clear understanding of the investment goals and the current financial status of the investor, and to ensure that the recommended investment is suitable for that particular customer in light of his or her financial situation and objectives.

Judgment: The final decision of a court resolving a dispute and determining the rights and obligations of the parties. Money judgments, when recorded, become a lien on real property of the defendant.

Judgment Lien: An encumbrance that arises by law when a judgment for the recovery of money attaches to the debtor’s real estate. See also "Lien".

Just Compensation: Compensation which is fair to both the owner and the public when property is taken for public use through condemnation (eminent domain). The theory is that in order to be “just”, the property owner should be no richer or poorer than before the taking.

Landlord’s Lien: A type of lien that can be created by contract or by operation of law. Some examples are: (1) a contractual landlord’s lien as might be found in a lease agreement; (2) a statutory landlord’s lien; and (3) landlord’s remedy of distress (or right of distraint), which in not truly a lien but has a similar effect. See also "Lien".

Landlord’s Lien or Warrant: A warrant from a landlord to levy upon a tenant’s personal property (e.g., furniture, etc.) and to sell this property at a public sale to compel payment of the rent or the observance of some other stipulation in the lease.

Lease: An agreement whereby the owner of real property (i.e., landlord/lessor) gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).

Lease Agreement: The formal legal document entered into between a Landlord and a Tenant to reflect the terms of the negotiations between them; that is, the lease terms have been negotiated and agreed upon, and the agreement has been reduced to writing. It constitutes the entire agreement between the parties and sets forth their basic legal rights.

Lease Commencement Date: The date usually constitutes the commencement of the term of the Lease for all purposes, whether or not the tenant has actually taken possession so long as beneficial occupancy is possible. In reality, there could be other agreements, such as an Early Occupancy Agreement, which have an impact on this strict definition.

Leasehold Improvements: Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by Landlord. See also “Tenant Improvements”.

Legal Description: A geographical description identifying a parcel of land by government survey, metes and bounds, or lot numbers of a recorded plat including a description of any portion thereof that is subject to an easement or reservation.

Legal Owner: The term is in technical contrast to equitable owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than as a lien. See also “Lien”.

Letter Of Attornment: A letter from the grantor to a tenant, stating that a property has been sold, and directing rent to be paid to the grantee (buyer). See also “Attorn”.

Letter Of Credit: A commitment by a bank or other person, made at the request of a customer, that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.

Letter Of Intent: A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.

Lien: A claim or encumbrance against property used to secure a debt, charge or the performance of some act. Includes liens acquired by contract or by operation of law. Note that all liens are encumbrances but all encumbrances are not liens.

Lien Waiver (Waiver of Liens): A waiver of mechanic’s lien rights, signed by a general contractor and his subcontractors, that is often required before the general contractor can receive a draw under the payment provisions of a construction contract. May also be required before the owner can receive a draw on a construction loan.

Like-Kind Property: A term used in an exchange of property held for productive use in a trade or business or for investment. Unless cash is received, the tax consequences of the exchange are postponed pursuant to Section 1031 of the Internal Revenue Code. This term refers to the nature or character of the property, not its grade or quality. Generally, real property is “like-kind” as to all other real property as long as the Exchanger’s intent is to hold the properties as an investment or for productive use in a trade or business. With regards to personal property, the definition of “like-kind” is much more restrictive. Furthermore, to qualify as like-kind property in a 1031 exchange, the property must, by its nature, be real estate and not personal property. All real estate can be exchanged for real estate and qualities as like-kind. Raw land for improved property is like-kind and vice versa.

Limited Partnership: A type of partnership, created under state law, comprised of one or more general partners who manage the business and who are personally liable for partnership debts, and one or more special or limited partners who contribute capital and share in profits but who take no part in running the business and incur no liability over and above the amount contributed. See also "General Partner".

Liquidity: An investment in a TIC private placement is an illiquid investment. There is currently no active market to resale a TIC interest. A TIC investment in real estate is similar to a sole ownership interest in real estate, the owner of the TIC interest has the right to sell their interest at any time subject to the terms outlined in the TIC ownership agreement of the private placement memorandum.

Listing Agreement: An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation. See also “Exclusive Listing Agreement”.

Long Term Lease: In most markets, this refers to a lease whose term is at least three years from initial signing until the date of expiration or renewal option.

Lot: Generally, one of several contiguous parcels of land making up a fractional part or subdivision of a block, the boundaries of which are shown on recorded maps and “plats”.

Low Rise: A building with fewer than 4 stories above ground level.

Lump-Sum Contract: A type of construction contract requiring the general contractor to complete a building or project for a fixed cost normally established by competitive bidding. The contractor absorbs any loss or retains any profit.

Maker: One who creates or executes a promissory note and promises to pay the note when it becomes due.

Market Indicators: Statistical measures of construction and real estate activity, including issued permits, indices of building costs, deeds recorded and homes for sale.

Market Rent: The rental income that a property would command on the open market with a landlord and a tenant ready and willing to consummate a lease in the ordinary course of business; indicated by the rents that landlords were willing to accept and tenants were willing to pay in recent lease transactions for comparable space.

Market Study: A forecast of future demand for a certain type of real estate project that includes an estimate of the square footage that can be absorbed and the rents that can be charged. Also called “Marketability Study”.

Marketable Title: A title which is free from encumbrances and could be readily marketed (i.e., sold) to a reasonably intelligent purchaser who is well informed of the facts and willing to accept such title while exercising ordinary business prudence. See also “Encumbrance”.

Market Value: The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale with the buyer and seller each acting prudently and knowledgeably in the ordinary course of trade.

Master Lease: A primary lease that controls subsequent leases and which may cover more property than subsequent leases. An Executive Suite operation is a good example in that a primary lease is signed with the landlord and then individual offices within the leased premises are leased to other individuals or companies.

Mechanic’s Lien: A claim created by state statutes for the purpose of securing priority of payment of the price and value of work performed and materials furnished in constructing, repairing or improving a building or other structure, and which attaches to the land as well as to the buildings and improvements thereon.

Metes and Bounds: The boundary lines of land, with their terminal points and angles, described by listing the compass directions and distances of the boundaries. Originally, metes referred to distance and bounds referred to direction.

Mid-Rise: A building with between four and eight stories above ground level although in a Central Business District, this might extend to buildings up to twenty-five stories.

Mixed-Use: Space within a building or project providing for more than one use (i.e., a loft or apartment project with retail, an apartment building with office space, an office building with retail space).

Mortgage: A written instrument creating an interest in real estate and that provides security for the performance of a duty or the payment of a debt. The borrower (i.e., mortgagor) retains possession and use of the property.

NASD: National Association of Security Dealers. The NASD is a self-regulatory agency that supervises the activities of broker/dealers and registered securities brokers/representatives ensuring compliance with all SEC rules. broker/dealers and registered securities brokers/representatives are required to be members of the NASD.

Negative Leverage: The use of debt financing, which reduces the percentage return to equity because the rate of interest on the debt is higher than the free and clear rate or return on equity.

Net Absorption: The square feet leased in a specific geographic area over a fixed period-of-time after deducting space vacated in the same area during the same period. See also “Gross Absorption”.

Net Lease: A lease in which there is a provision for the tenant to pay, in addition to rent, certain costs associated with the operation of the property. These costs may include property taxes, insurance, repairs, utilities, and maintenance. There are also “NN” (double net) and “NNN” (triple net) leases. The difference between the three is the degree to which the tenant is responsible for operating costs. See also “Gross Lease”.

Net Operating Income: The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income, but before mortgage debt service and book depreciation are deducted; may be calculated before or after deducting replacement reserves; it is the sum derived after deductions from gross income for vacancy and expenses.

Net Rentable Area: The floor area of a building that remains after the square footage represented by vertical penetrations, such as elevator shafts, etc., has been deducted. Common areas and mechanical rooms are included and there are no deductions made for necessary columns and projections of the building. (This is by the Building Owner and Manager Association - BOMA, Standard).

Net Sales Price: The net sales price is the gross sales price, less transaction costs such as fees, transfer taxes and closing credits to the buyer.

Net Square Footage (S.F.): The space required for a function or staff position. Also see "Circulation Factor" and "Usable Square Footage".

Non-Compete Clause: A clause that can be inserted into a lease specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business can occupy space in the building. This clause benefits service-oriented businesses desiring exclusive access to the building’s population (i.e. travel agent, deli, etc.).

Non-Recourse Loan: A loan which bars a lender from seeking a deficiency judgment against a borrower in the event of default. The borrower is not personally liable if the value of the collateral for the loan falls below the amount required to repay the loan.

Normal Wear and Tear: The deterioration or loss in value caused by the tenant’s normal and reasonable use. In many leases the tenant is not responsible for “normal wear and tear”.

Open Space: An unimproved area of land or water, or containing only such improvements as are appropriate to the use and enjoyment of the open area, and dedicated for public or private use or enjoyment or for the use and enjoyment of owners and occupants of land adjoining or neighboring such open spaces.

Operating Cost Escalation: Although there are many variations of escalation clauses, all are intended to adjust rents by reference to external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings. During the past thirty years, Landlords have developed the custom of separating the base rent for the occupancy of the leased premises from escalation rent. This technique enables the landlord to better ensure that the “net” rent to be received under the lease will not be reduced by the normal costs of operating and maintaining the property. The landlord’s definition of Operating Expenses is likely to be broad, covering most costs of operation of the building. Most landlords pass through proper and customary charges, but in the hands of an overly aggressive landlord, these clauses can operate to impose obligations which the tenant would not willingly or knowingly accept.

Operating Expenses: The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlord’s definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.

Operating Expense Escalation: Although there are many variations of operating expense escalation clauses, all are intended to adjust rents by reference to external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings.

Parking Ratio or Index: The intent of this ratio is to provide a uniform method of expressing the amount of parking that is available at a given building. Dividing the total rentable square footage of a building by the building’s total number of parking spaces provides the amount of rentable square feet per each individual parking space (expressed as 1/xxx or 1 per xxx). Dividing 1000 by the previous result provides the ratio of parking spaces available per each 1000 rentable square feet (expressed as x per 1000).

Partial Taking: The taking of part (a portion) of an owner’s property under the laws of Eeminent Domain.

Pass Throughs: Refers to the tenant's pro rata share of operating expenses (i.e. taxes, utilities, repairs) paid in addition to the base rent.

Percentage Lease: Refers to a provision of the lease calling for the landlord to be paid a percentage of the tenant's gross sales as a component of rent. There is usually a base rent amount to which "percentage" rent is then added. This type of clause is most often found in retail leases.

Performance Bond: A surety bond posted by a contractor guaranteeing full performance of a contract with the proceeds to be used to complete the contract or compensate for the owner’s loss in the event of nonperformance.

Plat (Plat Map): Map of a specific area, such as a subdivision, which shows the boundaries of individual parcels of land (e.g. lots) together with streets and easements.

Positive Leverage: The use of debt financing that increases the percentage return to equity because the rate of interest on the debt is lower than the free and clear rate of return on equity.

Power Of Sale: Clause inserted in a mortgage or deed of trust giving the mortgagee (or trustee) the right and power, on default in the payment of the debt secured, to advertise and sell the property at public auction.

Precast Concrete: Concrete components (i.e. walls) of a building which are fabricated at a plant site and then shipped to the site of construction.

Preleased: Refers to space in a proposed building that has been leased before the start of construction or in advance of the issuance of a Certificate of Occupancy.

Pre-Marketing: The wrongful process of reserving indications of interest from investors for a TIC investment offering before the annual PPM has been prepared by the Sponsor and a selling agreement is in place with the broker/dealer.

Prime Space: This typically refers to first generation (new) space that is currently available for lease and which has never before been occupied by a tenant.

Prime Tenant: The major tenant in a building or, the major or anchor tenant in a shopping center serving to attract other, smaller tenants into adjacent space because of the customer traffic generated.

PPM: A document referred to as a “Private Placement Memorandum” is prepared by the Sponsor that is offering the investment to qualified individuals. A PPM discloses the facts of the property, terms of the investment offering, and potential risks associated with an investor’s participation in the investment.

Pro forma: A financial balance sheet or income statement for a business prepared by an accountant; in appraisal, a reconstructed operating statement used to project gross income, operating expenses, and net operating income for a future period based on specified assumptions; also called pro forma statement.

Pro rata: Proportionately; according to measure, interest, or liability. In the case of a tenant, the proportionate share of expenses for the maintenance and operation of the property. See also "Common Area" and "Operating Expenses".

Punch List: An itemized list, typically prepared by the architect or construction manager, documenting incomplete or unsatisfactory items after the contractor has notified the owner that the tenant space is substantially complete.

Qualified Intermediary: The entity that facilitates the exchange for the Exchanger. Although the Treasury Regulations use the term “Qualified Intermediary,” some companies use the term “facilitator” or “accommodator”. The is because the Qualified Intermediary (also referred to simply as the QI) is the entity that facilitates the exchange for the Exchanger. The term “facilitator” or “accommodator” is also commonly used, although the Treasury Regulations specifies the term “Qualified Intermediary.”

Qualified Property: In general, all property, both real and personal, can qualify for tax-deferred treatment so long as the properties meet the like kind and purpose requirements.
Quitclaim Deed: A deed operating as a release that is intended to pass any title, interest, or claim that the grantor may have in the property, but not containing any warranty or professing that such title is valid.

Raw Land: Unimproved land that remains in its natural state.

Raw Space: Unimproved "shell space" in a building.

REO (Real Estate Owned): Real estate that has come to be owned by a lender, including real estate taken to satisfy a debt. Includes real estate acquired by lenders through foreclosure or, in settlement of some other obligation.

Real Estate vs. Securities: The offering of undivided interests in real estate, where the Sponsor sources the property and provides ongoing services with the expectation of profits, meets the definition of an offering of securities in the nature of an investment contract. A TIC interest is a deeded fractionalized interest in real estate, and as such is capable of satisfying 1031 exchange rules. However, when undivided interests in a single property are offered to multiple owners and a Sponsor is sourcing the real estate and providing ongoing services for an expectation of profit, the TIC interest generally meets the definition of an investment contract and is subject to federal and state securities laws and rules of distribution to investors.

Real Property: Land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing and heating fixtures, or other items which would be personal property if not attached. Examples of real property are single-family rent houses, apartments, shopping centers and office buildings.

Realized Gain: Refers to a gain that is not necessarily taxed. In a successful exchange, the gain is realized but not recognized and therefore not taxed.

Recapture: (1) When the IRS recovers the tax benefit of a deduction or a credit previously taken by a taxpayer, which is often a factor in foreclosure since there is a forgiveness of debt. (2) As used in leases, a clause giving the lessor a percentage of profits above a fixed amount of rent; or in a percentage lease, a clause granting the landlord a right to terminate the lease if the tenant fails to realize minimum sales. In other words, recapture can be viewed as the amount of tax to be paid on the difference between book value after depreciation deductions and sales price. The tax rate on recapture is 25%.

Recognized Gain: Refers to the amount of gain that is subject to tax when property is disposed of at a gain or profit in a taxable transfer.

Recourse: The right of a lender or holder of a note secured by a mortgage to look to the personal assets of the borrower or endorser for payment should they go into default, not just to the property assets.

Reg D Offering: A safe harbor exemption for TIC investment offerings where participating investors must be qualified as Accredited Investors. This is the most frequent type of TIC investment offering used by TIC Sponsors.

Registered Securities Broker/Representative: An individual who recommends, offers or sells investments in return for a commission. A registered securities broker/representative must be associated with a broker/dealer and licensed as a securities professional with the SEC, the NASD and all states in which he conducts business. Any unlicensed individual or firm involved in recommending, offering or selling TIC investments is in violation of federal and state securities laws.

Recourse: The right of a lender, in the event of a default by the borrower, to recover against the personal assets of a party who is secondarily liable for the debt (e.g. endorser or guarantor).

Rehab: An extensive renovation of a building or project which is intended to cure obsolescence of such building or project.

Relinquished Property: The property “sold” by the Exchanger in a 1031 exchange. This is also sometimes referred to as the “exchange” property or the “down leg” property. This is sometimes referred to as the “exchange” property or the “down leg” property.

Renewal Option: A clause giving a tenant the right to extend the term of a lease, usually for a stated period of time and at a rent amount as provided for in the option language.

Rent: Compensation or fee paid, usually periodically (i.e. monthly rent payments, for the occupancy and use of any rental property, land, buildings, equipment, etc.

Rent Commencement Date: The date on which a tenant begins paying rent. The dynamics of a marketplace will dictate whether this date coincides with the lease commencement date or if it commences months later (i.e., in a weak market, the tenant may be granted several months free rent). It will never begin before the lease commencement date.

Rentable Square Footage: Rentable Square Footage equals the Usable Square Footage plus the tenant’s pro rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. The pro-rata share, often referred to as the Rentable/Usable (R/U) Factor, will typically fall in a range of 1.10 to 1.16, depending on the particular building. Typically, a full floor occupancy will have an R/U Factor of 1.10 while a partial floor occupancy will have an R/U Factor of 1.12 to 1.16 times the Usable Area.

Rentable/Usable Ratio: That number obtained when the Total Rentable Area in a building is divided by the Usable Area in the building. The inverse of this ratio describes the proportion of space that an occupant can expect to actually utilize/physically occupy.

Rental Concession: Concessions a landlord may offer a tenant in order to secure their tenancy. While rental abatement is one form of a concession, there are many others such as: increased tenant improvement allowance, signage, lower than market rental rates and moving allowances are only a few of the many. See also "Abatement".

Rent-Up Period: That period of time, following construction of a new building, when tenants are actively being sought and the project is approaching its stabilized occupancy.

Replacement Property: The property acquired by the Exchanger in a 1031 exchange. This is sometimes referred to as the “acquisition” property or the “up leg” property. This is sometimes referred to as the “acquisition” property or the “up leg” property.

Representation Agreement: An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation. See also “Exclusive Listing Agreement”.

Request for Proposal (“RFP”): The formalized Request for Proposal represents a compilation of the many considerations that a tenant might have and should be customized to reflect their specific needs. Just as the building’s standard form lease document represents the landlord’s “wish list”, the RFP serves in that same capacity for the tenant.

Revenue Procedure 2002-22: On March 19, 2002, Revenue Procedure 2002-22 was issued providing guidance regarding the conditions under which the IRS will entertain a private letter ruling that a TIC interest will not be treated as a partnership interest for tax purposes. The guidance clarifies the criteria which the IRS views as distinguishing a real estate TIC arrangement from a partnership, and enables sponsors to create rental real estate structures that have ownership units capable of being used in a like-kind exchange.

Reverse Exchange: An exchange in which the EAT acquires the replacement property before the relinquished property is sold.

Right Of First Refusal: See “First Refusal Right”.

Sale-Leaseback: An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back and continue to occupy space as a tenant. Although the lease technically follows the sale, both will have been agreed to as part of the same transaction.

Second Mortgage: A mortgage on property that ranks below a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal sequence priority, indicated by the date of recording, determines the designation first, second, third, etc.

Second Generation or Secondary Space: Refers to previously occupied space that becomes available for lease, either directly from the landlord or as sublease space. See also "First Generation Space".

Security Deposit: A deposit of money by a tenant to a landlord to secure performance of a lease. This deposit can also take the form of a Letter of Credit or other financial instrument.

SEC Securities and Exchange Commission: The law making government agency that defines the rules by which broker/dealers and registered securities brokers/representatives must operate when offering investments to the public.

Seisen (Seizen): Possession of real property under claim of freehold estate. This term originally referred to the completion of feudal investiture by which a tenant was admitted into the feud and performed the rights of homage and fealty. Presently it has come to mean possession under a legal right (usually a fee interest). As the old doctrine of corporeal investiture is no longer in force, the delivery of a deed gives seisin in law.

Setback: The distance from a curb, property line or other reference point, within which building is prohibited.

Setback Ordinance: Setback requirements are normally provided for by ordinances or building codes. Provisions of a zoning ordinance regulate the distance from the lot line to the point where improvements may be constructed.

Shell Space: The interior condition of the tenant's usable square footage when it is without improvements or finishes. While existing improvements and finishes can be removed, thus returning space in an older building to its "shell" condition, the term most commonly refers to the condition of the usable square footage after completion of the building's "shell" construction but prior to the build out of the tenant's space. Shell construction typically denotes the floor, windows, walls and roof of an enclosed premises and may include some HVAC, electrical or plumbing improvements but not demising walls or interior space partitioning. In a new multi-tenant building, the common area improvements, such as lobbies, restrooms and exit corridors may also be included in the shell construction. With a newly constructed office building, there will often be a distinction between improvements above and below the ceiling grid. In a retail project, all or a portion of the floor slab is often installed along with the tenant improvements so as to better accommodate tenant specific under-floor plumbing requirements.

Site Analysis: The study of a specific parcel of land which takes into account the surrounding area and is meant to determine its suitability for a specific use or purpose.

Site Development: The installation of all necessary improvements, (i.e. installment of utilities, grading, etc.), made to a site before a building or project can be constructed upon such site.

Site Plan: A detailed plan which depicts the location of improvements on a parcel of land which also contains all the information required by the zoning ordinance.

Slab: The exposed wearing surface laid over the structural support beams of a building to form the floor(s) of the building or laid slab-on-grade in the case of a non-structural, ground level concrete slab.

Soft Cost: That portion of an equity investment other than the actual cost of the improvements themselves (i.e. architectural and engineering fees, commissions, etc.) and which may be tax-deductible in the first year. See also “Hard Cost”.

Space Plan: A graphic representation of a tenant’s space requirements, showing wall and door locations, room sizes, and sometimes includes furniture layouts. A preliminary space plan will be prepared for a prospective tenant at any number of different properties and this serves as a “test-fit” to help the tenant determine which property will best meet its requirements. When the tenant has selected a building of choice, a final space plan is prepared which speaks to all of the landlord and tenant objectives and then approved by both parties. It must be sufficiently detailed to allow an accurate estimate of the construction costs. This final space plan will often become an exhibit to any lease negotiated between the parties.

Special Assessment: Any special charge levied against real property for public improvements (e.g., sidewalks, streets, water and sewer, etc.) that benefit the assessed property.

Specific Performance: A requirement compelling one of the parties to perform or carry out the provisions of a contract into which he has entered.

Speculative Space: Any tenant space that has not been leased before the start of construction on a new building. See also "First Generation Space".

Sponsor: A real estate provider that sources the investment property, garners the financing and manages the assets for the owners. Sponsors provide the service of packaging the investment property into a TIC format, allowing fractional undivided interests in one property to be sold to multiple co-owners as TIC interests.

Step-Up Lease (Graded Lease): A lease specifying set increases in rent at set intervals during the term of the lease.

Straight Lease (Flat Lease): A lease specifying the same, a fixed amount, of rent that is to be paid periodically during the entire term of the lease. This is typically paid out in monthly installments.

Strip Center: Any shopping area, generally with common parking, comprised of a row of stores but smaller than the neighborhood center anchored by a grocery store.

Subcontractor: A contractor working under and being paid by the general contractor. Often a specialist in nature, such as an electrical contractor, cement contractor, etc.

Subdivision Plat: A detailed drawing which depicts the manner in which a parcel of land has been divided into two or more lots. It contains engineering considerations and other information required by the local authority.

Subordination Agreement: As used in a lease, the tenant generally accepts the leased premises subject to any recorded mortgage or deed of trust lien and all existing recorded restrictions, and the landlord is often given the power to subordinate the tenant's interest to any first mortgage or deed of trust lien subsequently placed upon the leased premises.

Surety: One who at the request of another, and for the purpose of securing to him a benefit, voluntarily binds himself to be obligated for the debt or obligation of another. Although the term includes guarantor and the terms are commonly, though mistakenly, used interchangeably, surety differs from guarantor in a variety of respects.

Surface Rights: A right or easement granted with mineral rights, enabling the possessor of the mineral rights to drill or mine through the surface.

Survey: The process by which a parcel of land is measured and its boundaries and contents ascertained.

Syndication: 1) A combining of persons or firms to accomplish a joint venture of mutual interest. 2) The process of acquiring and combining equity investment from multiple sources.

Taking: A common synonym for condemnation or any actual or material interference with private property rights but it is not essential that there be physical seizure or appropriation.

Tax Base: The assessed valuation of all the real property that lies within the jurisdiction of a taxing authority, which is then multiplied by the tax rate or mill levy to determine the amount of tax due.

Tax Deferred Exchange - The procedure outlined under internal revenue code section 1031 involving a series of rules and regulations that must be met in order to take full advantage of deferring capital gains tax on the sale of investment real estate. §1031 tax-deferred exchanges are also commonly known as: Starker exchanges, delayed exchanges, like-kind exchanges, 1031 tenant in common exchanges, section 1031 exchanges, tax-free exchanges, nontaxable exchanges, real estate exchanges, real property exchanges. Though all of these terms refer to the same thing, the most typical term used today is tax-deferred exchange.

Tax Lien: A statutory lien, existing in favor of the state or municipality, for nonpayment of property taxes which attaches only to the property upon which the taxes are unpaid.

Tax roll: A list or record containing the descriptions of all land parcels located within the county, the names of the owners or those receiving the tax bill, assessed values and tax amounts.

Tenant (Lessee): One who rents real estate from another and holds an estate by virtue of a lease.

Tenant At Will: One who holds possession of premises by permission of the owner or landlord, the characteristics of which are an uncertain duration (i.e. without a fixed term) and the right of either party to terminate on proper notice.

Tenant Improvements: Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by the landlord. See also “Leasehold Improvements” and “Workletter”.

Tenant Improvement (“TI”) Allowance or Work Letter: Defines the fixed amount of money contributed by the landlord toward tenant improvements. The tenant pays any of the costs that exceed this amount. Also commonly referred to as "Tenant Finish Allowance.

Tenant-In-Common (TIC): As a TIC owner, you have an undivided fractional interest in an entire property and share in your portion of the net income, tax shelters, and appreciation. Each TIC owner receives a separate property deed and title insurance for their portion in the property investment. This gives you the same rights of ownership that a single owner would enjoy.

TIC Distribution Process: A real estate provider sources an investment property and prepares an investment offering through a PPM. broker/dealers conduct due diligence on the investment offering and execute an agreement to sell the TIC investment to qualified investors through its registered securities brokers/representatives. A cooling off period is then recommended allowing registered securities brokers/representatives and investors sufficient time to review the PPM and make a determination of the merits of the investment offering. Interested Investors then submit applications to participate in the TIC investment through their registered securities brokers or representatives and broker/dealers to the Sponsors.

“Time Is Of The Essence”: Means that performance by one party within the period specified in the contract is essential to require performance by the other party.

Title: The means whereby the owner of lands has the just and full possession of real property.

Title Insurance: A policy issued by a title company after searching the title and which insures against loss resulting from defects of title to a specifically described parcel of real property, or from the enforcement of liens existing against it at the time the title policy is issued.

Title Search: A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

Total Inventory: The total amount of square footage of a type of property (i.e. office, industrial, retail, etc.) within a geographical area, whether vacant or occupied. This normally includes owner-occupied space.

Trade Fixtures: Personal property that is attached to a structure (i.e. the walls of the leased premises) that are used in the business. Since this property is part of the business and not deemed to be part of the real estate, it is typically removable upon lease termination.

Transfer Tax: A tax assessed by a city, county or state on the transfer of property that may be based on equity or value. The use of direct deeding in an exchange avoids additional transfer tax.

Triple Net (NNN) Rent: A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities, and maintenances. There are also “Net Leases" and “NN” (double net) leases, depending upon the degree to which the tenant is responsible for operating costs. See also “Gross Lease”.

Turn Key Project: The construction of a project in which a third party, usually a developer or general contractor, is responsible for the total completion of a building (including construction and interior design) or, the construction of tenant improvements to the customized requirements and specifications of a future owner or tenant.

Typical Exchange Addendum Language for Sales Contracts: "Buyer hereby acknowledges that it is the intent of the Seller to effect an IRC Section 1031 tax deferred exchange which will not delay the closing or cause additional expenses to the Buyer. The Seller's rights under this agreement may be assigned to a Qualified Intermediary, named by Seller, for the purpose of completing such an exchange. Buyer agrees to cooperate with the Seller and the Qualified Intermediary in a manner necessary to complete the Exchange".

Under Construction: When construction has started but the Certificate of Occupancy has not yet been issued.

Under Contract: A property for which the seller has accepted the buyer’s offer to purchase is referred to as being “under contract”. Generally, the prospective buyer is given a certain period of time in which to perform its due diligence and finalize financing arrangements. During the period of time the property is under contract, the seller is precluded from entertaining offers from other buyers.

Undivided Interest: When two or more owners of a property own individually deeded portions of the property they own as tenants in common.

Unencumbered: Describes title to property that is free of liens and any other encumbrances. Free and clear. See also "Encumbrances".

Unimproved Land: Most commonly refers to land without improvements or buildings but can also mean land in its natural state. See also, “Raw Land”.

Use: The specific purpose for which a parcel of land or a building is intended to be used or for which it has been designed or arranged.

Usable Square Footage: Usable Square Footage is the area contained within the demising walls of the tenant space. Total Usable Square Footage equals the Net Square Footage x the Circulation Factor. Also see: "Circulation Factor" and "Net Square Footage".

Vacancy Factor: The amount of gross revenue that pro forma income statements anticipate will be lost because of vacancies, often expressed as a percentage of the total rentable square footage available in a building or project.

Vacancy Rate: The total amount of available space compared to the total inventory of space and expressed as a percentage. This is calculated by multiplying the vacant space times 100 and then dividing it by the total inventory.

Vacant Space: Refers to existing tenant space currently being marketed for lease. This excludes space available for sublease.

Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what they consider their own best interest;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Variance: Refers to permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship. Included would be such things as the particular physical surroundings, shape or topographical condition of the property and when compliance would result in a practical difficulty and would deprive the owner of the reasonable use of the property.

Warranty of Possession: This is the old "quiet enjoyment" paragraph, which of course had nothing to do with noise in and around the leased premises. It provides a warranty by Landlord that it has the legal ability to convey the possession of the premises to Tenant; the Landlord does not warrant that he owns the land. This is the essence of the landlord’s agreement and the tenant’s obligation to pay rent. This means that if the landlord breaches this warranty, it constitutes an actual or constructive eviction.

Weighted Average Rental Rates: The mean proportion or medial sum made out of the unequal rental rates in two or more buildings within a market area.

Workletter: A list of the building standard items that the landlord will contribute as part of the tenant improvements. Examples of the building standard items typically identified include: style and type of doors, lineal feet of partitions, type and quantity of lights, quality of floor coverings, number of telephone and electrical outlets, etc. The Workletter often carries a dollar value but is contrasted with a fixed dollar tenant improvement allowance that can be used at the tenant’s discretion. See also "Leasehold Improvements" and "Tenant Improvements".

Working Drawings: The set of plans for a building or project that comprise the contract documents that indicate the precise manner in which a project is to be built. This set of plans includes a set of specifications for the building or project.

Zoning: The division of a city or town into zones and the application of regulations having to do with the structural, architectural design and intended use of buildings within such designated zone (i.e. a tenant needing manufacturing space would look for a building located within an area zoned for manufacturing).

Zoning Ordinance: Refers to the set of laws and regulations, generally, at the city or county level, controlling the use of land and construction of improvements in a given area or zone.

45 Days: The number of days an exchange investor has to identify in writing replacement properties for a 1031 exchange. The period starts from the day the sold property closes including weekends and holidays until midnight of the 45th day.

180 Days: The number of days an exchange investor has to close the replacement property. 

1033 Exchange: An involuntary exchange of property caused by the destruction of the property (i.e., by fire, flood, erosion, earthquake, explosion, etc.) Must be done within a period of two (2) years from date of destructive event.
 

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