Glossary

A/B Note

A financing structure in which a loan is broken down into two parts: The A note has seniority but a lower interest rate, and the B note is junior to the A note but typically has a higher yield.

Abatement

A lessening or reduction or a cause of action, usually referring to decreases in taxes or rent.

Example: If a business overpays its taxes, it can request an abatement from the tax authorities.

Absorption

The rate at which homes are sold in a market over a given time period.

Accredited Investor

An investor with a special status under financial regulation laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. In the United States, for an individual to be considered an accredited investor, they must have a net worth of at least one million US dollars, not including the value of their primary residence or have income at least $200,000 each year for the last two years (or $300,000 together with their spouse if married) and have the expectation to make the same amount this year.

Accrue

The amount of money to be received by someone over time, either regulated or increasing.

Adjustable-Rate Mortgage (ARM)

LIBOR

Amortization

A gradual paying off of a debt by periodic installments.

Example: A $100,000 loan is arranged at an 8% interest rate. The borrower pays $10,000 in the first year. Of the payment, $8,000 is for interest, $2,000 for amortization. After the payment, the loan balance is $98,000.

Anchor Tenant

The main tenant in a retail store such as a large mall, where the landlord has rented space to in order to attract large sums of people.

Appraisal

The valuation of a property, estimated by someone of certain qualifications and authorization.

Assumable Loan

A type of loan/mortgage where the buyer can take ownership of the existing mortgage with no change in terms. The seller of the house still remains liable.

Example: If Bob owes a 30yr mortgage loan of $100,000, and Sally wants to purchase the home and keep the same mortgage, she pays a certain amount in equity and assumes the mortgage.

Bad-Boy Carveout

There exist exceptions in most non-recourse loans within the loan documents that result in full-recourse liability to the borrower and the guarantor when "bad-boy" behaviors occur.

Balloon Mortgage

A mortgage with a balloon payment (see balloon payment).

Balloon Payment

The final payment on a loan, when that payment is larger than previous installment payments and pays off the entire loan.

Example: After the interest-only payments have been made, the principal balance is due, and this is the balloon payment.

Basis Point

One 100th of 1%.

Example: Mortgage loan interest rates are 7.75% this week. They were 7.25% last week. The increase was 50 basis points.

Bridge Loan

Mortgage financing between the termination of one loan and the start of another.

Bullet Loan

A loan where a payment of the entire principal of the loan, and sometimes the principal and interest, is due at the end of the loan term. Likewise for bullet bond. A bullet loan can be a mortgage, bond, note or any other type of credit.

Example: Michelle receives a $1 million loan for 5 years at 10% interest to buy her home. If she can't repay the loan, she will lose her home.

Bullet Payment

See bullet loan

Cap

A limit (in adjustable rate mortgages) put in place to protect the borrower from large increases in the interest rate or the payment level.

Cap(italization) Rate

A cap rate measures a property's yield and is the percentage derived by dividing net operating income by purchase price. A cap rate can also be used to derive value by dividing net operating income by the cap rate.

Example: A property with $0.8 million of net operating income sold for $10 million or an 8% cap rate.

Capital

Stocks, bonds or mortgages that were sold to raise money to purchase assets.

Example: The corporation's capital included $1 million of bond, $2 million in capital stock, and $1.5 million of retained earnings.

Capital Call

Additional money that is invested by equity investors/owners to help fund deficits in certain costs.

Example: Investors were asks for $5 million more as capital calls for various construction and operation costs.

Capital Gain

Profits made from the sale of property or an investment.

Example: Mike buys his house for $100,000 and sells it 10 years later for $150,000, earning $50,000 profit as capital gains on his income.

Capital Stack

Also simply known as the "cap stack", the capital stack orders the priority of claims to the collateral and payments, whether for normal distributions or upon a sale or foreclosure of a property.

Carve-out Guaranty

Same as bad-boy carve-out.

Cash Flow

Amount of money available to an equity investor after deducting all cash payments and expenses related to rental income.

Cash Management

A money management technique used by corporate treasurers to control cash balance and speed up the collection of checks.

Cash Sweep

A situation in which excess cash goes to pay down outstanding debt rather than getting distributed to shareholders. Companies always have the option to use excess cash to pay down debt.

Cash on Cash Return

Ratio of an investor's return in relation to the original cash invested, measured by net operating income minus debt service, divided by equity invested.

Class A

A high quality category in a particular market, referring to building that are desirable among tenants and investors. Class A are of the highest quality, and criteria include age, location, construction quality, attractiveness of style, level of maintenance, etc.

Closing

The event in which the ownership of a property is transferred from seller to buyer, in according with a sales contract.

Club Deal

Similar to a syndicated loan but usually involves a group of private equity investors

Common Equity

Common Equity is the amount that all common shareholders have invested in a company. Most importantly, this includes the value of the common shares themselves. However, it also includes retained earnings and additional paid-in capital.

Example: In order to calculate common equity, you add common stock + surplus capital + retained earnings.

Core

Unleveraged, low potential, low risk style of investment with predictable steady cash flows.

Core Plus

A fixed-income investment style where managers add elements/instruments with higher risk and higher potential yield.

Cost Overrun

The amount of costs incurred in excess of the amount originally budgeted due to an underestimation of the actual cost during budgeting.

Covenant

A promise written into instruments agreeing to the non/performance of certain acts. It can enforce or prevent certain uses of property.

Debt

An obligation to pay.

Example: Doug borrows $10,000 from Mike and thereby incurs a debt.

Debt Service

The periodic payments, including interest and principal, made on a loan.

Debt Service Coverage Ratio (DSCR)

The relationship between net operating income and total debt service. It is often used as criterion for underwriting.

Example: If NOI/Total Debt Service >1, this means that the entity has a sufficient income to pay its debt obligations.

Debt Stack

The entire structure of a mortgage including all other debt for a property.

Deed

A written document that is properly signed and delivered, which shows title to real property.

Deed of Trust

An instrument used in the absence of a mortgage, where the legal title to the property is assigned to one or more trustees to secure the loan's repayment.

Example: Mike borrows $10,000 on his home from a certain organization. He provides a deed of trust that is held by a trustee, so if he defaults this certain organization can gain possession of the home.

Default

Failure to fulfill an obligation or promise, or to perform specific tasks.

Example: The buyer's failure to show up at closing is seen as a default under the contract, which required the buyer to close within a week.

Deficiency

The shortfall of funds recovered through the sale of property securing a foreclosed loan compared to the amount of debt, interest, expenses, and damages incurred by the lender.

Example: A lender foreclosed a mortgage loan with outstanding principal balance of $50,000 and interest of $1,000. At the foreclosure sale, the property brugh $40,000. The deficiency claimed was $11,000 plus expenses.

Depreciation

A charge against the new cost of an asset for the estimated wear. Depreciation may be physical, functional, or economic.

Example: Although a property may increase in value because of the land, for example, it may decrease in value because the house is subject to depreciation over time.

Discounted Cash Flow

A type of investment analysis where future cash income from the investment is converted into an interest rate on the initial investment.

Example: If an asset is purchased for X dollars, and it is supposed to sell for Y after 10 years, discounted cash flow analysis can calculate the IRR.

Draw

A periodic advance of funds from a construction lender to a developer.

Example: A developer arranges a construction loan of $200,000. The funds are advanced in a series of draws, including $50,000 after final plans are completed. $50,000 after foundation is completed, $70,000 after the frame is completed, and $30,000 upon internal finishing.

Due Diligence

Example: Matters considered in due diligence studies include mechanical and electrical systems of the building, local market conditions and competition for the property, and environmental hazards.

Easement

The right, privilege, or interest that one party has in the land of another.

Example: The right of public utility companies to lay lines on other's property is an easement.

Encumbrance

Any right or interest in land that affects its value, including outstanding mortgage loans, unpaid taxes, etc.

Example: A prevention of the sale of alcoholic beverages on the land is considered an encumbrance.

Entity

The legal form in which property is owned.

Example: Examples of a formed entity can include a corporation, individual ownership, joint venture, limited partnership, partnership, and real estate investment trust.

Equity

The monetary value that the owner has in real estate over and above the liens against the real estate.

Example: A property has a market value of $100,000. The owner currently owes $60,000 in mortgage loans that are against the property. The owner's equity is $40,000.

Equity Kicker

An additional payment required in a mortgage in addition to normal principal and interest.

Example: Mike receives a loan to buy a retail store building, and the lender requires the kicker to be 8% of gross sales.

Escrow

An agreement between two or more parties being that certain property be placed with an additional property for safekeeping, pending the fulfillment or performance of of a specific act or condition.

Example: A deed can be placed in escrow pending fulfillment of other conditions to the contract.

Exit

The end of a deal, for example following the sale of a piece of land.

Exit Strategy

The method that an investor uses to exit from an investment that they have made previously.

First Lien

The legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan project.

Floater

A loan that bears interest at a variable interest rate. The rate is benchmarked to a previously agreed index, such as LIBOR.

Example: A floating rate mutual rate can be created with respect to a portfolio of various adjustable-rate mortgages, for example.

Foreclosure

The process of the lender/investor taking possession of a mortgaged property as a result of the mortgagor's defaulting on the mortgage payments.

Example: The lender foreclosed to gain possession of mortgaged land after the borrower missed 3 payments.

Free Cash Flow (FCF)

In corporate finance, free cash flow (FCF) or free cash flow to firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity.

General Partner

A partner (in a partnership) whose liability is not limited. All partners in an ordinary partnership are general partners.

Greenfield

An undeveloped site where no improvements have been made in the past.

Ground Lease

A rental of the land and only the land.

Example: Mike the landowner gives a 25 year ground lease too Bob, and Bob must pay $5,000 per year. After the 25 year period, Mike owns the land (and improvements) that Bob left on the property.

Guaranty

A promise to be responsible for another person's debt or obligation in the case that the person is not able to perform as agreed.

Hard Costs

Costs associated with actual physical construction.

Hard Lockbox

A Hard Lockbox account, in most circumstances, will require all rents and cash flows generated by a property to be directly deposited into the lockbox account controlled by the lender. This decreases the risk of the borrower misappropriating funds and provides the lender with immediate control over property revenues.

Hard Money Loan

A short term bridge loan in which the loan is backed by the value of the asset rather than the credit-worthiness of the borrower

Hedge

A financial technique used to negate the risk of loss due to price fluctuations in the market. Investors wanting protection against a fall in price can perform a long hedge by selling forward contracts, and to protect against a rise in price, the investor can perform a short hedge by buying forward contracts.

Holdback

Money that has/will not been paid until certain events have occurred.

Example: On a $500,000 loan, the lender has a $100,000 holdback until the property is 75% rented.

Improvements

Additions to raw land, including buildings, streets, sewers, etc., tending to increase value.

Example: Land worth $200,000 was improved with a $1.5 million building. This increased the property value.

In the Money

means that a call option's strike price is below the market price of the underlying asset or that the strike price of a put option is above the market price of the underlying asset. Being in the money does not mean you will profit, it just means the option is worth exercising

In-Fill Development

Improvements on land next to and between existing development. A way to accommodate increased population in an area without spreading the boundaries of development.

Example: In Manhattan, a constricted island, the only way new housing can be developed is through in-fill development. This would increase density but conserve public facilities.

Interest-Only Loan (I/O Loan)

A loan whose interest is payable at regular intervals until loan maturity, when the full loan balance is due.

Example: A 5-year interest-only loan of $100,000 at 6% is bought and the interest of $6,000 is paid annually for 4 years, and in the 5th year, the last $6,000 is paid in addition to the $100,000 principle.

Internal Rate of Return (IRR)

The true annual rate of earnings on an investment. Equates the value of cash returns with cash invested. Is that discount rate at which the present value of future cash flows of an investment are equal to the cost of that investment.

Example: A mortgage loan has an interest rate, or an IRR of 7%, which can be measured as the loan's profitability to investors, or as the cost of the loan to borrowers.

Joint Venture (JV)

A business undertaking by two or more entities in which profits, losses, and control are shared.

Example: Mike and Sally form a joint venture to explore for minerals on Christine's property. They both have ownership of the mineral rights.

Judicial Foreclosure

A certain type of foreclosure where the court ratifies the price paid.

Jumpstart our Business Startups Act (JOBS Act)

aka JOBS Act. A law intended to encourage funding of United States small businesses by easing various securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. JOBS Act is also sometimes used informally to refer to just Titles II and III of the legislation which are the two most important pieces to much of the equity crowdfunding and startup community. Title II went into effect on September 23, 2013. Title III rulings are scheduled for October 2015.

LIBOR

A basis interest rate that is used for short-term loans.

Lease-up

The time period in which new or newly renovated property can attract tenants.

Leverage

The use of debt to finance capital investment, for the purpose of increasing the investor's rate of return on equity.

Example: If one leverage an investment by borrowing more money, the return on equity may be higher than its original value.

Lien

A charge, hold, or claim upon the property of another as security for some debt or charge, until the debt is paid.

Limited Liability Company (LLC)

A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation

Liquidity

The ease of converting assets into cash.

Example: Regular stocks and US bonds have good liquidity, whereas real state has poor liquidity.

Loan-to-Cost (LTC)

The portion of the amount borrowed compared to the cost of the project - that is mortgage debt divided by the value of the property. Lenders are often constrained as to the maximum loan-to-cost ratio on loans they originate. Similar to Loan-to-Value or LTV.

Example: Abel bought a $100,000 house and arranged a $90,000 mortgage loan, resulting in a 90% loan-to-cost ratio.

Loan-to-Value (LTV)

The ratio, expressed as a percentage, of the amount borrowed compared to the appraised value of the property purchased; mortgage debt divided by the value of the property. Lenders are often constrained as to the maximum loan-to-value ratio on loans they originate.

Example: The appraiser values a house at $100,000 and arranged a $60,000 mortgage loan, resulting in a 60% loan-to-value ratio.

Lockbox

A post office box used to speed up the gathering of receivables. Several large banks offer lock box processing to organizations as a cash management service for corporate customers.

Maturity

The date a loan is due, or the end of the period covered by a contract.

Example: A 30 year mortgage loan has a maturity of 30 years. Periodic payments are made so that the loan principal will amortize by the maturity date.

Mezzanine Financing

Mezzanine capital is any subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.

Example: Michael Development Company planned to build an office tower for $10 million. They arranged an $8 million first mortgage and $1.5 million of mezzanine financing.

Mini-Perm

--

Mortgage

A written contract that creates a lien upon real estate as security for the payment of a specified debt.

Example: Lucy wants to buy a home, so she offers a mortgage on the property to the lender. Now the property is collateral and the lender gives the loan to Lucy to be paid back over a certain time period.

Multiple of Income

The relationship of price to income.

Net Operating Income (NOI)

Income after subtracting operating expenses (maintenance, insurance, property taxes ,etc), but before subtracting income taxes and financing expenses. NOI = gross income - operating expenses.

Nonrecourse

A type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.

Occupancy

The percentage of a property that is occupied by tenants. Typically, this is measured in square feet for office and industrial buildings and units for multifamily and hotels.

Example: If a 100,000 square foot building is currently occupied by one tenant with a 75,000 square foot lease, the building can be said to be 75% occupied.

Occupancy Rate

Percentage of currently rented units in a building, city, or neighborhood.

Example: The occupancy rate of the Happy Hotel is 70% because 70/100 rooms are filled.

Operating Expense

Amount that is paid to maintain property, including property taxes, utilities, hazard insurance. This excludes financing expenses and depreciation.

Example: The following are examples of incurred operating expenses: maintenance, management, real estate taxes, supplies, debt service, depreciation, etc.

Origination Fees

Fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan, including credit checks, appraisal, and title expenses.

Example: A lender issued a $100,000 mortgage can charged a 2% origination fee ($2,000)

Overrun

Look at cost overrun

Pari-passu

Meaning equal standing, describing a situation where assets or securities, for example, are managed without any seniority or preference.

Permanent Loan

A loan/mortgage for a long period of time.

Example: The savings and loan association promises to originate a 25-year self-amortizing permanent mortgage after construction is completed.

Preferred Equity

A type of stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior (i.e., higher ranking) to common stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company)[1] and may have priority over common stock (ordinary shares) in the payment of dividends and upon liquidation (also called preferred shares, preference shares or simply preferreds).

Preferred Return

(AKA Hurdle Rate) The minimum return to investors to be achieved before a carry is permitted. A hurdle rate of 10% means that the private equity fund needs to achieve a return of at least 10% per annum before the profits are shared according to the carried interest arrangement.

Prepayment

A prepayment is the settlement of a debt or installment payment before its official due date. A prepayment can either be made for the entire balance of a liability or for an upcoming payment that is paid in advance of the date for which the borrower is contractually obligated to pay.

Example: The Johnson family made prepayments of 10 months of hazard insurance 2 months of property taxes at the closing of the residence they purchased.

Prepayment Penalty

Fees that are paid by borrowers for the privilege of paying off the loan before it is due.

Example: Mary has a 30 year mortgage and plans on paying the remaining principle early in one lump sum. Because of this, there will be a certain percentage prepayment penalty.

Principal

The amount of money raised by a loan, apart from the interest paid on it. This is contrasted with interest.

Example: Mike organized an amortizing loan at 6% interest with $100,000 principal on his home. The first monthly payment is $1200, with $500 interest and $700 principal amortization.

Priority

Having preferred status or legal precedence. Following foreclosure, lenders are repaid according to their priority.

Example: Following foreclosure of Jerry's home, unpaid taxes were accorded priority and paid in full.

Private Placement

An investment or business offered for sale to a small group of investors, generally under exemptions to registration allowed by the US S.E.C. and state securities registration laws.

Example: A private offering of the equity in the aparters was prepared. Up to 35 people are allowed to participate in the purchase, and if more are allowed, a public offering must be registered with the U.S. Securities and Exchange Commission.

Pro-Forma

Financial statements showing what is expected to occur, as opposed to actual results.

Proceeds

The total amount of money a borrower receives from a loan at closing. Oftentimes, lenders compete to give "maximum proceeds" to desired borrowers.

Promissory Note

A contract or promise to pay a certain sum of money to a certain person under specified terms in the contract.

Public Offering

Sale of investment units to the general public. Usually requires SEC or state security agency approval.

Example: A syndicator who wishes to sell limited partnership interests to more than 35 investors should register this public offering with the SEC.

REIT

A Real Estate Investment Trust - a real estate mutual fund, allowed by income tax laws to avoid the corporate income tax. A REIT sells shares of ownership and must invest in real estate or mortgages.

REO

Meaning Real Estate Owned - property that is acquired by a lender following foreclosure and held in inventory.

Example: Due to an increased number of mortgage foreclosures, the bank's REO has grown drastically.

Recourse

The ability of a lender to claim money from a borrower who is in default, in addition to the property pledged as collateral.

Example: Luke obtains a mortgage from Statewide Savings, and defaults on the loan. Now, Statewide Savings force closes and forces the sale of the mortgaged property. If the sale fails to satisfy the unpaid loan principal, Statewide Savings has recourse to other assets of Luke.

Refinance

The act of replacing existing loans with new loans.

Example: Mike has a $50,000 loan, worth $200,000. He wants cash to pay for college, and by refinancing the home with a new $130,000 loan, he will realize $77,500 in cash after paying $2,500 in transaction costs.

Regulation D

In the United States under the Securities Act of 1933, any offer to sell securities must either be registered with the United States Securities and Exchange Commission (SEC) or meet certain qualifications to exempt them from such registration. Regulation D (or Reg D) contains the rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC. A Regulation D offering is intended to make access to the capital markets possible for small companies that could not otherwise bear the costs of a normal SEC registration.

Second Mortgage

A lien created by a mortgage loan, over the amount of the first mortgage (and subordinate to it). Second mortgages are used to reduce the amount of a cash down payment or in refinancing to raise cash.

Secured Loan

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally loaned to the borrower, for example, foreclosure of a home.

Senior Debt

A mortgage that has priority as a lien over all other mortgages. In cases of foreclosure, the first mortgage will be satisfied before other debts.

Example: A property costing $100,000 is financed with senior debt of $75,000, a second mortgage of $15,000, and $10,000 in cash. If the borrower defaults and the property is sold upon foreclosure for $80,000, the holder of the first mortgage will receive the full amount of the unpaid principal. The second mortgage holder will receive any excess after the senior debt has been satisfied.

Single Purpose Entity (SPE)

A newly formed entity to satisfy a specific or temporary purpose, who is to operate specific collateral.

Soft Costs

Costs that are less apparently and not directly connected to labor and construction. These include engineering and architecture fees, as well as permits and taxes.

Soft Lockbox

A lockbox created at closing, giving the borrower some control over the property of cash flow.

Sponsor

An individual or institution in charge of sourcing, underwriting, acquiring, and operating a piece of real estate.

Springing Lockbox

A lockbox that is activated in the future, and where the lender, the borrower, and the lockbox bank undergo cash management agreements at closing.

Stabilize

The efforts made by a central bank to limit currency fluctuations in the market for foreign exchange, but buying and selling currency reserves to other central banks. This can cause currency to appreciate or depreciate.

Statutory Foreclosure

A foreclosure according to terms of the contract, not conducted under court supervision (without requiring a lawsuit). This contrasts with judicial foreclosure.

Example: Deeds of trust are used at mortgage instruments in many states. In these cases, foreclosure sales are handled through a trustee acting according to the law and the stipulations of the mortgage contract. This situation is a type of statutory foreclosure.

Sub-Market Area

A geographic or economic subdivision of a larger market. Usually refers to a specific region within a larger metropolitan area. Primary demand for property typically comes from this region.

Subordination

Refers to the order of priorities in claims for ownership or interest in various assets.

Example: A land seller who holds a first mortgage can allow subordination so the development loan could be rearranged.

Swap

An agreement in which interest payments are exchanged at a fixed rate obligation for interest payments that exist in a floating rate rate obligation. Another swap can be the exchange of one currency for another. The swap agreement depends on the notional principal, which sets the value of the swap maturity.

Syndication

A pooling of resources of a group of lenders to share the risk of a large loan.

Takeout

An agreement to provide a permanent loan following construction of a planned project.

Tenancy-in-Common (TIC)

An ownership of real estate by 2 or more people, each of whom has an undivided interest, without the right of survivorship.

Example: A tenancy-in-common is used to form a syndicate. Following this arrangement, all of the investors have to sign the deed for the entire property to be conveyed.

Title

Documentary evidence of property ownership

Title Insurance

An insurance policy that protects the holder from loss due to defects in the title.

Example: Following the purchase of property, most lenders require buyers to obtain title insurance. After finding insurance, the title company insures the buyer.

Top Out

This is the act of/the builder's rite held when a construction project for a new building is completed. This occurs when the final addition is made to the structure, marking its completion.

Trailing 12

This is a measurement of a company's financial health, where an investor will test a property's NOI.

Tranche

A slice of a mortgaged-backed-security, differentiated in ways such as risk or maturity.

Example: Certain Mortgage Backed Securities are sold in 5-year tranches, where investor get back interest plus principal at different times according to which tranche they acquire.

Triple Net Lease

A form of real-estate lease agreement where the tenant or lessee is responsible for the ongoing expenses of the property, including real estate taxes, building insurance, and maintenance, in addition to paying the rent and utilities.property and the landlord receives a net rent. Operating expenses include taxes, utilities, insurance, repairs, janitorial services, and license fees.

Trophy Building

A building that is well known to the public and popular to institutional investors, such as pension funds. These buildings have unique architecture, with high quality materials and finish.

Example: Examples of trophy buildings include the Empire State Building and Rockefeller Center (NY).

Trustee

Someone who holds property in trust for another in order to secure the performance of an obligation. The trustee is a neutral party in a deed of trust transaction.

Example: Michael buys property and finances it with a deed of trust from a lender. The title company is the trustee, holding legal title to the property pending Michael's satisfaction of the debt. If Michael defaults on the loan, the trustee may sell the property to satisfy the debt.

Under Water

A term used to denote a property whose loan amount exceeds its value.

Underwrite

Can have various meanings, including to assume liability for specific events, to guarantee the sale of certain securities, and to asses the risk of a situation.

Example: A loan underwriter can perform a due diligence study to analyze the risk of a suggested mortgage loan.

Unsecured Loan

Unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment. In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors. The unsecured creditors will usually realize a smaller proportion of their claims than the secured creditors.

Vacancy Rate

The percentage of all units/space that is unoccupied or not rented. On a pro-forma income statement a project vacancy rate is used to estimate the vacancy allowance.

Example: If 90/100 rooms in a hotel are booked, the hotel has a 10% vacancy rate.

Vacant

Empty, having no occupants.

Value-Add

Properties are considered value added when they exhibit management or operational problems, require physical improvement, and/or suffer from capital constraints. Typically considered a high-risk/high-return strategy.

Waterfall

A type of payment method where higher tier investors receive interest and principal payments, and lower tier investors only receive interest payments. Thus the capital gained by the fund is allocated between limited partners and the general partners.

Workout

An agreement between a property owner and a lender to avoid foreclosure or bankruptcy, or to resolve a troubled loan.

Yield

A measurement of the rate of return/earnings from an investment. It is another word for internal rate of return (IRR).

Example: A mortgage loan is arranged to yield 6% a year to the lender.

Yield Maintenance

A slice of a mortgage-backed security, differentiated in ways such as risk or maturity.

Zoning

A legal tool used by local governments to regulate the use of privately owned real property to prevent conflicting land uses and promote orderly development.