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Definitions of “Oft Used” Real Estate Terms

Absorption – The filling of available space in the market, financial reporters often speak of the absorption of office space in a given city as a barometer of the economy. If a given city or market is not able to absorb the available space, it could be a sign of an economic slowdown, because companies are not leasing/buying space, or overbuilding when supply outstrips demand.

Acre – an acre is 43,560 square feet.
Build-To-Suit* – Refers to a Lease where a Building Owner or Developer, builds according to the Tenant’s specifications. The construction costs are then figured into the Lease, which is generally for the long term.

Cap Rate (Capitalization Rate) – The percentage used to determine the value of income through capitalization. Capitalization, specifically, determines the present value of a building by taking the annual net income and discounting by using the rate of return acceptable to Buyers of similar properties. Example: Net income of a property is $100,000. per year. Using a 10% Cap Rate, the property would be worth: $1,000,000.

Common Areas – Areas of a Multi-Tenant Building or Office/Business Park, such as Common Hallways, Lavatories, Sidewalks, Driveways and the like, that are used by all Tenants or Condominium Owners who share the common expense of their operation and maintenance. Snowplowing, Landscape Maintenance, Janitorial Services, Pavement Repair, Parking Lot Striping and more services are paid for by Tenants/Owners through C.A.M. charges added to the annual rent.

Contingency – A condition that must be met before a contract is legally binding. If a zoning change is necessary in order that a Prospective Buyer can operate a business, or make certain improvements, a contract will be written contingent upon Zoning Approval.

Due Diligence – Generally refers to the homework that the Buyer and Seller do during the period after a contract is signed, but before the closing of the transaction. This homework can include items such as zoning work, environmental surveys, physical inspections and the like.

Grand List – The term used for the tax roll or assessment list in New England States.
Improvements* -Generally, buildings, however, improvements can be any permanent structure attached to the land, such as roads, parking lots, sewers, utilities, etc. 

*Letter of Intent* – An informal method of stating a Prospective Tenant’s or Buyer’s interest in a property. It is neither binding, nor a legal document in the contractual sense, but demonstrates a prospect’s good faith interest. In the case of a Lease, a Proposal to Lease may be used in place of a Letter of Intent.

Right of First Refusal – A right usually given by an owner to a lessee, which gives the lessee the first chance to buy the property, should the owner decide to sell. The Owner must have a valid offer (in writing) which the lessee can match or refuse to match, in which case the sale will go through with the original offeror. In multi-tenant buildings, a right of first refusal can also apply to spaces for lease, whereby a lessee will have the right to expand into future available spaces in the building or pass it up.

Tenant Improvements – Also known as “Build-Out”, these are improvements such as walls, additional plumbing, built-ins, HVAC changes, structural changes and so forth, that meet the needs of the Tenants. These improvements can be paid for by the Tenant, the Landlord, or both parties.

Common Abbreviations

CAM – Common Area Maintenance S.F.

S.F. – Square Foot

M/L – More or Less (used in measuring s.f.)

P.S.A. – Purchase and Sale Agreement

CBD – Central Business District

L.O.I. – Letter of Intent

T.I. – Tenant Improvements

S.I.O.R. – Society Industrial Office Realtors

C.C.I.M. – Certified Commercial Investment Member

G.R.I. – Graduate Realtor Institute

A.B.R. – Accredited Buyer’s Representative

C.R.S. – Certified Residential Specialist