Commercial Real Estate Terms

The world of commercial real estate is both fascinating and intricate. The responsibility for purchasing, selling, leasing, managing, or financing commercial real estate could be as small as a retail store or massive as a high-rise office building. Regardless of size, there will always be a process to follow and standard commercial real estate terms to learn in order to be successful.

25 Common Commercial Real Estate Terms

Here are 25 terms that we consider important:

Broker: A person who represents another individual or business during the purchasing and selling process.

Build-to-Suit: A property built specifically for a particular tenant, having structural characteristics, systems, or improvement work tailored to the demands of that tenant.

Cap Rate: Short for “capitalization rate.” Capitalization rate refers to the relationship between Net Operating Income (NOI) and property asset value. (For example, a building with a NOI of $10,000 and a cap rate of 5% is valued at: 10,000/0.5 = $200,000)

CBD: A central business district is the center of the city’s business and industry. It features retail and office space. In larger cities, it is frequently synonymous with the “financial district” of the city.

Delivery/Delivery Date: The date when a building receives a certificate of occupancy and construction is complete.

Full-Service (FS) Rental Rate: A rental fee including all operating expenses, including utilities, power, janitorial services, taxes, and insurance.

Landlord: A property owner who rents or leases their property to a tenant.

Landlord Representation: In a standard lease transaction between an owner/landlord and a tenant, a broker represents the owner/landlord.

LOI: A letter of intent is a formal declaration of one company’s intention to transact business with another.

Modified Gross (MG) Rental Rate: Not all operating expenses, such as utilities, electricity, taxes, janitorial services, and insurance, are included in the rental rate. Typically, the tenant is responsible for housekeeping and utility costs, while the remaining operating expenses are included in the rental fee. This should be clarified with the owner or broker.

Preleased Space: A space that has been rented to a tenant and declared for future construction but is currently not under construction yet.

PM: Property Manager. A person who oversees the operational parts of a structure. After a tenant has signed a lease, it is the Property Manager’s responsibility to assist the tenant with any questions, the build-out of the space, and any ongoing difficulties that may arise.

PSF: An abbreviation for Per Square Foot, and it is the unit of measurement used to compute the majority of commercial real estate transactions.

Punch List: A final checklist of tasks that must be completed on the property prior to the completion of construction.

RFP: A request for proposal is a business document that proposes a project, explains it, and solicits bids for its completion from competent contractors.

ROI: Return on investment is a performance metric used to measure the profitability or efficiency of an investment or to assess the profitability of multiple projects.

RSF: Usable square feet, plus a portion of the building’s common area equals rentable square feet.

Second Generation Space: Previously occupied space with modifications (such as doors, walls, ceiling treatments, etc.) that are often usable by a subsequent tenant.

Shell Space: Unfinished interior space of a building that needs improvement.

Sublease/Sublet Space: Area that has been leased by a tenant and is now being placed back on the market for rent by that tenant.

Tenant: A person, business, or organization that pays rent to a property owner or landlord in exchange for the right to use and inhabit a property or area.

Tenant Representation: When a broker represents the tenant in a usual lease transaction between the tenant and the owner/landlord.

TI: Tenant improvements are the personalized modifications a building owner makes to rental space as part of a lease agreement in order to configure the space to meet the demands of a specific tenant.

Triple-Net (NNN) Rental Rate: Excludes all operating expenses such as utilities, electricity, taxes, janitorial services, and insurance from the rental rate. The tenant is expected to cover these costs immediately.

Vacancy Rate: The percentage of physically unoccupied space divided by a proportion of the overall inventory.
Now that you are aware of all the commercial real estate terms to know. Contact and schedule a free consultation with Saint Investments’ professionals to start your investment journey!