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Schlesinger Companies

Glossary of Terms

Real Estate Glossary

Absorption Rate

The number of units or amount of space a property will lease or sell in a market over a specific time period.

Amortization Period

Repayment of a loan with periodic payments on both principal and interest calculated to pay off the loan at the end of a fixed period of time. The loan payment consists of a portion that will be applied to the accruing interest on the loan, with the remainder used to pay the principal. Over time the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified period.


A tenant that generally occupies the largest space at a given property, serving as the primary draw of customers or additional tenants to the property. These tenants usually receiving a lower lease rate. In Retail, Anchor tenants are considered lynchpins to the success of a major retail center development and are normally located at the extremes of the mall in order to draw customers through the center. In new construction office buildings, an Anchor can serve as a catalyst for financing.

Balloon Loan

Also known as a bullet loan, it is a loan, often a mortgage, granted on the basis that payments of principal will be deferred until the end of the loan period and only interest will be payable during the loan period. A balloon loan will often have the advantage of very low interest payments, thus requiring very little capital outlay during the life of the loan. Since most of the repayment is deferred until the end of the payment period, the borrower has substantial flexibility to utilize the available capital during the life of the loan.

Bridge Loan

A short-term loan granted to cover an intermediate stage in business. In real estate, it is a loan primarily for borrowers who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment.

Capital Balance

An investor's current cash investment balance in a particular investment.

Capital Expenditure (Cap Ex)

Expenditures incurred to acquire or renovate a property for the long term or to increase the permanent value of property. In general, money spent on improvement, alteration, or renewal is considered a capital expenditure, but money spent on repair and maintenance is not.

Capital Reserves (CR)

Money set aside for unforeseen property expenses that you cannot budget for (e.g. carpet spills, accidents in garages, etc).

Capitalization Rate (Cap Rate)

A ratio used to estimate the value of income-producing properties, which describes a return rate acceptable to an investor taking the risk of a capital investment. This ratio is calculated by dividing the net operating income by the sales price or value of a property expressed as a percentage, and is developed by analyzing the selling price, gross income and operating expenses of recent sales of comparable properties in a particular market place. The cap rate is one of many financial tools used by investors, lenders and appraisers to establish a reasonable purchase price for a given investment property in a specific market region.

Cash-on-Cash Return

The relationship, expressed as a percentage, between cash flow (i.e., the net cash flow receivable after debt service but before tax) and the total equity outlay on an investment. In determining such a return, the cash flow includes the effective gross income less all outgoing expenses (e.g., real estate taxes, operating expenses and interest or principal owed on financing), but no account is taken of capital appreciation, depreciation or equity build-up resulting from repayments of principal on any loan secured on the property.

Central Business District (CBD)

The center of a downtown area within a city. It is the core of an urban area where generally there is the greatest concentration of administrative and financial offices, retail establishments, entertainment facilities and hotels. In the United States, the CBD is the area that historically was the center of a town or city for business and shopping and was the area of highest land values, i.e., the area where economic activity is at its highest, creating the greatest amount of competition for property.

Class A Property

Property with buildings of the highest quality in terms of location, design, building standards, efficiency and definitive market presence. Premier businesses compete with each other to lease these properties, thereby driving rents far above average for the area. Property that falls short of this standard may be classified as Class B or Class C as the particular attributes merit.

Closing Costs

Monies expended by a party in completing a real estate transaction above and beyond the purchase price, including: legal fees, taxes, mortgage application charges, interest adjustments, registration fees, appraisal fees, etc.


Effectively a pre-payment penalty, it is the retirement of a debt in substance, but not in practice, with the substitution of one form of security for another. For example, if during a loan's lockout period the borrower wishes to pre-pay the loan, they may use collateral (usually in the form of U.S. Treasuries) as a substitute for the mortgage securing the loan. The treasuries service the borrower's debt at a higher rate of interest than normally would be incurred should the borrower not pre-pay.


Quarterly payments to investors made on a pro-rata basis and represent cash-on-cash returns.

Effective Gross Revenue (EGR)

Total income generated by a property, less operating expenses, when it is fully leased and after making allowance for vacancies and defaulting tenants.

Efficiency Ratio

The ratio of usable area to the rentable area of a building or a floor in a building. This is also known as a load factor.


The amount of an investor's own funds paid to acquire a property. It can also be the difference between the present market value of a property and the amount of debt or mortgage loans outstanding against the net worth of an owner's interest in a property.


The deposit of deed, bond, monies, contract or other written agreements with a third person to be delivered or used only upon performance or fulfillment of set conditions, as established in a written agreement between two parties.

Gross Lease

A rental agreement that stipulates a lessee pays only a fixed rent throughout the term of the lease while the lessor pays all of the building operating expenses and repairs, property taxes, insurance premiums, etc. However, the tenant is responsible for any utilities and other expenses directly relating to the occupied space.

Ground Lease

A lease of raw land; although the lease may be secured by a building or buildings erected by the lessee at a later date. The lessee retains the right to use and occupy any of the buildings erected on the land for the term of the lease. At the end of the lease, usually granted for periods in excess of 20 years, the land, together with the improvements, reverts to the lessor.

Hard Money

Cash paid to acquire additional equity in an investment, especially when used to repay existing debt or required to offset an increase in the value of the property.


Heating, ventilation and air conditioning unit (large capital cost due to high maintenance fees; considered a capital expenditure).

Infrastructure Improvements

The installation of roads, sewers, water mains, electricity lines and sidewalks in residential or commercial properties, characterized as off-site improvements. Once present, all the on-site structures (house, building, etc.) can begin construction.

Initial Loan Fee (Lender Loan Fee)

Fee that the lender charges for granting a loan request, usually 1% of loan amount. Also known as an origination fee.

Internal Rate of Return (IRR)

The compounded annual rate of return on the investment over its life, from and after the closing date, applied to the principal amount of the closing contributions plus any subsequent contributions. It is used to compare alternative investments as investors decide if the return is sufficient to warrant parting with money or if it is worth borrowing money at a given interest to make an investment. Simply put, the IRR is a measure of the inducement to invest because it measures the return of capital, i.e., the derived return.

Joint Tenants with Right of Survivorship (JTRS)

Ownership of property by two or more people in which the survivors automatically gain ownership of a decedent's interest without any distinct or separate interest in the land.

Leasing and Capital Costs

The costs incurred by a landlord while supervising a property, including tenant improvements (TI), leasing commissions (LC), capital reserve and capital expenses, marketing, legal fees, etc.

Limited Liability Company (LLC)

A type of investment structure where shareholders cannot lose more than the amount they invested in that particular company or organization. Therefore, shareholders are not personally responsible for the debts and obligations of other companies in the Schlesinger Portfolio in the event that those debts are not fulfilled. For example, every time Schlesinger Companies completes a new acquisition, the property is purchased via an LLC formed by the investors (but managed by a Schlesinger Company) in order to legally protect and separate the companies from one another.

Mezzanine Finance

Debt that incorporates equity-based options, such as derivatives, with a lower-priority debt, and schedules the payment of interest before any dividends are remunerated to owners of the equity capital. Mezzanine finance is actually closer to equity than debt because it is partially unsecured and carries a correspondingly higher risk level characterized by an interest rate several percentage points above the secured debt. It is often used to finance acquisitions and buyouts where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs.

Net Cash Flow

The cash generated by an investment after all payments have been made that are necessary to sustain the investment; it equals the income available to the owner after the payment of all operating expenses and debt service, but before depreciation and tax.

Net Lease

Lease arrangement under which tenants are required to pay the operating expenses resulting from their occupation of the premises and their share of other expenses such as real estate taxes, assessments and insurance premiums.

Net Operating Income (NOI)

Net income receivable from a property after all operating expenses have been paid and an allowance has been made for bad debts and defaulting tenants, but before payment of capital or interest on any loans and taxes.


Tenants who generally occupy the smaller spaces at a given property and who benefit from the customer traffic drawn to the property by anchor tenants. Retail non-anchor space is also referred to as shop space and usually involves higher leasing rents for those tenants.

Percentage Rent

Percentage rent payments that fluctuate based on the sales or revenue of a tenant using a landlord's property. This is common with retail rents wherein the landlord gets a percentage of the tenant's gross sales dollars.

Pre-development Costs

Costs associated with the pre-construction phase of a project such as architectural and engineering fees, permit fees, financing fees and land option payments. Pre-development cost are typically expended to determine project feasibility or to obtain required government approval; also known as soft costs.

Pro Forma Statement

A statement according to form, i.e. one that shows how a situation might develop. For example, a schedule of the projected income and expenses for a real estate investment over a given period of time.

Real Estate Investment Trusts (REIT)

A corporation, business trust, or association managed by one or more trustees or directors who pool the resources of individual investors for passive investment in real estate, whether by direct investment, by financing, by leasing arrangements, or by a combination of such methods. Its unique feature is its tax status which enables small investors to participate in large real estate ventures without the income derived from the underlying investments being subjected to taxation at both a corporate and at an individual level; in effect it subjects the beneficial owners of the REIT to only one level of taxation.

Return on Equity (ROE)

Also known as the earnings yield, it is a measure of how well a company used reinvested earnings to generate additional earnings. As a formula, it is equal to a fiscal year's after-tax income divided by book value, expressed as a percentage. ROE is used as a general indication of the company's efficiency; in other words, how much profit the company will generate given the resources provided by its investors.

Shadow Anchor Tenant

An anchor tenant that is not a part of the asset being acquired, e.g. a store appearing to be part of a shopping center but owned outside of the commercial real estate asset. The shopping center enjoys the traffic generated by the shadow anchor but not the rental income.

Tenant Improvements (TI)

Improvements to leased premises carried out by the tenant.

Tenants in Common (TIC)

A form of co-ownership that arises when two or more persons have distinct but undivided ownership rights to the same property, ownership that may be separately and freely disposed of by grant or devise. Each owner may deal with their portion of the property as they wish (giving it away, mortgaging it, selling it, bequeathing it, etc.) and, upon their death, their interest passes to a chosen representative and not to the surviving owner(s). Thus, the owners have sole and several interests in the property as against the other owners.

Total Acquisition Costs (TAC)

The total expenditure incurred by a purchaser of property. Acquisition cost includes the actual price paid, plus the transaction costs of obtaining the title including legal fees and expenses, brokerage fees, interest charges on mortgages, land transfer taxes, title insurance, discounts, closing costs and any other incidental costs directly related to the acquisition.

Total Operating Expenses (TOE)

All of the expenses arising in the normal course of managing a property investment and which are necessary in the long run to maintain a given level of income from the property and to ensure its proper upkeep and operation. Includes contract services, utilities, repair and maintenance, management fee (about 3% of EGR), insurance, property taxes, etc.

Triple Net Lease

A lease that requires the tenant to pay all costs of property ownership so that the landlord receives his rent clear of all expenses and outgoings, or at least, the three major expenses, namely taxes, insurance and repairs. In return, tenants are usually allowed to make drastic changes to the property to suit their needs so long as the owners of the property approve the changes.

Vacancy Rate

The ratio of the number of vacant units or the area of vacant space to the total number of units or total area of the property available, normally expressed as a percentage.


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