CCIM flashcards
CCIM · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Net Operating Income
- Effective gross income minus operating expenses. It excludes debt service, capital expenditures, depreciation, and income taxes, and is the basis for capitalization-rate valuation.
- Capitalization Rate
- A property's net operating income divided by its sale price or value. It is an unlevered going-in yield used to compare properties and to derive value.
- Debt Service Coverage Ratio
- Net operating income divided by annual debt service. Lenders use it to test whether property income can cover loan payments, often requiring 1.20 or higher.
- Debt Yield
- Net operating income divided by the loan amount. Because it ignores interest rate and amortization, lenders use debt yield as a minimum-income test when sizing loans.
- Effective Gross Income
- Potential gross income minus vacancy and collection loss, plus other income such as parking, signage, or vending. It is the income base after expected non-collection.
- Operating Expense Ratio
- Operating expenses divided by effective gross income, expressed as a percentage. It shows the share of collected income consumed by fixed and variable operating costs.
- Break-Even Occupancy
- The occupancy level at which collected income exactly covers operating expenses plus debt service: (operating expenses + debt service) divided by potential gross income. It shows the cash flow cushion.
- Loan Constant
- Annual debt service divided by the original loan amount, also called the mortgage constant. It is compared with the cap rate to test whether leverage is positive.
- Market Rent
- The rent a property would command if leased today on current market terms. It is contrasted with contract rent, the rent actually specified in an existing lease.
- Net Absorption
- The change in occupied space over a period, calculated as space leased minus space vacated. It excludes moves within the market and measures net new demand.
- Vacancy Rate
- Vacant rentable square feet divided by total rentable square feet. Economic vacancy also counts concessions and collection loss, so it typically exceeds physical vacancy.
- Rent-to-Sales Ratio
- Occupancy cost, including rent, common area charges, and taxes, divided by the tenant's gross sales. Retailers use it to judge affordability, often targeting roughly 8 to 12 percent.
- Situs
- The value attributable to a site's location and its spatial relationships to other activities. Situs is unique to each parcel and cannot be replicated by construction or design.
- Economic Base Analysis
- A method that splits local employment into base (export) and service sectors. Growth in base employment is treated as the driver of demand for local real estate space.
- Marketability Study
- A study estimating the price or rent a specific property can achieve within a specified time. It differs from a feasibility study, which asks whether a proposed use is justified.
- Derived Demand
- Demand for real estate space arises from demand for the goods and services produced in that space. It is therefore indirect and tied to tenant business conditions.
- User Decision Analysis
- Analysis of occupancy alternatives for a business that will use the real estate itself, such as leasing versus owning or building versus buying. The objective is minimizing after-tax occupancy cost.
- Sale-Leaseback
- The owner sells a property and simultaneously leases it back. The user raises capital and deducts rent, but gives up depreciation, appreciation, and control of the asset.
- After-Tax Occupancy Cost
- The present value of all cash outflows of occupying a space, net of tax deductions and any reversion from sale. Lower after-tax occupancy cost identifies the better user alternative.
- Incremental Analysis
- Comparing only the differences in cash flows between two alternatives rather than their total cash flows. Items that are identical under both options cancel and are ignored.
- Functional Utility
- The degree to which a building's layout, clear height, loading, and systems support the user's operations. Poor functional utility raises effective occupancy cost even at the same rent.
- Build-to-Suit
- An arrangement in which a facility is designed and constructed to a specific tenant's requirements. Rent typically amortizes the developer's land and construction cost plus a return.
- Cost of Capital
- The after-tax rate a user could earn on alternative investments of similar risk. It serves as the discount rate when comparing present values of occupancy alternatives.
- Lease Flexibility
- The option value of a shorter term or of expansion and cancellation rights. It reduces the risk of being locked into space that no longer fits the user's operation.
- Net Present Value
- The present value of all future after-tax cash flows and the reversion, discounted at the required return, minus the equity invested. Positive NPV signals the investment meets the hurdle.
- Internal Rate of Return
- The discount rate that makes an investment's net present value equal zero. It is compared with the investor's required return, and higher IRR is better when risk is comparable.
- Cash-on-Cash Return
- Before-tax cash flow divided by the equity invested, usually reported for the first year. It measures current income return and ignores appreciation and tax effects.
- Equity Multiple
- Total cash distributions plus net sale proceeds divided by the equity invested. It measures total return but does not account for the timing of cash flows.
- Depreciation Recapture
- The portion of gain on sale attributable to prior depreciation deductions. For real property it is taxed as unrecaptured Section 1250 gain at a rate of up to 25 percent.
- Section 1031 Exchange
- A transaction deferring capital gains tax when sale proceeds are reinvested in like-kind property. Replacement property must be identified within 45 days and acquired within 180 days.
- Positive Leverage
- A condition in which borrowed funds earn more than they cost, so the equity return exceeds the unlevered return. It occurs when the cap rate exceeds the loan constant.
- Adjusted Basis
- Original acquisition cost plus capital improvements minus accumulated depreciation taken. It is subtracted from net sale price to determine taxable gain or loss.