CCIM key terms

Annual property income remaining after vacancy, collection loss, and all operating expenses are subtracted, but before debt service, capital improvements, and income taxes. It is the primary input to capitalization-rate valuation.

Potential gross income less vacancy and collection loss, plus secondary income such as parking, vending, or percentage rent. It is the revenue base from which operating expenses are deducted to reach net operating income.

The revenue a property would produce at full occupancy with market rents charged on every space, before deducting vacancy, concessions, or expenses. It is the starting point of the income statement.

Total operating expenses divided by effective gross income, expressed as a percentage. It shows how much of each revenue dollar is consumed by operations and helps compare similar properties of different sizes.

Net operating income divided by annual debt service. A ratio of 1.20 means income covers loan payments by 20 percent; lenders use it to size loans and gauge default risk.

The loan amount divided by the property's value or purchase price. Higher ratios mean more leverage and thinner protection for the lender, so loan terms usually tighten as the ratio rises.

Net operating income divided by price or value, expressed as a percentage. It measures the income yield a buyer expects at acquisition and reflects perceived risk, growth prospects, and financing conditions.

Sale price divided by potential gross income, sometimes by effective gross income. It is a quick screening tool for comparing similar properties because it ignores operating expenses, vacancy, and financing differences.

Net operating income minus annual debt service. It is the cash an investor actually receives each year before income taxes, and it drives several return measures.

Before-tax cash flow divided by the equity invested. It measures the current cash yield on the investor's own money and ignores appreciation, amortization, and tax benefits.

The occupancy level at which effective gross income exactly covers operating expenses plus debt service. It shows how much vacancy a property can absorb before cash flow turns negative.

A recurring allowance set aside from income for short-lived building components such as roofs, HVAC equipment, and parking lots. Analysts often deduct it from income to reflect true capital needs.

The rent a property would command in the open market under current conditions for comparable space, supported by leases recently signed on similar properties in the same area.

The average rent per period after subtracting concessions, free rent, and above-market tenant improvement allowances, expressed as a level amount over the full lease term. It allows fair comparison of competing lease packages.

The pace at which vacant space is leased over a period, usually measured net of space vacated during that time. It signals whether demand is outpacing new supply in a market.

An allowance that reduces potential gross income for space standing empty plus rent that is billed but never collected. Analysts apply market-based rates rather than relying on the property's present figure.

A geographic or product-defined slice of a larger market, such as Class B offices in one suburban corridor, where supply, demand, and rents move together.

A landlord incentive such as free rent, reduced rent for a period, or an above-market improvement allowance given to induce a tenant to sign. Concessions push effective rent below face rent.

A study estimating the price, rent, and absorption period a specific property can achieve in a defined market. It tests whether a proposed project can realistically be sold or leased.

Properties that could realistically attract the same tenants or buyers as the subject, including space under construction and proposed projects, which together constrain achievable rents.

The combined cost a user pays to occupy a facility, including rent or ownership costs, taxes, insurance, utilities, maintenance, and move-in expenses, often expressed per square foot or per employee.

Comparing the present value of after-tax costs of leasing space with those of acquiring and occupying a property, so an owner-occupant can choose the lower-cost or better-fitting alternative.

Money already spent that cannot be recovered no matter which alternative is chosen. Because it does not change with the decision, it should be excluded from the comparison of options.

The value of the best alternative given up when a resource is committed to one use, such as the rent a company forgoes by occupying space it already owns.

The reasonably probable, legally permissible, physically possible, and financially feasible use of a site that produces the highest present value. It frames value estimates for both users and investors.

A loss in value caused by outdated design, layout, or building systems relative to what the market now expects, such as low ceiling heights, poor column spacing, or inefficient floor plates.

A transaction in which an owner sells a property and simultaneously leases it back, freeing equity while keeping occupancy. The rent the user pays reflects the buyer's required return on investment.

Development arranged around a specific user's space and site requirements, often leased or owned by that user at completion. Costs and design are driven by the occupant's operating needs rather than speculative demand.

A valuation method that projects annual cash flows and a sale reversion, then discounts them to present value at a rate reflecting the investment's risk and the investor's required return.

The present value of all projected cash inflows minus the initial equity outlay, discounted at a required rate. A positive result means the investment is expected to exceed the hurdle rate.

The discount rate that makes the present value of all projected cash flows, including the reversion, equal the initial equity investment. It is compared against an investor's target return.

The estimated net sale proceeds at the end of the holding period, after costs of sale and mortgage payoff, discounted back to present value as part of a cash flow analysis.

The assumed number of years an investor owns the property before selling. It determines how many annual cash flows are projected and when the reversion occurs.

Using borrowed funds to acquire a property. Positive leverage occurs when the property's overall return exceeds the mortgage constant, magnifying returns on equity; negative leverage does the reverse.

Net operating income divided by the loan amount. Lenders use it as a leverage-independent test of whether a property's income can support the debt being requested.

The capitalization rate applied to the final year's net operating income to estimate sale price at the end of the holding period. It often differs from the going-in rate to reflect expected market change.

Testing how a valuation or return result changes when key assumptions such as rent growth, vacancy, interest rates, or exit capitalization rate are varied, usually one at a time.