C-RETS flashcards

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, excluding debt service, capital expenditures, depreciation, and income taxes. It is the core unlevered income metric used in direct capitalization and DCF.

Capitalization Rate

NOI divided by property value or price. It expresses an unlevered year-one yield and, rearranged, converts NOI into an indicated value. Lower cap rates imply higher pricing and lower perceived risk or higher growth.

Cash-on-Cash Return

Before-tax cash flow divided by equity invested. Before-tax cash flow equals NOI minus annual debt service. It measures current equity yield and ignores appreciation, so pair it with IRR.

Debt Service Coverage Ratio

NOI divided by annual debt service. Lenders commonly require 1.20x to 1.35x. The DSCR-constrained loan amount often limits proceeds more than LTV does on lower-yield assets.

Loan-to-Value Ratio

Loan amount divided by appraised value. Lenders size loans at the lesser of the LTV-constrained and DSCR-constrained amounts, so both tests must be run to find binding proceeds.

Internal Rate of Return

The discount rate that sets the net present value of all project cash flows to zero. Equity IRR uses the initial equity outflow, annual cash flow, and net sale proceeds.

Equity Multiple

Total distributions divided by equity invested, including sale proceeds. It ignores the timing of cash flows, so a project with a strong multiple can still have a weak IRR.

Effective Gross Income

Potential gross income minus vacancy and collection loss, plus other income such as parking, fees, and percentage rent. It is the starting point for computing NOI.

Direct Capitalization

A single-year valuation method dividing stabilized NOI by a market-derived cap rate. It assumes stable income and is less suited to properties with major lease rollover or repositioning.

Terminal Capitalization Rate

The cap rate applied to forward NOI to estimate reversion or sale value in a DCF. It typically exceeds the going-in cap rate when growth is expected to slow or risk rises.

Triple Net Lease

A lease in which the tenant pays base rent plus its pro rata share of property taxes, insurance, and common area maintenance. Landlord retains structural and roof obligations unless negotiated otherwise.

Modified Gross Lease

A lease in which the landlord pays some operating expenses and the tenant reimburses others, often above a base year or base amount. Expense stops define the tenant's exposure.

Common Area Maintenance

Recoverable operating expenses for shared areas, allocated to tenants by pro rata rentable square footage. Caps, exclusions, and gross-up provisions determine the actual recovery.

Load Factor

The ratio of rentable to usable area, adding a share of common area to the tenant's suite. Office load factors commonly run 10 to 20 percent, affecting quoted rent per square foot.

Rent Commencement Date

The date the tenant begins paying rent, which may lag the lease commencement date during build-out or a free-rent period. It directly affects cash flow timing and valuation.

Tenant Improvement Allowance

A landlord-funded amount per square foot for tenant build-out. Unused allowances may be forfeited or credited, and the terms affect effective rent and landlord capital outlay.

Estoppel Certificate

A tenant-signed statement confirming lease terms, rent, deposits, and absence of defaults. Buyers and lenders require them before closing, and the PSA sets a required threshold.

Phase I Environmental Site Assessment

A records review and site inspection identifying recognized environmental conditions. It does not include sampling. A Phase II with sampling follows if the Phase I finds concerns.

Vacancy Rate

Vacant square feet divided by total inventory square feet. Availability rate also counts space marketed while still occupied under an active lease, so it usually reads higher.

Net Absorption

The change in occupied square feet over a period, equal to space leased and occupied minus space vacated. Positive absorption supports rent growth when supply is constrained.

Construction Pipeline

Square footage under construction plus proposed projects. Comparing the pipeline to trailing average annual absorption indicates whether future supply will outpace demand.

Market Rent Versus Contract Rent

Contract rent is the in-place lease rate; market rent is the current achievable rate. The spread signals rollover risk or mark-to-market upside when leases expire.

Submarket Analysis

Evaluation of a geographic segment within a metro, where micro-location, access, amenities, and tenant mix drive rent and cap rate dispersion. It is more actionable than metro averages.

Comparable Sale Adjustment

Adjusting selected sales for differences in size, vintage, lease profile, location, and timing rather than applying the average price or cap rate directly to the subject property.

Cap Rate Compression

A decline in cap rates that raises value for a given NOI, typically driven by falling interest rates, easier credit, or stronger investor demand for the property type.

Office-Using Employment

Jobs in professional, financial, and information sectors that drive office space demand. Growth in this measure supports absorption and rent growth in office submarkets.

Purchase and Sale Agreement

The contract setting price, earnest money, due diligence period, closing date, representations, and prorations. It governs the transaction timeline and remedies for default.

Earnest Money

A buyer deposit that becomes non-refundable (hard) when the due diligence period expires. Amount and go-hard date are key negotiated leverage points in the PSA.

Due Diligence Period

The contractual window for the buyer to inspect title, survey, environmental, physical condition, and leases, and to terminate and recover the deposit if contingencies are unmet.

1031 Exchange Timeline

Tax-deferred exchange rules require identifying replacement property within 45 days and closing within 180 days, or by the tax return due date if earlier.

Closing Prorations

Allocation of rents, CAM, taxes, and utilities by day between buyer and seller at closing. Tenant security deposits transfer to the buyer as a credit.

Assignment of Leases

A closing document transferring the landlord's interest in leases to the buyer. Tenant notice letters direct rent payments to the new owner after closing.