C-RETS key terms

A property's effective gross income minus operating expenses, excluding debt service, capital expenditures, and income taxes. It is the core figure used to value income property through capitalization and discounted cash flow.

An income rate that converts a single year's net operating income into an indicated value, calculated as NOI divided by price or value. It blends return expectations, growth, and risk into one market-derived number.

A valuation method that divides a stabilized single-year net operating income by a market-derived capitalization rate to estimate value. It assumes a steady income stream and is best applied to stable, comparable properties.

A valuation model that projects annual cash flows over a holding period and discounts them, plus a reversion, to present value at a required return. It captures variable income, leasing, and financing assumptions.

The discount rate at which a project's present value of cash inflows equals its present value of outflows, giving a net present value of zero. Investors compare IRR to a required hurdle rate.

The dollar difference between the present value of expected cash inflows and outflows, discounted at a chosen rate. A positive NPV indicates the investment exceeds the required return.

The rate used to convert future cash flows to present value, reflecting the time value of money plus risk. It is often set from a target return or a weighted cost of capital.

The estimated net proceeds from selling a property at the end of the holding period, usually after selling costs and loan repayment. It is discounted to present value in a DCF.

The capitalization rate assumed for a sale at the end of the projection period, used to estimate reversion value by dividing final-year NOI by that rate. It often differs from the entry cap rate.

The estimated value of a property at the end of the analysis horizon, before deducting sale costs or loan balances. It is derived from a going-out cap rate or a growth-based formula.

Potential gross income plus other income, less vacancy and collection loss. It represents realistic income available to cover operating expenses and debt service.

Total operating expenses divided by effective gross income, expressed as a percentage. Lenders and buyers use it to compare expense efficiency across similar properties.

Net operating income divided by annual debt service. Lenders set minimum ratios, commonly 1.20 to 1.35 for commercial loans, to ensure income covers loan payments with a cushion.

The loan amount divided by the property's appraised value or purchase price, whichever is lower. It measures leverage and drives lender pricing and equity requirements.

Net operating income divided by the loan amount, expressed as a percentage. It measures the property's ability to repay a loan from income independent of interest rate or amortization.

Annual pre-tax cash flow divided by the equity invested. It shows the current cash yield on an investor's own capital before tax effects and appreciation.

Total cash distributions plus sale proceeds received by the equity investor, divided by the equity invested. It measures total return over the holding period without regard to timing.

Net operating income minus debt service and capital reserves, before income tax is applied. It is the cash an investor actually receives each year from operations.

The use of borrowed funds to acquire a property, magnifying both returns and risk to equity. Positive leverage occurs when the property's return exceeds the cost of debt.

The blended required return on a property's debt and equity, weighted by their shares of total capital. It is a common benchmark discount rate in investment analysis.

A technique that weights mortgage and equity components by their capital shares to derive an overall capitalization rate or discount rate. It reflects the blended cost of financing.

A lease provision setting the level of operating expenses a landlord absorbs before a tenant begins reimbursing increases. It limits the landlord's exposure to rising costs.

The reference year in a lease against which future operating expenses are compared for tenant reimbursement. The tenant typically pays its share of increases over that base amount.

A lease mechanism requiring tenants to reimburse the landlord for some or all operating expenses, often pro rata by leased area. It shifts cost risk from owner to tenant.

A lease in which the tenant pays base rent plus some or all property operating costs such as taxes, insurance, and maintenance. Variations include single, double, and triple net structures.

A lease where the tenant pays base rent plus property taxes, insurance, and common area maintenance. The landlord receives relatively predictable net income with limited expense exposure.

A lease in which the landlord pays operating expenses from the rent collected, and the tenant pays a single all-inclusive amount. It contrasts with net lease structures.

Charges tenants reimburse for maintaining shared areas such as parking, corridors, and landscaping. CAM reconciliations compare estimated collections with actual expenses and adjust the difference.

The measurement used to set rent, typically including the tenant's space plus a share of common areas. It differs from usable area and is defined by standards such as BOMA.

The ratio of rentable area to usable area, showing how much common space is allocated to a tenant. A higher factor means a tenant pays for more shared area.

The actual floor area a tenant occupies and can use exclusively, measured to defined boundaries. It excludes the tenant's share of common areas.

The pace at which available space is leased or sold over a period, usually expressed as square feet per quarter or year. It signals demand strength and market direction.

The change in occupied space over a period, calculated as new leasing minus space vacated. Positive net absorption indicates tightening demand.

Vacant available space divided by total competitive inventory in a market or submarket. It is a primary indicator of landlord pricing power.

The rent a property would command in an open, competitive market under current conditions. It is used to compare in-place rents and estimate lease-up potential.

A geographic segment of a larger market with distinct supply, demand, and pricing characteristics, such as a downtown district or industrial corridor. Analysis at this level improves comparability.

Recently closed transactions of similar properties used to estimate value through adjustment for differences in location, size, condition, and terms. They anchor the sales comparison approach.

A contract window during which the buyer investigates physical condition, title, leases, zoning, and environmental risk. The buyer may typically terminate and recover its deposit within this period.

The contract setting price, closing timeline, contingencies, representations, and remedies for a commercial property transaction. It governs the parties' rights before closing.

Funds a buyer places in escrow to demonstrate commitment to a transaction. The deposit is typically refundable during due diligence and may become non-refundable afterward.

A signed statement by a tenant confirming lease terms, rent, and any defaults, on which a buyer or lender may rely. It reduces risk in lease-heavy transactions.

A schedule listing each tenant, leased area, rent, lease dates, and options for a property. Buyers and lenders use it to verify income and assess lease rollover risk.

A nonbinding summary of proposed deal terms, such as price, timeline, and contingencies, issued before a formal contract. It aligns buyer and seller expectations early.