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  • Absorption Rate
    The rate at which available homes are sold in a specific real estate market during a stated time period. The figure shows how many months it will take to deplete the current supply of homes on the market.
  • Acceleration Clause
    A clause in a contract that allows a lender to command full or partial repayment of an outstanding loan if certain conditions are not met by the borrower.
  • Accredited Investor
    An Accredited Investor ("AI") is an individual or firm who meets the minimum financial threshold set by regulators in the country and is given access to exclusive investment opportunities with fewer regulatory constraints.
  • Acquisition Costs
    The cost of acquiring a property; including purchase price and all other allied costs like legal fees, brokerage charges, due diligence expenses etc.
  • Acre
    An area of land of any shape containing 43,560 square feet or 4,840 square yards or approximately 4,047 square meters.
  • Adjustable-Rate Mortgage (ARM)
    Mortgages with interest rates indexed to a certain benchmark. Typically, the mortgage begins with a fixed rate for a period and is adjusted periodically thereafter.
  • Adjusted Tax Basis
    The Adjusted Tax Basis is the proportionate value of an asset or security after adjusting for any deductions applied, or capital improvements to the asset or property.
  • Alpha
    In investments, Alpha is a measure of the returns attributed to active management, rather than market exposure, or beta. It is often used to refer to the value added by a manager’s skill. This definition may be extended to private real estate transactions and management.
  • Alternative Investments
    Investment categories other than traditional securities or long-only stock and bond portfolios; they include hedge funds, venture capital, private equity, and real estate, commodities. Alternative investments often employ strategies typically unavailable to long-only managers, such as the use of derivatives, the ability to short, and the ability to hold illiquid assets.

    Alternative investments tend to be less liquid, exhibit lower correlations with public markets, and are generally constituent of less efficient private markets.
  • Amortisation
    Amortisation is a repayment model where the loan is repaid in several instalments over time, with each installment consisting of both principal and interest payments.
  • Anchor Tenant
    An anchor tenant is the major occupier of the subject property. They often receive rent discounts and incentives as reward for leasing a significant space of a shopping mall is a major retail or department store that is one of the larger stores in the mall. As a reward for bringing people to the mall, anchor tenants often receive discounted rents.
  • Ancillary Tenant
    Ancillary tenants are smaller tenants of a subject property that occupy less space and pay a higher rent rate.
  • Annual Sinking Fund
    A sinking fund where payments and interest accumulated are calculated yearly.
  • Annual Value
    AV is used as the basis to compute property tax for properties. AV is the gross annual rental value which a property is expected to fetch when let and less what the landlord pays for expenses of repair and maintenance.
  • Basis Point
    A basis point (bps) is equal to 1/100th of 1% or .01% and is a common unit of measure for interest rate changes.
  • Beta
    In investments, Beta is a measure of the sensitivity of a security or portfolio to broad market movements. The beta of the market index is 1.0. A security with a beta of greater than 1.0 tends to rise or fall more than the market; a security with a beta of less than 1.0 tends to rise or fall less than the market. The term “beta” can also indicate the portion of portfolio returns that result from market exposure, rather than from manager strategies or skill (alpha).
  • Bridge Loan
    A bridge loan is a short term loan that is used till a person or company secures permanent financing or removes an existing financial obligation. These are short term loans backed by collateral, typically the underlying property in the context of real estate, and have relatively high interest rates while providing immediate capital.
  • Capital Stack
    The capital stack refers to the legal organisation of the capital invested in a project. The stack is the riskiest at the top, and risk reduces when moving down the stack to the lease risk. Higher positions in the stack expect higher returns for their capital for undertaking higher risk. There can be many different layers to a capital stack, with the most common ones being (in order of decreasing riskiness) –

    1) Common equity
    2) Preferred equity
    3) Mezzanine debt
    4) Senior debt

    The capital stack determines who has legal rights to certain assets and income and the priority of payment in the event of default or sale or liquidation of the property.
  • Capitalization (Cap) Rate
    Cap Rate is the rate of return for a property based on its annual income. It is calculated by dividing the net operating income of the property by the total value of the property. Cap rates can provide a good initial measure to compare different investment opportunities but should not be the sole factor considered. While a meaningful way to assess risk and value, they are best understood within the context of the particular market the property is found in and by their relationship to prevailing interest rates. The most competitive primary markets, like London, frequently have far lower cap rates than secondary or tertiary markets. When analysing the assumptions made by Sponsors about the sale of an asset, real estate investors will frequently look at the assumed exit Cap Rate and test the impact on their net returns if the assumption is incorrect.
  • Capital Preservation
    Capital Preservation is a term referring to an investment strategy with the main objective of preserving capital and avoiding losses in an investment portfolio. With a Capital Preservation strategy, investments tend to consist of the safest short-term investment products, such as fixed deposits and bonds.
  • Cash Yield (before or after tax)
    Cash Yield is the ratio of annual cash flow to the total amount of cash invested, expressed as a percentage. This figure can be expressed as before or after tax expenses.
  • Commercial Real Estate
    Commercial Real Estate (CRE) refers to real estate assets that are used for business or commercial purposes. As such, tenants in CRE assets typically conduct income-producing business activities. CRE assets can range from single units with one tenant to massive shopping malls or office towers with multiple tenants varying in size and category.
  • Common Equity
    The capital stack with the riskiest but highest potential upside for a commercial real estate project. Since all other parties are entitled to payment first, common equity investments carry the highest attendant risk. However, common equity investments typically have unlimited upside on profits if the investment performs well.
  • Compound Annual Growth Rate (CAGR)
    The Compound Annual Growth Rate, or CAGR, is the calculated rate of return required for an investment to increase from its initial value to the value at the end of the investment period. The CAGR calculation assumes that all profits generated through the investment are reinvested throughout the investment period at the CAGR.
  • Core
    Core investments in real estate are investments into properties that are stable and income producing. Core properties are characterized by:
    – Relatively low degree of leverage
    – Properties that are fully (or mostly) leased with stable cash flow
    – The property is in good shape, with little need for major renovations
    – Located in a demand-heavy and transparent market with strong underlying fundamentals
    – Usually follow a “buy and hold” business plan

    This investment strategy sits well with relatively conservative investors who prioritise wealth preservation and inflation hedging as their primary investment objectives.
  • Core Plus
    These projects also focus on relatively-stable assets in strong, established markets and submarkets, but also entail increased opportunity in the form of some property renovation and optimisations to rent roll. Typically at least one attribute of the underlying asset is riskier than you would expect from a core investment — the property may be in a suburb or secondary market, or the property may not be fully-leased (which presents both risk and opportunity). Returns for both Core and Core-Plus strategies tend to be primarily driven by rental yield rather than capital value appreciation.
  • Crowdfunding
    Crowdfunding means financing a business venture, product, idea, or property using funds pooled from a large number of potential investors (“”the crowd””). Crowdfunding is typically associated with raising funds through an online platform, which utilises technology to present information and manage the transaction. Crowdfunding began as a new means to finance business or artistic ventures and initially relied on donations from the crowd. Pioneering companies like Kickstarter and Indiegogo helped fuel the growth of donation based crowdfunding and also utilised reward crowdfunding, where donors would receive a gift or sample product for their funds.
  • Debt Service Coverage Ratio (DSCR)
    The debt service coverage ratio is the ratio of cash available for debt servicing to interest, principal and lease payments. In real estate, DSCR is a key measure to determine if a property will be able to meet its financial obligations based on cash flow. Senior loan documents typically impose a minimum DSCR.
  • Deed of Trust
    A Deed of Trust is a deed where the legal title to the property is transferred to a trustee which holds it as security for a loan between a borrower and a lender. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off.
  • Debt-to-Equity Ratio
    Debt-to-Equity Ratio, or D/E Ratio represents a company’s financial leverage. The D/E ratio formula measures how much of a company’s finances are leveraged through debt compared to its retained earnings. This represents the company’s financial risk by indicating how the shareholders’ equity can cover the company’s outstanding debt should a downturn occur.
  • Depreciation Recapture
    Depreciation recapture is taxable income that is earned when the sale price of capital property exceeds the depreciated price of the property.
  • Distribution Waterfall
    A distribution waterfall is the order in which an investment vehicle makes payment distributions.
  • Diversification
    Diversification is a commonly used investment strategy, defined as the mixture of a variety of investments within an investment portfolio. The aim of diversification is to spread out investments across different asset classes, sectors, and strategies so that a downturn in a particular area is less likely to impact the portfolio as a whole.
  • Dividend Yield
    Dividend yield is a measure used to calculate the amount a company pays out in dividends relative to the price of its stock. The value obtained represents the approximate dividend-only return that a stock provides.
  • Double Net Lease
    A Double Net Lease, otherwise known as a NN lease, is a type of leasing agreement whereby the tenant is required to pay for the property taxes and insurance premiums for the property. These form two of the three main expenses of a property.
  • Equity Multiple
    The equity multiple is defined as the total cash distributions received from an investment, divided by the total equity invested. Here is the equity multiple formula:

    For example, if the total equity invested into a project was $1,000,000 and all cash distributions received from the project totalled $2,500,000, then the equity multiple would be $2,500,000 / $1,000,000, or 2.50x.
  • Escrow
    An agreement between two or more parties for an asset to be held by a third party (escrow agent) on behalf of two other parties that are in the process of completing a transaction. The escrow agent holds the funds or assets until it receives appropriate instructions or until predetermined contractual obligations are fulfilled. Money, securities, funds, and other assets can all be held in escrow.
  • Financial Advisor
    A Financial Advisor is someone who has strong expertise and knowledge of finance and the general economic market. Financial Advisors generally create financial plans for their clients to aid them in achieving their financial objectives, and consult regularly with clients to evaluate and adjust their financial plans.
  • Fiscal Policy
    Fiscal policy is the manner in which a government regulates its spending levels and tax rates in order to control and influence a nation’s economy.
  • Floor Area Ratio (FAR) or Plot Ratio
    Floor area ratio (FAR), also known as floor space ratio and floor space index, is a term for the ratio of a building’s total floor area to the size of the lot on which it is built. The ratio is determined by dividing the total or gross floor area of the building by the gross area of the lot. A higher ratio is more likely to indicate a dense or urban construction.
  • GP Investor
    The GP (or “general partner”) investor refers to the managing party on an investment. “GP Investor” can also be labelled as “the Sponsor” with respect to real estate investments – it is the party responsible for originating the investment, sourcing debt and equity financing, and managing the project through to completion. As such, GP investors assume greater risk, take an active role in ensuring success of the investment (as opposed to passive LP investors), are afforded greater potential return in the structuring of the investment.
  • Gross Potential Income
    Gross potential income is the income that will be realised if a property is fully occupied and all rents are collected.
  • Hold Period
    The duration of ownership of an asset, usually for real estate investments.
  • Income Property
    Income property is property that is acquired or developed specifically for the purpose of generating income for its owner through leasing, renting, or capital appreciation. These properties can be commercial or residential.
  • Industrial Property
    Industrial properties range from smaller properties, often called “Flex” or “R&D” properties, to larger office service or office warehouse properties to the very large “big box” industrial properties. Industrial properties often on long term leases and can sometimes be build-to-suit buildings that have difficulty changing tenants without extensive modification.
  • Inflation
    Inflation quantifies the rate at which a currency’s value declines, resulting in an increase in prices of goods and services in a particular economy. Inflation is also reflected in the decline in purchasing power of a particular currency as time passes. Inflation serves to determine the impact of the changes in price of a range of goods and services and this is represented as a single value.
  • Institutional Investor
    An institutional investor is defined as a legal entity or organisation that pools funds from numerous investors (which may be individual investors or other legal entities) to invest in different financial instruments such as stocks, bonds, real estate, or any other investment vehicles.
  • Internal Rate of Return (“IRR”)
    One of the most common metrics used to gauge investment performance is the Internal Rate of Return (IRR). It is one of the first performance indicators you are likely to encounter when browsing real estate opportunities. The IRR is defined as the discount rate at which the net present value of a set of cash flows (ie, the initial investment, expressed negatively, and the returns, expressed positively) equals zero. In more simple terms, it is the rate at which a real estate investment grows but it also factors in the time sensitive compounded annual rate of return. One of the keys to IRR analysis, though, is realising that timing plays an important role. The time or duration of the investment hold period and the timing that cash distributions are paid to investors both have a big influence on this equation.
  • Investment Property
    An Investment Property is a real estate asset purchased for the purpose of generating capital returns. These returns on the investment may be generated either through renting the property to produce rental income, capital gains from the appreciation in value of the property, or both. Investment Properties may be owned by an individual investor, an institutional investor or a group of investors.
  • Loan-to-Cost Ratio (LTC)
    The loan-to-cost (LTC) ratio is a metric used in commercial real estate construction to compare the financing of a project (as offered by a loan) with the cost of building the project. The LTC ratio allows commercial real estate lenders to assess the risk of providing a construction loan. It also allows developers to understand the amount of equity they retain during a construction project.
  • Loan-to-Value Ratio (LTV)
    Loan-to-value (LTV) ratio is an examination of lending risk that financial institutions and other lenders assess before granting a mortgage. Typically, assessments with high LTV ratios are higher risk and comes at a greater cost to borrowers (higher interest rates), if the mortgage is approved.
  • LP Investor
    In this term, “LP” stands for “limited partner”. LP investors in equity investments assume both a limited share of risk and, consequently, a limited share of potential profits as compared with GP investors (GP investor is typically synonymous with “the Sponsor” or the “managing partner”). LP investors are not liable for debt, and are exempt from much of the legal risk inherent in the real estate project, the GP investor is typically entitled to a proportionally greater share of profits.
  • Mezzanine Debt
    Mezzanine debt is a hybrid lending instrument, commonly used by real estate developers, to secure additional financing. Mezzanine debt gives the lender the right to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.
  • Monetary Policy
    Monetary policy is how central banks or other agencies control the supply of money and interest rates in an economy to influence output, employment, and prices.
  • Multifamily Real Estate
    Considered as one of the four major commercial real estate asset classes, multifamily refers to properties with more than one distinct unit, suitable for multiple tenants or groups of tenants to occupy. The term may refer to apartments, condo complexes, or even co-living spaces.
  • Net Operating Income (NOI)
    The income stream generated by operational activities of the property, independent of external factors such as financing and income taxes. A property’s yearly gross income less operating expenses.
  • Net Present Value
    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyse the profitability of an investment or project. Because of the time value of money, a dollar earned in the future won’t be worth as much as one earned today. The discount rate in the NPV formula is a way to account for this.
  • Opportunistic
    Opportunistic real estate investments are usually associated with little to no in-place rent roll, require significant rehabilitation or even entail ground-up development. It is common for opportunistic and value-add strategies to have the returns back-end loaded, nearer to the end of the target investment period, which can amount to significant risk. While opportunistic investments entail a relatively high degree of risk, they typically project to an IRR of 24% or more, and sometimes much higher.
  • Pari Passu
    Pari-passu is a Latin phrase meaning “equal footing” that describes situations where two or more assets, securities, creditors, or obligations are equally managed without preference.
  • Preferred Equity
    Preferred Equity is a class of ownership that has a higher claim on the assets and earnings of a property than common equity, but is subordinate to senior debt.
  • Preferred Return
    A preferred return is a mechanism for allocating cash flow to various investors in a real estate investment before others. Investors or partners entitled to a preferred return will receive cash flows distributed by the investment before other equity investors receive any share of the profit. Preferred returns signal that the Sponsor feels that the investment’s performance will likely exceed the level of the preferred return, because the Sponsor’s profits depend on it.
  • Prepayment Penalty
    A prepayment penalty is usually specified in a clause in a mortgage contract stating that a penalty will be imposed on the borrower if significant pays down on the mortgage occurs before term, usually within the first five years of committing to the loan. Prepayment penalties protect the lender against the financial loss of interest income that would otherwise have been paid over time.
  • Private-Market Real Estate
    Private-market real estate and private real estate investing refers to the universe of non-traded real estate investments; illiquid by definition and typically characterized by investment in a discrete property. Private-market real estate investments stand in contrast to publicly-traded REITs (real estate investment trusts) which are liquid but tend to correlate with public equities markets.
  • Property Management
    Property management is the management and overseeing of a real estate asset by a property management firm or property manager. The property being managed is typically owned by another individual or entity, and may range in type, such as residential, industrial or commercial real estate.
  • Real Estate Crowdfunding
    Real estate crowdfunding refers to online platforms that offer real estate investments to investors. Such platforms offer investments to individual investors at low minimum sums and through efficient, online platforms.
  • Real Estate Cycle
    The real estate cycle can help investors project income and capital appreciation of a property and also advise investors on the right time to make capital improvements or sales. Real estate investors can apply the theories of the real estate cycle in order to identify the correct phase, and deploy the appropriate investment strategy to maximise returns.
  • Real Estate Investment Trust (REIT)
    A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands. Some REITs engage in financing real estate.
  • Real Estate Portfolio
    An investment portfolio may consist of investments across different asset classes, such as stocks, bonds, or real estate. Within an investment portfolio, an investor may have a dedicated Real Estate Portfolio, which is a collection of different real estate investment assets held by an individual investor or an investment group.
  • Real Estate Syndicate
    A Real Estate Syndicate is a body of investors who pool their funds to invest in or develop a property. This Real Estate Syndicate gives investors access to more buying power and larger investment opportunities that they would otherwise not have access to as individual investors.
  • Refinance
    Refinancing is the practice of replacing an older loan with a new loan that offers better terms, such as a lower interest rate.
  • Sales Comps
    Sales comps (or ‘comparables’) are prices for recently sold assets in the immediate surroundings of a target property. Sales comps included in the investment thesis during underwriting, serving as evidence of support for projected sale (or exit) price. GP investors typically present sales comps as part of an offering memorandum when seeking investors.
  • Senior Debt
    Senior debt is the first tranche of a company’s liabilities, which means that it is paid first, before all other creditors. Senior debt is the safest type of financing for the party providing the funds. Should a company go bankrupt, any remaining funds, dissolved assets or other available sources of value must first repay senior debt before being distributed to other creditors.
  • Sharpe Ratio
    A statistical measure in modern portfolio theory frequently used to express risk-adjusted return, or return accounting for volatility. Calculated as follows: Sharpe Ratio = (Expected Return – Risk Free Rate of Return) / Standard Deviation Prevailing rate of return for treasury notes (or T-note) often represents risk-free rate of return. This formula is often used at the portfolio level to assess whether changes in asset allocation will have a positive or negative impact on the expected risk-adjusted return of a portfolio.
  • Sponsor
    A real estate Sponsor is a principal investor in a real estate project, responsible for sourcing the investment and implementing its business plan. Typically, the Sponsor has a background in asset management and construction/development, as well as real estate finance.
  • Stamp Duty
    Stamp duty is a tax on dutiable documents for immovable properties, stocks and shares. These documents include lease or tenancy agreements for properties, transfer documents for properties and mortgages for properties.
  • Statutory Foreclosure
    A statutory foreclosure is part of a clause in the deed of trust that enables the lender to sell the mortgaged property, if the borrower defaults.
  • Subasset Class
    Any subset of a more broadly-construed class of investments. In real estate, “subasset class” may refer to a specific property type (e.g. multifamily or industrial) and/or a specific investing strategy (e.g. value-add).
  • Tertiary Markets
    Tertiary markets are smaller metro areas that are not sizeable enough to be labelled as primary or secondary markets. Investments in these markets can be riskier, but have the potential for high returns.
  • Triple Net Lease
    A Triple Net Lease (Net-Net-Net or NNN) is a lease agreement where the lessee agrees to pay all real estate taxes, building insurance, and maintenance on the property, in addition to the basic rent fee. This form of lease is commonly used for commercial freestanding buildings.
  • Underwriting
    Underwriting is the process by which an underwriter performs due diligence on and otherwise scrutinizes a financing request made by a Sponsor seeking funding for a real estate project to determine how much risk to accept.
  • Value-add
    Value-add properties are those which require improvements but has existing rent income. The improvements require higher commitment, such as large renovations or curing deferred maintenance. Investing in value-add properties is a moderate to high risk strategy (due to the nature of larger improvements to a property) with moderate to high returns.

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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.