CRE guide
Commercial Real Estate Glossary
40 terms, defined the way underwriting actually uses them rather than the way a textbook does — grouped by the question each one answers, with the full guide behind the ones that have earned a page of their own.
How this is organised
Most CRE glossaries are alphabetical, which is useful if you already know the word you are looking for and useless if you are trying to understand how a deal fits together. These are grouped by what they answer: what the building earns, what the rent roll says, who pays the expenses, what the concessions cost, what the lender needs, and what the return actually is.
Definitions here describe how a term behaves in an underwriting, not just what it stands for. Where a term has a full guide on this site, it is linked. Where it does not, it is defined properly here and that is the whole of it.
Income and value
What a building earns, and what that income is worth.
- NOI
- Net operating income. Gross rent plus reimbursements and other income, less the full building operating expense. It sits above debt service and above capital items, which is why two buyers with different loans value the same NOI identically. Derived from the rent roll — never a figure typed in.
- Full guide →
- EGI
- Effective gross income. Base rent, plus what tenants reimburse, plus other income, after vacancy and credit loss. Operating expenses come out of EGI to reach NOI.
- Cap rate
- NOI divided by price, as a percent. A going-in cap rate uses year-one NOI and the purchase price. It is a yield, not a growth rate, and it says nothing about what happens after year one.
- Full guide →
- Exit cap rate
- The cap rate assumed at sale, used to value the income at the end of the hold. It is an assumption about a future market, it is usually the single most powerful number in a return calculation, and it should be stressed rather than set.
- In-place vs stabilized NOI
- In-place is what the building earns today under the leases that exist. Stabilized is what it would earn once vacancy is leased and below-market rents roll. Both are legitimate; a cap rate computed from one and presented as the other is the most common trap in an offering memorandum.
- Full guide →
- Pro forma
- A projection of income under assumptions that have not happened yet. Useful as a statement of the seller's business plan and of what they think is achievable. Not a basis to price a deal on.
- GRM
- Gross rent multiplier — price divided by gross annual rent. A rough screening ratio that ignores expenses entirely, which is both why it is fast and why it is not a valuation.
The rent roll
The document every other number is derived from.
- Rent roll
- The schedule of every suite in a building: tenant, square footage, lease dates, current rent, escalations and lease type. It is the system of record for a property's income, and an error in it propagates through NOI, cap rate, value and return while looking like arithmetic.
- Full guide →
- T-12
- A trailing twelve months operating statement — the property's own accounting export of what it earned and spent, month by month, for the last year. A T-12 is a record. An offering memorandum is a pitch. They are not interchangeable.
- Full guide →
- WALT
- Weighted average lease term — the average remaining lease length across the rent roll, weighted by square footage or by rent. It is the single best one-number summary of how soon a building's income is exposed to the market again, and it hides holdover space and expiration clustering completely.
- Full guide →
- Rollover
- Lease expirations grouped by period. A rent roll with a healthy WALT can still have a bad rollover profile if the expirations cluster, and the year the largest tenant rolls is rarely the headline of the marketing package.
- Full guide →
- Rent schedule
- The dated rent steps inside a lease, month by month, cut off at expiration. Cash flow should read the schedule rather than an annualised average, because a mid-year step and a year-one average are different money.
- Loss to lease
- The gap between what a suite currently pays and what it would achieve at market rent today. Upside if leases are rolling soon, and an irrelevance if they are not.
Lease structure
Who pays the operating expenses, and what that does to the income.
- NNN (triple net)
- The tenant reimburses its pro-rata share of the recoverable operating expenses on top of base rent. The landlord's income is largely insulated from cost inflation, which is why a low NNN quote and a high full-service quote can describe the same deal.
- Full guide →
- Gross lease
- The landlord pays the operating expenses out of the rent collected. The quoted rate is close to what the tenant actually pays, and the landlord carries the risk of costs rising.
- Full guide →
- Modified gross
- The landlord pays expenses up to a base year or an expense stop; the tenant pays only the increase above it. The tenant's expense obligation is therefore zero in year one by construction — not a concession, arithmetic.
- Full guide →
- Full service gross
- One rate covering rent, expenses, utilities and services. Most full service leases still carry a base year, so they are not a promise to absorb a decade of inflation. Read the lease, not the quote.
- Full guide →
- CAM
- Common area maintenance — the cost of running the parts of a building every tenant uses. Reimbursed pro rata in most leases, billed monthly against an estimate, and reconciled after year end.
- Full guide →
- Gross-up
- A clause letting the landlord calculate variable expenses as if the building were fuller than it is, usually 95%, before allocating them. Only variable costs should gross up, and a building already at the gross-up occupancy grosses up to nothing.
- Full guide →
- Expense stop / base year
- The threshold a landlord carries expenses up to before the tenant pays the excess. An expense stop is quoted per square foot; a base year is a whole year's actual spend.
- Full guide →
- Recoverable OpEx
- The share of operating expenses tenants reimburse. What is recoverable is a term of each lease, not a rule of the market — taxes, insurance and CAM are a common default and not a definition.
- Percentage rent
- Additional rent a retail tenant pays on sales above a breakpoint. The breakpoint is natural when it equals base rent divided by the percentage rate, and artificial when it is negotiated to something else.
- Co-tenancy
- A retail clause reducing or suspending rent if anchor tenants leave. It converts one vacancy into several rent reductions, which is why anchor risk is not confined to the anchor's own square footage.
Concessions and leasing costs
What a deal costs the landlord that the face rent does not show.
- Face rent
- The rate quoted in the proposal, before any concession. It is what the building advertises and what its valuation is built on, which is why landlords protect it and compete on concessions instead.
- Full guide →
- Net effective rent
- The face rent with concessions taken out, spread over the term: base rent actually paid, less free rent and the tenant improvement allowance, divided by square feet and years. It can never exceed the face rent — if it does, something was missed.
- Full guide →
- Effective occupancy cost
- Net effective rent with the tenant's operating expenses added back. A different metric with a different job: it is the only fair way to compare a triple net proposal against a full service one.
- TI allowance
- Capital the landlord contributes to fitting out the space, quoted per square foot. It is a real cost of the deal and is netted against rent when computing what the lease is worth.
- Full guide →
- Free rent
- Abated months at the start of a term. Costs the landlord real money once, keeps the quoted rate intact, and is far less visible to the next appraiser than a lower face rent would be.
- Leasing commission
- The broker fee on a signed lease, usually a percentage of total rent over the term. A capital cost of leasing, below the NOI line, and routinely left out of a pro forma that models the rollover but not its cost.
Debt
What the lender cares about, which is not what the buyer cares about.
- DSCR
- NOI over annual debt service. Below 1.0x the property does not cover its debt. Lenders typically require 1.20x to 1.25x, and it is the constraint that usually sizes a loan rather than loan-to-value.
- Full guide →
- Debt yield
- NOI divided by the loan amount, as a percent. A lender's measure of how much income stands behind each dollar lent, and unlike DSCR it is unaffected by interest rates or amortization — which is why lenders reach for it when rates move.
- LTV / LTC
- Loan to value, and loan to cost. LTV measures the loan against the appraised value; LTC measures it against what the project actually costs. They diverge most on development and value-add, where cost and value are not the same number.
- Amortization
- The repayment of loan principal over time. A shorter amortization raises the payment without changing the rate, which is why two loans at the same rate can produce very different coverage.
- Full guide →
- Interest-only period
- A stretch at the start of a loan where only interest is paid. It raises early cash flow and leaves a larger balance to refinance later.
- Full guide →
- Balloon
- The principal outstanding when the loan term ends, due in one payment. Commercial loans are usually amortized over a longer schedule than their term, so a balloon is the norm rather than the exception.
- Full guide →
Returns
Four numbers that answer four different questions.
- Cash-on-cash return
- Annual pre-tax cash flow divided by the equity invested. A one-year measure that ignores the sale entirely, which makes it useful for the hold and useless for the whole deal.
- Full guide →
- IRR
- The annual rate at which every cash flow, discounted back, sums to the equity invested. It accounts for when money arrives, which a cap rate cannot — and it rewards speed, which is why it is read alongside equity multiple rather than alone.
- Equity multiple
- Total distributions divided by equity invested. Ignores time completely, so a 2.0x over three years and over ten look identical. That blindness is exactly what makes it a useful companion to IRR.
- Levered vs unlevered
- Unlevered measures the property with financing stripped out, which is the right comparison between two assets. Levered measures your equity position with the debt included, which is the right number for deciding whether to write the cheque.
- Yield on cost
- Stabilized NOI divided by total project cost, including the capital spent getting there. Compared against the market cap rate, the gap between the two is the development or value-add spread.
Go deeper
CRE metrics explained
Cap rate, NOI and DSCR in one guide, with the arithmetic.
How to underwrite a CRE deal
The full process, from rent roll to decision.
How to read an offering memorandum
Contractual, reported, asserted — and which belongs in your model.
Commercial lease types
NNN, gross, modified gross and full service.
CAM charges & gross-up
How recovery works, and the five reconciliation checks.
Net effective rent
The face rent with the concessions taken out.
Free calculators
No signup required.
Cap rate calculator
NOI and cap rate from rent, expenses and price.
Property valuation calculator
Value the income, and see what an asking price implies.
DSCR calculator
Coverage, and the loan the income supports.
IRR calculator
Levered IRR and equity multiple across the hold.
Lease comparison calculator
Normalize proposals across every lease structure.
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Knowing the terms is the easy half.
DealWise AI reads the leases and the operating statement, builds the rent roll, and applies every one of these to a real deal — then tells you whether to buy, hold or pass, and shows the clause it got there from.