25 Commercial Real Estate Terms You Should Know

The world of commercial real estate is as intriguing as it is complex. When it comes to buying, selling, leasing, managing, or financing a commercial real estate project, the assignment could be as small as a retail shop or as large as a high-rise office building. No matter the size, however, there’s always a process to complete and common industry terms to know in order to be successful.

Here are 25 terms that we believe are important:

Broker: A person who represents another person or a company during a buying or selling process.

Build-to-Suit: A property developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant.

Cap Rate: Short for “capitalization rate,” the cap rate refers to the ratio of Net Operating Income (NOI) to property asset value. (e.g. A building with a NOI of $10,000 valued at a 5% Cap is worth: 10,000/0.5 = $200,000)

CBD: Central Business District

Delivery/Delivery Date: The time when a building completes construction and receives a certificate of occupancy.

Full-Service (FS) Rental Rate: A rental rate that includes all operating expenses such as utilities, electricity, janitorial services, taxes, and insurance.

Landlord: The owner of a property that is rented or leased to a tenant.

Landlord Representation: When a broker represents an owner/landlord in a typical lease transaction between an owner/landlord and a tenant.

LOI: Letter of Intent

Modified Gross (MG) Rental Rate: A rental rate that includes some of the operating expenses such as electricity, utilities, taxes, janitorial services, and insurance, but not all. Often the tenant will pay for janitorial and utilities while the other operating expenses will be included in the rental rate. It is important to clarify this with the owner or broker.

Preleased Space: Space that has been leased to a tenant and announced for future development but is not yet under construction.

PM: Property Manager. An individual who oversees all operational aspects of a building. Once a tenant signs a lease, it is the Property Manager who will assist the tenant with any questions, the build-out of the space, and any on-going issues once they have moved in.

PSF: Per Square Foot

Punch List: A final checklist of work that needs to be done to a property before the end of construction.

RFP: Request for Proposal

ROI: Return on Investment

RSF: Rentable Square Feet

Second Generation Space: Space that has had a prior tenant and therefore has modifications (such as walls, doors, ceiling treatments, etc.) that can often be used by a subsequent tenant.

Shell Space: A building space that has an unfinished interior and requires improvements.

Sublease/Sublet Space: Space that has been leased by a tenant and is being offered for lease back to the market by that tenant.

Tenant: A person, business, or group that pays rent to an owner or landlord for the right to use/occupy a property or space.

Tenant Representation: When a broker represents a tenant in a typical lease transaction between a tenant and an owner/landlord.

TI: Tenant Improvement

Triple-Net (NNN) Rental Rate: A rental rate that excludes all operating expenses such as electricity, utilities, taxes, janitorial services, and insurance. These expenses are expected to be paid directly by the tenant.

Vacancy Rate: The percentage of physically vacant space divided by the total amount of existing inventory.

At Melvin Mark, we’ve been part of the commercial real estate industry for 75 years. Today, our three companies (Brokerage, Capital Group, and Investors) offer an umbrella of expert services to our clients and partners. Our goal is to build relationships and create personalized plans that yield shared success. If you’re interested in working with us or have any questions about the market, contact us today.