Basic Commercial Real Estate Terminology You Should Know Before Investing

When you’re looking to invest in commercial real estate, it’s important to be familiar with the terminology. Here are ten of the most important terms to know:

1. Asset class – This refers to the category or type of property that is being purchased or sold. There are four main asset classes: office, retail, industrial, and multi-family.

2. Cap rate – This is short for capitalization rate, and it’s a key measure of investment performance. It’s calculated by dividing the property’s annual net operating income by its purchase price. The higher the cap rate, the more attractive the investment.

3. Debt coverage ratio – This measures how easily a property can cover its debt payments. It’s calculated by dividing the property’s net operating income by its annual debt service payments. The higher the debt coverage ratio, the more secure the investment.

4. Gross lease – A gross lease is one in which the tenant pays rent for the use of the entire property, including all common areas and amenities.

5. Net lease – A net lease is one in which the tenant pays rent for the use of the property itself, minus any common area or amenity costs. This type of lease is also known as a triple net lease.

6. Office market – This term refers to the supply and demand for office space in a given market.

7. Retail market – This term refers to the supply and demand for retail space in a given market.

8. Tenant improvement allowance – This is money that the landlord agrees to pay the tenant to improve or customize the space to their needs.

9. Triple net lease – A triple net lease is one in which the tenant pays rent for the use of the property itself, minus any common area or amenity costs. This type of lease is also known as a net lease.

10. Vacancy rate – This measures the percentage of vacant space in a given market. It’s calculated by dividing the total amount of vacant space by the total amount of occupied space.