What are some common Commercial Real Estate (CRE) terms?
1031 Exchange: A “1031 exchange” is a method of deferring tax on the sale of an interest in real property as allowed under Section 1031 of the Internal Revenue Code. In brief, if the proceeds from the sale were reinvested in a like-kind property, a 1031 exchange would allow a seller to postpone tax on any profits gained from the sale.
CAM: Common Area Maintenance.
This refers to 1 of the 3 charges billed to tenants in a triple net lease – also known as NNN. Triple Net (NNN) is the tenant’s share of tax, insurance, and common area maintenance.
Cap Rate: the ratio of net operating income against the property valuation.
NOI / Current Market Value is the equation to remember for cap rate calculations.
Net Operating Income: this is the property’s income after all expenses are taken out.
Net Absorption: the amount of space occupied over a given point in time while subtracting out vacancies.
Letter of Intent: think of the LOI as a way to get down details of an agreement before anything is set in stone. After the LOI is agreed upon, those terms are transferred into a lease.
Submarket: divisions of bigger markets, marked by geographic location
Triple Net Lease (NNN): A rental rate that does not include the landlord paying operating expenses like insurance, utilities, or taxes.
