Glossary of Commercial Mortgage Terms
Amortization:
Identifies the loan amortization that is being quoted (in years); the period of time over which principal and interest payments are scheduled. For example, a loan with a 10-year term and a 25-year amortization will have a balloon payment at the end of 10 years. Also, the maximum number of periodic installments (expressed in years) over which repayment of a mortgage debt is calculated; a portion of each payment consists of a blend of interest and amortization of principal.
Amortization known as 30/360:
An interest rate accrual method in which the interest calculation assumes that all 12 months of a calendar year have 30 days and uses a 360-day year. An Actual/360 interest calculation charges interest for all 365-calendar days sing a 360-day year. Therefore, borrowers pay 5 days less interest than under Actual/360. The Actual/360 interest calculation produces an effective interest rate that is 12 basis points higher than the produced by the 30/360-interest calculation.
Acre:
A measure of land equal to 43,560 square feet, 4,840 square yards or 160 square rods. A square parcel of land measuring 208.71 feet on each side contains one acre. There are 640 acres in a “section” of land.
Amortization known as Actual 360:
An interest rate accrual method in which interest calculation charges interest for all 365 calendar days using a 360-day year. A 30/360 interest calculation assumes that all 12 months of a calendar year have 30 days and uses a 360-day year. Therefore, borrowers pay 5 days more interest than under 30/360. The Actual/360 interest calculation produces an effective interest rate that is 12 basis points higher than that produced by the 30/360 interest calculation.
Amortization known as Actual 365:
An interest accrual method in which the annual interest will be divided by a 365 day year, and the interest for each interest period will be the interest for the actual number of days in that period. The number of days in the year for periodic calculation is usually one of three choices: 1) actual days in the year (365 or 366 for leap years), 2) always 365 days, or 3) always 360 days (based on 12 x 30-day months). Each interest basis reflects a choice for computing the number of days in the interest period and the number of days in the year in which interest is paid. Municipal and corporate bonds use the 30/360 basis, and government bonds use Actual/Actual. T-bill discounts are calculated on an actual/360 basis. Many variable rate municipal bonds are based on Actual/Actual or Actual/365.
Amortization known as Actual/Actual:
An interest accrual method in which the annual interest will be divided by a 365 or 366 day year, and the interest for each interest period will be the interest for the actual number of days in that period.
Application Fee:
A fee or schedule of fees charged by a lender at the time of loan application. This fee may include the cost of an appraisal, credit report, processing fee or other closing costs which are incurred during the process or the fee may be in addition to other charges.
Appraisal:
An estimate of the value of a property, made by a qualified professional called an appraiser; results in the estimated market value of the property.
Assisted Living:
A Healthcare subtype; provides apartment-style accommodations where services focus on providing assistance with daily living activities. These facilities are designed to bridge the gap between independent living and nursing home care, and provide a higher level of services for their residents including meals, housekeeping, medication assistance, laundry, and regular checks-ins.
Assumption Fee:
A fee paid a borrower or lender, for the paperwork and processing of records necessary to approve and document a new debtor.
Blanket Loan:
Refers to a mortgage that covers more than one parcel of real estate owned by the mortgagor.
Borrower Net Worth:
The value of all assets, including cash, less total liabilities. For underwriting purposes, this is used as a guideline to indicate creditworthiness and financial strength. The net worth of a business is represented by the amount that its assets exceed liabilities
Bridge Loan:
Short-term mortgage financing that is in place between the termination of one loan and the beginning of another loan. Also, a form of interim loan, generally made between a short term loan and a permanent (long term) loan, when the borrower needs to have more time before taking the long term financing.
CAM & Utilities:
Common Area Maintenance (CAM); Operational expenses related to the utilities and maintenance of retail and office properties; under a Triple-Net lease the Tenant is required to reimburse the Landlord for their proportionate amount (based on square footage) of this expense.
Cap Ex.:
An expense line item that includes expenses for anticipated capital expenditures required to maintain a building and future capital improvements of major building systems (e.g. HVAC, parking lot, carpets, roof, etc.). Replacement reserves are typically calculated on a per unit basis (e.g. multifamily - per unit; office, retail, industrial - per square foot; etc.).
Capitalization Rate:
A guideline that suggests a capitalization rate for the proposed loan. LoanSizer bases this guideline on numerous factors including property type, loan amount, and numerous physical, financial and tenancy factors identified in the proposed loan. The cap rate is the rate of return on net operating income considered acceptable for an investor and used to determine the capitalized value. This rate should provide a return on, as well as a return of, capital; also known as "cap rate". Also, the ratio of the annual NOI to the property price (or value). The formula is: Value = annual Income divided by the capitalization Rate (V=I/R). For example, if a property generates $100,000 of net operating income and the capitalization rate is 10.0%, then the capitalized value of the income stream is $1,000,000. Conversely, if a property generated $100,000 of net operating income and was sold for $1,000,000, then the sales cap rate is 10.0%. Cap rates are determined by various methods including market driven (derived from comparable sales).
CBD Office:
An Office subtype characterized by its location in a Central Business District (CBD); the downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing.
Class A:
A property classification for properties that are above average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and/or accessibility; generally are professionally managed by national or large regional management companies.
Class an Office Surrounding land Use:
Identifies the general land use of the surrounding and/or adjacent properties in comparison to the collateral property. A Class an Office property classification refers to properties that are above average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and/or accessibility; generally are professionally managed by national or large regional management companies.
Class B:
A property classification for properties that frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well maintained by national or regional management companies; unit sizes are usually larger than current standards.
Class B Office Surrounding land Use:
Identifies the general land use of the surrounding and/or adjacent properties in comparison to the collateral property. A Class B Office property classification refers to properties that frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well maintained by national or regional management companies; unit sizes are usually larger than current standards.
Class C:
A property classification for properties that provide adequate functionality, exhibit some level of deferred maintenance; command below average rental rates; usually located in less desirable areas; generally managed by smaller, local property management companies; tenants provide a less stable income stream to property owners than Class A and B tenants.
Class C Office Surrounding land Use:
Identifies the general land use of the surrounding and/or adjacent properties in comparison to the collateral property. A Class A Office property classification refers to properties that provide adequate functionality, exhibit some level of deferred maintenance; command below average rental rates; usually located in less desirable areas; generally managed by smaller, local property management companies; tenants provide a less stable income stream to property owners than Class A and B tenants.
Clear Ceiling Height:
The dominant or typical vertical measurement from the floor of the structure to the bottom of the lowest overhead beam (under beam); expressed in feet. Also referred to as “clear headway” or “clearance.”
Common Area Maintenance:
Identifies the method by which the tenant is responsible for payment or reimbursement of Common Area Maintenance (CAM) and utility charges.
Community Shopping Center:
Open shopping center of 100,000 - 400,000 square feet. Tenants: Supermarket and/or department or discount store.
Conduit:
The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CMBS market.
Congregate Care:
A Healthcare subtype; similar to independent living, but features a community environment, with one or more meals per day prepared and served in a community dining room. Many other services and amenities may be provided such as transportation, pools, a convenience store, bank, barber/beauty shop, resident laundry, housekeeping, and security.
Construction Loan:
A short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take–out or permanent loan is used to pay off the construction loan.
Current Index Yield:
The corresponding yield of a published interest rate, such as the Prime Rate, LIBOR, Treasury bill / Treasury note rate, 11th District COFI, etc. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. A final note rate typically includes an Index Yield plus a Spread.
Debt Coverage Ratio:
Measures a mortgaged property's ability to cover monthly payments defined as the ratio of net operating income over the mortgage payments. A DCR, or DSCR (debt service coverage ratio), of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments.
Debt Service Coverage Ratio:
Measures a mortgaged property's ability to cover monthly payments defined as the ratio of net operating income over the mortgage payments. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments.
Effective Gross Income:
Term used for an income-producing property, derived from the potential gross income, less a vacancy factor and a collection loss amount.
Est. Market Rent:
The amount for which the competitive rental market indicates property should rent. Also referred to as "economic rent." Generally, contract lease rates are "marked to market" if contract rent is greater than or less than market rent.
Est. Market Vacancy:
The overall percentage of all units or space that is unoccupied or not rented in a market or sub-market. On a proforma income statement a projected vacancy rate is used to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income.
Existing Loan Balance:
If the Loan Purpose is Refinance, identifies the remaining principal loan balance of the existing note to be refinanced.
Expense Reimbursements:
Income received from the tenant as a reimbursement of expenses paid by the landlord. In a lease, an expense reimbursement clause stipulates that some or all of the operating expenses paid by the landlord are recoverable (reimbursable) from the tenant; also called expense recoveries, reimbursable, billable or pass-through. Recoverable expenses are deducted as expenses and (offsetting) recoveries are treated as separate revenue items in income and expense statements.
Extended Stay Primary Guest Types:
Identifies that the hotel rooms are predominately occupied by long-term guests (usually one week or greater).
Extraordinary Capital Exp.:
Actual major capital expenditures that were not anticipated; these expenses are typically non-recurring expenses and are generally normalized to zero.
Fannie Mae:
Federal National Mortgage Association; commonly known as "Fannie Mae", the FNMA is the largest buyer of existing mortgages. The Federal National Mortgage Association was originally organized by the federal government in 1938 to purchase FHA-insured mortgages. The association was reorganized in 1968 as a quasi-private corporation whose entire ownership is private. Fannie Mae raises capital by issuing corporate stock which is actively traded on the New York Stock Exchange and by selling mortgages out of its portfolio to various investors.
Federal National Mortgage Association:
Federal National Mortgage Association; commonly known as "Fannie Mae", the FNMA is the largest buyer of existing mortgages. The Federal National Mortgage Association was originally organized by the federal government in 1938 to purchase FHA-insured mortgages. The association was reorganized in 1968 as a quasi-private corporation whose entire ownership is private. Fannie Mae raises capital by issuing corporate stock which is actively traded on the New York Stock Exchange and by selling mortgages out of its portfolio to various investors.
Ginnie Mae:
Government National Mortgage Association.
Gross Building Area:
The total building area; referred to as GBA; generally excluding all rental area plus any common areas (e.g. elevators, hallways, stairways, etc.).
Gross Leasable Area:
The area for which tenants pay rent; referred to as GLA.
Gross Lease:
Lease structure under which the landlord pays all building expenses. Also called a Full Service Lease.
Ground Lease:
A lease on undeveloped land or a lease covering the land but not improvements. Usually a net lease. In LoanSizer it identifies whether the property is encumbered by a ground lease. Ground leases may be subordinated or Unsubordinated. Subordinated Ground lease - A lease in which rights of the lessor of the ground are junior to the rights of the holder of the first mortgage. Unsubordinated Ground lease - A lease in which rights of the lessor of the ground are senior to the rights of the holder of the first mortgage.
Ground Lease Expiration Date:
Identifies the expiration of a ground lease encumbering or otherwise relating to the property (expressed as a date). Ground leases may be subordinated or Unsubordinated.
Ground Rent:
A line item expense that represents the rent paid for the right to use and occupy land according to the terms of a ground lease; the portion of the total rent allocated to the underlying land. Rent paid for land in accordance with the terms of a ground lease.
Health Care:
A general property type or building type classification characterized by its usage for healthcare purposes. In LoanSizer, subtypes include Nursing Home, Congregate Care, Assisted Living, Other.
HVAC (Building):
Heating, ventilation, air conditioning. In LoanSizer, the percentage coverage of heating, ventilating, and air-conditioning system (HVAC) in a building.
Industrial:
A general property type or building type classification characterized by its usage for industrial purposes. In LoanSizer, subtypes include Warehouse Single-Tenant, Warehouse Multi-Tenant, Manufacturing, Research & Development, Flex Space, Light Industrial, Heavy Industrial, Other.
Industrial Property:
A property used for light or heavy manufacturing or warehouse space. Property type also includes office/warehouse.
Interest Only Strip:
When a mortgage interest rate exceeds the interest rate paid on the security backed by the mortgage, the excess interest is "stripped" and sold as an I/O strip; referred to as I/O Strip. The "strip" is usually described in the (notional) amount of the original security classes it was stripped from and then sold for pennies on the dollar basis. These are very volatile securities. As an example, if several loans prepay earlier than expected there may not be an interest stream to pay the interest on the "strips".
Interest Rate Index:
A published interest rate, such as the Prime Rate, LIBOR, Treasury bill / Treasury note rate, 11th District COFI, etc. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. A final note rate typically includes an Index Yield plus a Spread.
Interest Rate Spread:
The number of basis points over a base rate index; the difference between the rate at which money can be borrowed and the rate at which it is loaned. A final note rate typically includes an Index Yield plus a Spread.
Lease Options:
Identifies whether any lease renewal options are included in the lease agreement. A renewal option allows the tenant to extend the lease for one or more prescribed periods of time and are frequently in short- and long-term leases. Renewal options are binding on the lessor, but allow the tenant to reach a decision in light of circumstances prevailing at the time of the renewal. Thus, they are generally considered favorable to the tenant, not the lessor.
Limited or General Partnership:
A borrowing entity structured as a partnership in which there is at least one partner who is passive and limits liability to the amount invested, and at least one partner whose liability extends beyond monetary investment.
LLC:
Limited Liability Company; a borrowing entity structured as a company wherein the restriction of one's potential losses to the amount invested. The absence of personal liability. Provided to stockholders in a corporation and limited partners of a limited partnership.
Loan Amortization:
Indicates the requested Loan Amortization (in years); the period of time over which principal and interest payments are scheduled. For example, a loan with a 10-year term and a 25-year amortization will have a balloon payment at the end of 10 years.
Loan-to-Value Ratio:
The ratio between the principal amount of the mortgage balance, at origination or thereafter, to the current value of the underlying real estate collateral; referred to as LTV. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic and varies by lending institution, property type, geographic location, property size, among other things.
Lock-Box Provision:
The trustee is given control over the gross revenues of the underlying properties in a CMBS. Property owners only have claim to cash flows net of expenses. Expenses include debt service, taxes, insurance and other operating expenses.
Loss to Lease:
The difference between the market rental rate for a property and the rent being paid for a similar property. It is an indicator of the changing market conditions. For example, if a property was leased for a one-year term at $1,000 per month and currently the market is getting $1,100 per month on similar properties, the loss to lease is $100 per month. Also called Free To Lease Difference.
Mall - Regional:
A Retail property subtype in which the property is an enclosed shopping center with multiple retail tenants which draws from a large trade area of 12 or more miles and is occupied by two or more department stores connected by a group of in-line retail stores; typical gross building area ranges from 400,000 to 1 million square feet.
Mall - Super Regional:
A Retail property subtype in which the property is an enclosed shopping center with multiple retail tenants which draws from a large trade area of 12 or more miles and is occupied by four or more anchor tenants; typical gross building area ranges from 750,000 to 2 million square feet and is situated on 85+ acres of land.
Management (RR):
Identifies the method by which the tenant is responsible for payment or reimbursement of Property Management Fees.
Management Fees (IE):
A line item expense that represents the sum paid for management services; a variable operating expense. Management services may be contracted for or provided by the property owner. Management expenses may include supervision, on-site offices or apartments for resident managers, telephone service, clerical help, legal or accounting services, printing and postage, and advertising. Management fees may occasionally be included among recoverable operating expenses.
Master Servicer:
Required to service mortgage loans collateralizing a CMBS on behalf of, and for the benefit of, certificate holders. Responsibilities vary according to the servicing agreement. Common responsibilities include a) collection of mortgage payments and delivery of the funds to the trustee; b) advancement of any late payments to the trustee; c) provision of mortgage performance reports to bond holders; and d) transfer of all loans that become non-performing to the special servicer.
Max. Loan to Cost:
The ratio between the principal amount of the mortgage balance, at origination or thereafter, to the current value (or cost of construction if a construction loan) of the underlying real estate collateral. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic and varies by lending institution, property type, geographic location, property size, among other things.
Medical Office:
An Office property subtype in which the property is occupied by one or more tenants and the property is utilized for medical office purposes (e.g. physician/dentist offices, medical laboratory, outpatient clinic, etc.).
Min. DSCR:
Minimum debt service coverage ratio. The minimum ratio of effective annual net operating income to annual principal and/or interest payments. Also called "debt service coverage (DSC)" and typically written as 1 .25x, where x represents the number of times the annual debt service must be exceeded to achieve the target DSCR; a constraint to maximum loan amount. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender's viewpoint, the higher the ratio, the better.
Mixed Use:
A general property type or building type classification characterized by its multiple uses; a real estate development that contains two or more different uses all intended to be harmonious and complementary (e.g. a high-rise building with retail shops on the first two floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor). Building types available for mixed-use analysis include office, retail, and industrial, multifamily and healthcare. Hotel and self-storage properties are analyzed as single-purpose properties.
Mod. Gross Reimbursement Structure:
A lease structure in which the leaser is responsible for a portion of the costs of maintaining the property; typically, the tenant pays the other percentage of the costs.
Multi-family Property:
A general property type or building type classification characterized by its usage for multifamily residential purposes. In LoanSizer, subtypes include Low-Rise Garden Apartments, Mid-Rise Apartments, High-Rise Apartments, Student Housing, Military Housing, Townhouse style, Co-op, Other.
Neighborhood Shopping Center:
Open shopping center of less than 100,000 square feet. Tenants: Provides daily essentials and everyday services
Net Cash Flow:
Total income less operating expenses, adjustments, capital expenditures, tenant improvements and leasing commissions; does not include mortgage payments.
Net Effective Rent:
Rental rate adjusted for lease concessions.
Net Operating Income:
Total income less operating expenses, adjustments, etc., but before mortgage payments, tenant improvements and leasing commissions.
Net Rental Area:
In a building, the floor space that may be rented to tenants or the area upon which rental payments are based. Generally excludes common areas and space devoted to the heating, cooling, other equipment of a building, hallways, lobbies, elevator shafts, etc.
Net Worth:
Total assets minus total liabilities of an individual or company. For a company, also called owner's equity or shareholders' equity or net assets.
Net-Net Lease:
Usually requires the tenant to pay for property taxes and insurance in addition to the rent; referred to as NN.
Net-Net-Net Lease:
See Triple-Net Lease; referred to as NNN.
NNN Reimbursement Structure:
A lease structure that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as "Triple Net Lease").
Non-Recourse:
A mortgage in which the lender will not pursue personal liability against the borrower. The lender's security is the real estate being financed. Usually subject to standard carve outs including fraud and misrepresentation.
Notice of Default:
To initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust, the trustee under the deed of trust records a Notice of Default and Election to Sell the real property collateral in the public records.
Partial Recourse:
Identifies whether the lender accepts partial-recourse loan requests.
Percentage Rent:
Rent, computed as a percentage of retail sales above a breakpoint, paid by tenants under typical retail leases. Usually paid instead of or in addition to a specified minimum base rent; commonly used for large retail stores. Rent payments include a minimum or "base rent" plus a percentage of the gross sales "overage." Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume. Overage rent is percentage rent paid over and above the guaranteed minimum rent or base rent; calculated as a percentage of sales in excess of specified breakeven sales volume.
Phase I:
An assessment and report prepared by a professional environmental consultant which reviews the property - both land and improvements - to ascertain the presence or potential presence of environmental hazards at the property such as underground water contamination, PCB’s, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This Phase I Environmental Site Assessment ("ESA") provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II Environmental Site Assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken.
Physical Property Inspection (Property):
Identifies whether the property has been physically inspected by the originator.
Playgrounds:
Identifies the number of playgrounds located on the property.
Points:
Points are a onetime charge assessed at closing by the lender to increase the lender's earnings on mortgage loans. One point equals 100 basis points, or 1% of the loan. Referred to as a "par loan" if no points are charged by the lender.
Pooling and Servicing Agreement:
A legal contract defining the responsibilities and the obligations for management of a CMBS particularly for the Master Servicer and the Special Servicer. This primary document governs and controls much of the CMBS process. Also abbreviated as PSA, not to be confused with the Public Securities Association which is also known as PSA.
Prepayment Lockout:
The number of periods during which the borrower is restricted from prepaying the mortgage loan; typically expressed in years or months. In order to reduce prepayment risk, commercial mortgages commonly have lockout periods and/or prepayment premiums or yield maintenance. A prepayment penalty is paid by the borrower for any prepayments made on a mortgage loan if required under the loan documents. The premium is usually set at a fixed rate which, at times, decrease in steps as the loan matures. For example, a mortgage loan can have a premium of 5% for the first seven years and during the next five years the premium decreases at a rate of 1% per year (4% in year eight, 3% in year nine); after year twelve, there is no prepayment premium.
Prepayment Privilege:
The privilege or right given by the mortgagee (lender) to the mortgagor (borrower) that allows prepayment all or part of a mortgage debt before it is due.
Prorata Expense Reimbursement:
Identifies that the cost of the associated item is allocated between the lessor and lessee based on the lessee's proportionate share of net rental area (e.g. to prorate real property taxes or insurance).
Qualified Institutional Buyer:
A QIB is defined within the meaning of Rule 144A under the Securities Act. A QIB must have a minimum net worth, be involved in and knowledgeable of the risks of the investment and investors for their own account or for the account of another QIB. Most CMBS can only be sold to QIBs.
Real Estate Investment Trust:
A business entity formed to invest in real estate, mortgages and/or securities backed by real estate. REITs are required to pass through 95% of taxable income to their investors and are not taxed at the corporate level. The three major types of REITs are equity, mortgage and hybrid, with equity being the dominant type; referred to as REIT.
Real Estate Mortgage Investment Conduit:
A vehicle, created by the Tax Reform Act of 1986, which permits the sale of interests in mortgage loans in the secondary market. It is a pass-through entity that can hold loans secured by real property and issue multiple classes or investors without the regulatory, accounting and economic obstacles inherent with other forms of mortgage-backed securities; referred to as REMIC.
Recourse:
A type of mortgage loan in which the lender's remedies in the event of borrower default are unlimited, extending beyond the property to the borrower's personal assets.
Refinance:
A Loan Purpose; to provide new financing or new financing for, as by discharging a mortgage with the proceeds from a new mortgage obtained at a lower interest rate.
Regional Shopping Center:
Enclosed shopping center of 400,000 - 800,000 square feet. Tenants: At least two anchor stores.
Reimbursement:
(Reimbursement Structure) A payment or accounting structure in which the cost for utilities and/or services incurred by the tenant is paid to the provider by the lessor and subsequently reimbursed, usually on a prorata basis, by the tenant. Typically, the associated item is allocated between the lessor and lessee based on the lessee's proportionate share of net rental area (e.g. utilities, real property taxes, insurance).
Reimbursement Basis:
Identifies the structure by which the tenant reimburses the landlord for expenses relating to the leased area; options include NNN, Gross, or Modified Gross.
Repairs & Maintenance:
A line item expense that represents all expenses for the general repairs and maintenance of the building including common areas and general upkeep. Includes both in-house payroll and contracted services. Repairs and maintenance expense includes payroll, elevator, HVAC, electrical and plumbing, structural/roof, trash removal, and other repairs and maintenance expense items. Repairs & Maintenance can be provided in total or broken down by the following subcategories: 1. Payroll - The expense of all employees involved in on-going property repairs and maintenance, but whose salaries/wages are not included in other specific expense categories. 2. Elevator - The expense of the contract and any additional expenses for elevator repairs and maintenance. This expense item may also include escalator repairs and maintenance. 3. HVAC – The expense of the contract and any additional expenses for heating, ventilation and air-conditioning systems. 4. Electrical & Plumbing - The expense of all repairs and maintenance associated with the property’s electrical and plumbing systems. 5. Structural/Roof - The expense of all repairs and maintenance associated with the property’s building structure and roof. 6. Trash Removal - The expense of garbage removal services. 7. Other Repairs & Maintenance - The cost of any other repairs and maintenance items not specifically included in other expense categories.
Replacement Reserves:
A guideline that suggests the minimum required replacement reserves (or capital expenditures) for the proposed loan. This guideline is based on numerous factors including property type, loan amount, proposed loan to value and debt service coverage, and numerous physical, financial and tenancy factors identified in the proposed loan. Replacement reserves are various account(s) maintained (typically by the Lender) to provide funds for anticipated expenditures required to maintain a building. A reserve account usually is required by a lender in the form of an escrow to pay upcoming taxes and insurance costs. A replacement reserve is usually an amount set aside from net operating income to pay for the eventual wearing out of short–lived assets; monthly deposits that a lender may require a borrower to a reserve in an account, along with principal and interest payments for future capital improvements of major building systems (e.g. HVAC, parking lot, carpets, roof, etc.). Replacement reserves are typically calculated on a per unit basis (e.g. multifamily - per unit; office, retail, industrial - per square foot; etc.).
Retail:
A general property type or building type classification characterized by its usage for retail purposes. Subtypes include Grocery Anchored Retail, Other Anchored Retail, Free Standing Retail, Strip CenterAnchored, Strip Center:
Unanchored, Mall - Super Regional, Mall - Regional, Regional Center, Unanchored Retail, Single Tenant Investment Grade, Single Tenant Non-Investment Grade, Outlet Center, Other.
Retail Property:
Property types range from super regional shopping centers with a gross leasable area greater than one million square feet to small stores with single tenants. See Shopping Center.
Rollover Probability:
The probability that the tenant will not renew or extend the lease term at the time of lease expiration, expressed as a percentage from 0% to 100%. For example, a 35% rollover probability represents that the there is a 35% chance that the tenant will not renew the lease; resulting in a 65% renewal probability.
Self Storage:
A general property type or building type classification characterized by its usage for self storage purposes (also called Mini-Storage); provides personal storage for lease by consumers.
Senior Housing:
Identifies whether the property is occupied by senior citizens (age 55 or over).
Servicer:
Institution acting for the benefit of the certificate holders in the administration and servicing of mortgage loans in the CMBS. Functions include reporting to the Trustee, collecting payments from borrowers, advancing funds for delinquent loans, negotiating workouts or restructures (as permitted by the PSA), taking defaulted loans through the foreclosure process, and liquidating defaulted loans and REO.
Single Tenant Investment Grade:
A Retail property subtype in which the property is net leased to one investment grade tenant (BBB- rating or higher) and the property is utilized for retail purposes.
Single Tenant Non-Investment Grade:
A Retail property subtype in which the property is net leased to one non-investment grade tenant (BBB- rating or lower) and the property is utilized for retail purposes.
Special Purpose Corporation:
A bankruptcy-remote entity established by the borrower whose sole asset is the property of properties being financed. The SPC protects the lender from having the underlying property (ies) become involved in bankruptcy proceedings against other assets of the borrower of the property. Also known as SPE (Special Purpose Entity) with other than corporate owners.
Specialty Center:
A Retail property subtype in which the property is occupied by the power center group (e.g. Sports Authority, Levitz Furniture to other "category killer" stores).
Standard & Poor’s:
Standard & Poor’s Rating Service is one of the four primary rating agencies and is a division of McGraw-Hill Companies, Inc.; referred to as S& P.
Strip Center – Anchored:
A Retail property subtype in which the property is occupied by one or more anchor tenants and the main thoroughfares are bordered by an almost continuous row or strip of retail stores and allied service establishments; any shopping area that consists of a row of stores. An anchor tenant is a well-known commercial retail business such as a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center; typical gross building area ranges from 50,000 to 100,000 square feet.
Strip Center – Unanchored:
A Retail property subtype in which the property is occupied by multiple tenants of which none are anchor tenants, and the main thoroughfares are bordered by an almost continuous row or strip of retail stores and allied service establishments; any shopping area that consists of a row of stores. An anchor tenant is a well-known commercial retail business such as a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center; typical gross building area ranges from 50,000 to 100,000 square feet.
Subordinated Ground Lease:
A lease in which rights of the lessor of the ground are junior to the rights of the holder of the first mortgage.
Suburban Garden Office:
An Office subtype characterized by a garden-like setting and its location in a town or unincorporated developed area in a close proximity to a city. Suburbs, largely residential, are often dependent on the city for employment and support services; generally characterized by low-density development relative to the city; usually one to three story structures in a suburban or rural-urban fringe development.
Suburban High Rise:
An Office subtype characterized typically by a high number of stories that requires an elevator and its locations in a town or unincorporated developed area in a close proximity to a city. Suburbs, largely residential, are often dependent on the city for employment and support services; generally characterized by low-density development relative to the city; usually a four-story or higher structure in a suburban or rural-urban fringe development.
Super-Regional Shopping Center:
Enclosed shopping center of More than 800,000 square feet. Tenants: At least three anchor stores.
T-111 Exterior:
Textured plywood siding; an inexpensive exterior wall surface both commercial and residential structures.
Tenant Improvement Costs-New:
The expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant.
Tenant Improvement Costs-Renewal:
A fee paid by the property owner or the tenant to a real estate broker or leasing agent for services rendered; typically paid by a property owner at the time of a lease renewal. Usually calculated as a percentage (1% to 6%) of the entire lease payments, paid in increments during the lease term.
Tenant Improvements:
Improvements or renovations made to the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. Amounts above the TI allowance that the tenant wants must be paid for by the tenant.
TI/LC Stress DSCR (UI):
The ratio of net operating income over the annual mortgage payment, where the calculated net cash flow includes reserves for the projected costs of tenant improvements and leasing commissions (TI/LC costs). This threshold is utilized to analyze projected annual cash flow deficiencies resulting from TI & LC expenditures over the loan term. Generally, a minimum threshold margin of 1.10 xs is desired. Lenders use the ratio to assist them in determining the likelihood of a negative cash flow event as a result of TI & LC costs during the term of the loan. See also TI/LC.
Trailing 12 Months:
Information from only the 12 months proceeding the month of the analysis. Often used to determine net cash flow for multifamily and hotel properties.
Tranche:
A term applied to describe classes of CMBS securities, i.e., "AAA" Tranche”.
Unanchored Retail:
A Retail property subtype in which the property is occupied by multiple tenants of which none are anchor tenants and the property is utilized for general retail purposes. An anchor tenant is a well-known commercial retail business such as a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center.
Vacancy & Collection Loss:
Vacancy and Collection Loss is the percentage of all units or space that is unoccupied, not rented or from which there is no rental income. On a normalized or pro-forma income statement a projected vacancy rate is used to estimate the vacancy allowance (both physical and economic), which is deducted from potential gross income to derive effective gross income; also, an estimated amount reflecting probable vacancy, non-payment of rent by tenants, and any other income loss. These funds are set aside to cover either expected or unanticipated income losses.
Variable Rate:
A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that of fixed rate mortgages, but monthly payments can increase or decrease as the rate is adjusted.
Warehouse Multi-Tenant:
An Industrial property subtype in which the property is occupied by two or more tenants and the property is utilized for warehouse purposes.
Warehouse Single-Tenant:
An Industrial property subtype in which the property is occupied by one tenant and the property is utilized for warehouse purposes.