Terms Brokers and Owners Might Not Know But Should, F to O
Learning never ends, so the saying goes. The same applies to new brokers and owners as well as commercial real estate veterans—there’s always a new term, a new approach or a new technology to discover, which is what makes the world of CRE refreshing and consistently exciting.
To stay on top, being open to new ideas and discovery is critical regardless of your chosen profession.
In Volume II of our Commercial Real Estate and Land Glossary blog series, we pick up where we left off in Volume I by sharing some CRE terms you need to know to stay on top of your game.
Flex Building
A type of building(s) designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. At least half of the rentable area of the building must be used as office space. Flex buildings typically have ceiling heights under 18′, with light industrial zoning. Flex buildings have also been called Incubator, Tech and Showroom buildings in markets throughout the country.
Floor Area Ratio (FAR)
FAR is typically calculated by dividing the RBA by the land area. Therefore, if a 40,000 square foot building is built on a 10,000 square foot lot the FAR is 4. This reflects the relationship between the above-ground floor area of a building, and the land area it stands on. It is used as a point of comparison for land parcels, and a quick method to determine what size building can be constructed on a particular parcel without referring to the zoning code.
Greyfields
A dying shopping center, specifically (according to Price-Waterhouse-Coopers) a center in which annual sales are less than $150 per square foot of retail space.
Gross Absorption
For existing buildings, the measure of total square feet occupied (indicated as a Move-In) over a given period of time with no consideration for space vacated during the same time period. Sublet space and lease renewals are not factored into gross absorption. However, in a lease renewal that includes the leasing of additional space, that additional space is counted in gross absorption. Preleasing of space in non-existing buildings (Planned, Under Construction or Under Renovation) is not counted in gross absorption until actual move in, which by definition may not be any earlier than the delivery date.
Improvement Ratio
Stated as a percentage – this is the ratio of the tax assessor’s opinion of the assessed value of the improvements divided by the assessed value of the whole property.
Index Lease
A provision in a lease agreement that requires escalations in rent based on a published index, such as LIBOR, T-bills, or a cost of living index such as CPI.
Leased Fee Interest
The Lessor’s interest or position in a lease. Primarily a combination of a lessor’s/landlord’s reversionary interest and the right to receive rent for the lease period. If a building is in place or when a building is constructed, then Leased fee interests must be placed on a land parcel that is cross-referenced to the leasehold (building) in the external property notes. Think “fees are flat” and “holds are high” (buildings).
Load Factor
The Load Factor or Add-On Factor is calculated by dividing the Rentable Building Area by the Usable Area. This factor can then be applied to the Usable area to convert it to RBA for comparison. So in markets were space is leased by the Usable Area, if we know the Load Factor is 15%, we can multiply the Usable area by 1.15, which results in the RBA.
* Source of definitions: CoStar.com