Terms Brokers and Owners Might Not Know But Should, P to S
As Socrates once said, “Education is the kindling of a flame, not the filling of a vessel.” In other words, keep on learning. Always.
To stay at the forefront of commercial real estate, constantly growing your knowledge base is essential.
In Volume III of our Commercial Real Estate and Land Glossary blog series, we pick up where we left off in Volume II by sharing some CRE terms you need to know to stay on top of your game.
Pass Through
Used to define those cases where a landlord passes certain expenses onto the tenant in addition to the rent. Typically, it applies to a full service gross lease where the tenant and the owner have agreed to an expense stop. The stop is the maximum amount the owner will pay each year and any expenses over the stop amount will be passed through to the tenant, in addition to the rent. AKA Recaptured or Recoverable Expenses.
Price Per SF Net
Example: 5,000 SF of land sold for $1,000,000 and the assessed improvement ratio (supplied by the assessment office) is 80%. Take the inverse of the improvement ratio to generate a land ratio of 20%. Calculate the value of the land when using the land ratio against the sales price. ($1,000,000 X 20%=$200,000) That value is then divided by the land area to come up with a Net $/SF for land. (e.g., $200,000/5000 = $40 Price per SF Net)
Recapitalization
A term used when the owner is attempting to refinance his position by selling part of his equity in order to liquidate part of his equity position. This may not be a 100% interest transfer or a voluntary process.
Rolling Option/Takedown
A rolling option is a contractual agreement whereby the optionee may purchase portions of a property from time to time. A takedown is the act of exercising a rolling option. This occurs most often with the sale of residential lots in a subdivision. Typically a home builder will enter into a rolling option and contract with the developer to purchase a specified number of lots at an agreed upon price or prices with the condition that they can purchase the lots in increments over a period of time. A takedown occurs each time a group of lots are deeded to the buyer. It is important to find out when and how the price was established and if there was any interest or carrying charges involved.
Shallow Bay Industrial
A type of medium sized Industrial distribution or manufacturing facility where the bay depth is typically between 120′ and 200′. Clear height is generally between 18′ and 24′ and office area varies.
Submarket
Submarkets are divisions of the primary market that are generally recognizable to the real estate industry and the business community by the names given to the areas. Submarkets are defined by specific geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Submarkets are building type-specific and are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the entire market. They contain a number of properties sufficient to provide meaningful information for aggregate statistics.
Keep an eye out for our final Commercial Real Estate and Land Glossary, Volume IV, to be posted in the coming months.
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* Source of definitions: CoStar.com