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Our glossary covers commercial real estate terms and financial market terms, along with terms specific to the institutional real estate world.


Accredited Investor

An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. The current requirements to qualify are an annual income of $200,000 or $300,000 for joint income for the last two years with the expectation of earning the same or higher, or a net worth exceeding $1 million either individually or jointly with a spouse. 

Acquisition Fee

The upfront fee paid by the investors to the general partner/sponsor for:

  • Finding the deal

  • Underwriting the investment

  • Financing the deal

  • Closing on the investment 

Fees range from 1% to 5% of the purchase price, depending on the size of the deal. 

Active Investing

As it relates to apartment investing, active investing is the finding of, qualifying, and closing on an apartment building using one's own capital and overseeing the business plan through to its successful execution. 


Amortization refers to the process of paying off a debt through scheduled, pre-determined installments that include principal and interest.

Apartment Syndication

A real estate syndication occurs when a group of investors pool their capital and resources together to jointly purchase one or multiple apartment buildings sharing in the risks and returns. A syndication is typically a partnership between general partners (i.e. the syndicator/sponsor) and limited partners (i.e. the passive investors) to acquire, manage, and sell an apartment community while sharing in the profits. 


An appraisal is conducted by an appraiser; the appraiser is the expert providing the valuation estimate or market value of the property, based on their experience and their training. There are a few different valuation approaches that can be employed. These are cost, income, and the direct comparison approaches.


An increase in the value of an asset over time. The main types of appreciation are natural appreciation and forced appreciation. Natural appreciation occurs when the market cap rate naturally decreases over time, which isn't always a given. Forced appreciation occurs when the net operating income is increased by either increasing the revenue or decreasing the expenses or a mixture of both. Forced appreciation typically occurs by adding value to the apartment through renovations and/or operational improvements.

Asset Management Fee

An ongoing annual fee from the property operations paid to the general partner for property oversight and business plan execution. Generally, the fee is 2% of the collected income. 

Bad Debt

The amount of uncollected money owed by a tenant after move-out.

Breakeven Occupancy

The occupancy rate required to cover all of the expenses of a property. The breakeven occupancy rate is calculated by dividing the sum of the operating expense and debt service by the gross potential income. 

Bridge Loan

A mortgage loan used until a borrower secures permanent financing. Bridge loans are short term (six months to three years, with the option to purchase an additional six months to two years), generally have higher interest rates, and are almost exclusively interest only. Also referred to as interim financing, gap financing, or swing loans. The loan is ideal for repositioning an apartment community that doesn't qualify for permanent agency financing. 

Capital Expenditures (CapEx)

The less than frequent repairs needed at a property. An expense is considered CapEx when it improves the useful life of a property and is capitalized - spreading the cost of the expenditure over the useful life of the asset. CapEx includes both interior and exterior renovations. Examples of exterior CapEx are repairing, replacing, or installing the following: 

  • Roof

  • Patios/Balconies

  • Carports

  • New paint

  • New siding

  • HVAC

  • Large landscaping projects 

  • Repaving the parking lot 

  • Upgrading the clubhouse

Examples of interior CapEx are repairing, replacing, or installing the following: 

  • Cabinetry 

  • Countertops

  • Appliances

  • Flooring

  • Installing fireplaces

  • Opening up or enclosing the kitchen

  • Light fixtures

  • Interior paint

  • Plumbing

  • Blinds

  • Hardware (i.e. door knobs, cabinet handles, outlet covers, or faucets)

Examples of expenses that would not be considered CapEx are the operating expenses, debt service, fees paid to general partners, and the distributions paid to limited partners. 

Capitalization Rate (Cap Rate)

The rate of return based on the income that the property is expected to generate. The cap rate is calculated by dividing the net operating income by the current market value of the property. 

Cash Flow

The revenue remaining after all expenses have been paid. Cash flow is calculated by subtracting the operating expense and debt service from the effective gross income. For an example: 

  • Effective Gross Income:      $500,000

  • Operating Expense:             $250,000

  • Debt Service:                         $135,000

  • Asset Management Fee:    $10,000

  • Cash Flow:                            $105,000

Cash-on-Cash Return (CoC)

The rate of return based on the cash flow and the equity investment. CoC is calculated by dividing the cash flow by the initial equity investment.

Closing Costs

The expenses over and above the purchase price of the property that buyers and sellers typically incur to complete a real estate transaction. These costs include: 

  • Loan origination fees

  • Application Fees

  • Recording Fees

  • Attorney Fees

  • Underwriting Fees

  • Due Diligences Fees

  • Credit Search Fees 


Move-in specials or incentives. Concessions are the credits given to offset rent, application fees, move-in fees, and any other cost incurred by the tenant, which are generally given at move-in to entice tenants into signing a lease. 

Cost Approach

A method used to calculate a property's value based on the cost to replace or rebuild the property from scratch. 

Debt Service

The annual mortgage amount paid to the lender which includes principal and interest. Principal is the original sum lent to a borrower and the interest rate is the charge for the privilege of borrowing the principal amount. 

Debt Service Coverage Ratio (DSCR)

The ratio that is a measure of the cash flow available to pay the debt obligation. The DSCR is calculated by dividing the net operating income by the total debt service. A DSCR of 1.0 means that there is enough net operating income to cover 100% of the debt service. Ideally, the DSCR is 1.25 or higher. A DSCR too close to 1.0 is vulnerable, and a minor decline in revenue or a minor increase in expenses would result in the inability to service the debt obligation. 

Deferred Maintenance

Deferred maintenance refers to necessary maintenance, repairs and upgrades or replacements that are put on hold until some time in the future. Maintenance and repairs may be postponed for a number of reasons, but the most common cause is the lack of necessary funds needed to complete a project.


A decrease or loss in value due to wear, age, or other causes.

Distressed Property

A non-stabilized apartment community, which means the economic occupancy rate is below 85% and likely much lower due to poor operations, tenant problems, outdated interiors, exteriors, or amenities, mismanagement, and/or deferred maintenance.


The limited partners' portion of the profits, which are sent on a monthly, quarterly, or annual basis, at refinance, and/or at sale.

Due Dilligence

The process of confirming that a property is as represented by the seller and is not subject to environmental or other problems. For apartment syndications, the general partner will perform due diligence to confirm their underwriting assumptions and business plan. 

Earnest Money

A payment by the buyers that is portion of the purchase price to indicate to the seller their intention and ability to carry out the sales contract. 

Economic Occupancy Rate

The rate of paying tenants based on the total possible revenue and the actual revenue collected. The economic occupancy is calculated by dividing the effective gross income by the gross potential income.

Effective Gross Income (EGI)

The true positive cash flow. Also referred to as EGI, total income, or total revenue. EGI is calculated by subtracting the revenue lost due to vacancy, loss-to-lease, concessions, employee units, model units, and bad debt from the gross potential income (gross potential rent plus other income).

Employee Unit

An apartment unit rented to an employee at a discount or for free.

Equity Investment

The upfront costs for purchasing a property. For apartment syndications, these costs include the down payment for the mortgage loan, closing costs, financing fees, operating account funding, and the fees paid to the general partnership for putting the deal together. Also referred to as the initial cash outlay or the down payment.

Equity Multiple (EM)

The rate of return based on the total net profit and the equity investment. The EM is calculated by dividing the sum of the total net profit (cash flows plus sales proceeds) and the equity investment by the equity investment. 

Exit Strategy

The general partner's plan of action for selling the apartment community at the conclusion of the business plan.

Financing Fees

The one-time, upfront fees charged by the lender for providing the debt service. Also referred to as finance charges. Typically, the financing fees are 1.75% of the purchase price.

General Partner (GP)

An owner of the partnership who has unlimited liability. A general partner is usually a managing partner and is active in the day-to-day operations of the business. In apartment syndications, the general partner is also referred to as the sponsor or syndicator and is responsible for managing the entire apartment project.

Gross Potential Income 

The hypothetical amount of revenue if the apartment community were 100% leased year-round at market rental rates plus all other income.

Gross Potential Rent (GPR)

The hypothetical amount of revenue if the apartment community were 100% leased year-round at market rental rates.

Gross Rent Multiplier (GRM)

The number of years it would take for a property to pay for itself based on the gross potential rent. The GRM is calculated by dividing the purchase price by the annual gross potential rent. 

Guaranty Fee

A fee paid to a loan guarantor at closing for signing for and guaranteeing the loan. The standard guaranty fee is 0.5% to 5% of the principal balance of the loan paid at closing and/or 5% to 30% of the general partnership. The size of the fee depends on the business plan, the guarantor's relationship with the syndicator, and the type of debt (recourse vs. nonrecourse). 

Holding Period

The amount of time the general partner plans on owning the apartment from purchase to sale.

Income Approach

 A method of calculating an apartment's value based on the capitalization rate and the net operating income. (Value = Net Operating Income / Capitalization Rate).

Interest-Only Payment

The monthly payment for a mortgage loan where the lender requires the borrower to pay only the interest on the principal. 

Interest Rate

The amount charged by a lender to a borrower for the use of their funds.

Internal Rate of Return (IRR)

The rate needed to convert the sum of all future uneven cash flow (cash flow, sale proceeds, and principal paydown on the mortgage loan) to equal the equity investment.

A very simple example is let's say that you invest $50. The investment has cash flow of $5 in year 1, and $20 in year 2. At the end of year 2, the investment is liquidated and the $50 is returned. The total profit is $25 ($5 year 1 + $20 year 2). Simple division would say that the return is 50% ($25 / $50). But since time value of money (two years in this example) impacts return, the IRR is actually only 23.43%. If we had received the $25 cash flow and $50 investment returned all in year 1, then yes, the IRR would be 50%. But because we've had to "spread" the cash flow over two years, the return percentage is negatively impacted.

The timing of when cash flow is received has a significant and direct impact on the calculated return. In other words, the sooner you receive the cash, the higher the IRR will be. 


A formal legal contract between a landlord and a tenant for occupying an apartment unit for a specified time and at a specified price with specified terms. 

Letter of Intent (LOI)

A non-binding agreement created by a buyer with their proposed purchase terms.

Limited Partner (LP)

A partner whose liability is limited to the extent of their share of ownership. In apartment syndications, the LP is the passive investor who funds a portion of the equity investment. 

Loan-to-Cost Ratio (LTC)

The ratio of the value of the total project costs (loan amount + capital expenditure costs) divided by the apartment's appraised value. 

Loan-to-Value Ratio (LTV)

The ratio of the value of the loan amount divided by the apartment's appraised value. 

London Interbank Offered Rate (LIBOR)

A benchmark rate that some of the world's leading banks charge each other for short term loans. The LIBOR serves as the first step to calculating interest rates on various loans, including commercial loans, throughout the world. 

Loss-to-Lease (LtL)

The revenue lost based on the market rent and actual rent. The LtL is calculated by dividing the gross potential rent minus the actual rent collected by the gross potential rent.

Market Rent

The rent amount a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay for tenancy, which is based on the rent charged by similar apartment communities in the area. The market rent is typically calculated by conducting a rent comparable analysis. 

Metropolitan Statistical Area (MSA)

A geographical region containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. MSAs are determined by the United States Office of Management and Budget (OMB).

Model Unit

A representative apartment unit used as a sales tool to show prospective tenants how the actual unit will appear once occupied.


A legal contract by which an apartment is pledged as security for repayment of a loan until the debt is repaid in full. 

Net Operating Income (NOI)

All the revenue from the property (i.e., effective gross income) minus the operating expenses. 

Operating Account Funding

A reserve fund, over and above the purchase price of an apartment, to cover things like unexpected dips in occupancy, lump sum insurance or tax payments, or higher than expected capital expenditures. The operating account funding is typically created by raising extra capital from the limited partners. 

Operating Agreement

A document that outlines the responsibilities and ownership percentages for the general and limited partners in an apartment syndication. 

Operating Expenses

The costs of running and maintaining the property and its grounds. For apartment syndications,  the operating expenses are usually broken into the following categories: 

  • Payroll

  • Maintenance & Repairs

  • Contract Services

  • Make-Ready

  • Advertising & Marketing 

  • Administrative

  • Utilities

  • Management Fees

  • Taxes

  • Insurance

  • Reserves

Passive Investing

Placing one's capital into an apartment syndication that is managed in its entirety by a general partner. 

Permanent Agency Loan

A long-term mortgage loan secured from Fannie Mae or Freddie Mac. Typical loan terms lengths are 3, 5, 7, 10, 12 or more years amortized over up to 30 years. 

Physical Occupancy Rate

The proportion of occupied units. The physical occupancy rate is calculated by dividing the total number of occupied units by the total number of units at the property. 

Preferred Return

The threshold return that limited partners are offered prior to the general partners receiving payment. 

Prepayment Penalty

A clause in a mortgage contract stating that a penalty will be assessed if the mortgage is paid down or paid off within a certain period. 

Price Per Unit

The cost per unit of purchasing a property. The price per unit is calculated by dividing the purchase price of the property by the total number of units. 

Private Placement Memorandum (PPM)

A document that outlines the terms of the investment and the primary risk factors involved with making the investment. The PPM typically has four main sections:

  • The Introductions (A brief summary of the offering)

  • Basic Disclosures (General partner information, asset description, and risk factors)

  • The Legal Agreement 

  • The Subscription Agreement 

Pro Forma

The projected budget with itemized line items for the revenue and expenses for the next 12 months and/or 5 years.

Profit and Loss Statement

A document or spreadsheet containing detailed information about the revenue and expenses of a property over the last 12 months. Also referred to as the trailing 12-month profit and loss statement, P&L, or a T-12. 

Property & Neighborhood Classes

A ranking system of A, B, C, or D assigned to a property and a neighborhood based on a variety of factors. For property classes, these factors include date of construction, condition of the property, and amenities offered. For neighborhood classes, these factors include demographics, median income and median home values, crime rates, and school district ratings. These classes tend to be subjective, but the following are good guidelines: 

Property Classes: 

     Class A: New construction, commands highest rents in area, high-end amenities

     Class B: 10-15 years old, well maintained, little deferred maintenance 

     Class C: Built within last 30 years, shows age, some deferred maintenance  

     Class D: Over 30 years old, no amenity package, low occupancy, needs work

Neighborhood Classes: 

     Class A: Most affluent neighborhood, expensive homes nearby, maybe golf course

     Class B: Middle-class part of town, safe neighborhood

     Class C: Low-to-moderate-income neighborhood

     Class D: High crime, very bad neighborhood 

Property Management Fee

An ongoing monthly fee paid to the property management company for managing the day-to-day operations of the property. 

Ratio Utility Billing System (RUBS)

A method of calculating a tenant's utility usage based on occupancy, unit square footage, or a combination of both. Once calculated, the amount is billed back to the tenant.


The right of a lender to go after personal assets above and beyond the collateral of the borrower if the borrower defaults on the loan. 


The replacing of an existing debt obligation with another debt obligation with different terms.

Refinancing Fee

A fee paid to the general partner for the work required to refinance an apartment. 

Rent Comparable Analysis (Rent Comps)

The process of analyzing the rental rates of similar properties in the area to determine the market rents of the units at the subject property.

Rent Premium

The increase in rent demanded after performing renovations to the interior and/or the exterior of an apartment community.

Rent Roll

A document or spreadsheet containing detailed information on each of the units at the apartment community, including the unit number, unit type, square footage, tenant name, market rent, actual rent, deposit amount, move-in date, lease-start and lease-end dates, and the tenant balance. 

Sales Comparison Approach

A method of calculating an apartment's value based on similar apartment recently sold.

Sales Proceeds 

The profit collected at the sale of the apartment community.

Sophisticated Investor

A person who is deemed to have sufficient investing experience and knowledge to weight the risks and merits of an investment opportunity. 

Subject Property

The apartment the general partner intends on purchasing. 


A geographic subdivision of a market. 

Subscription Agreement

A document that is a promise by the LLC that owns the property to sell a specific number of shares to a limited partner at a specified price, and a promise by the limited partner to pay that price. 


The process of financially evaluating an apartment community to determine the projected returns and offer price. 

Vacancy Loss

The amount of revenue lost due to unoccupied units.

Vacancy Rate

The proportion of unoccupied units. The vacancy rate is calculated by dividing the total number of unoccupied units by the total number of units.

Value-Add Property

A stabilized apartment community with an economic occupancy above 85% and an opportunity to be improved by adding value, which means making improvements to the operations and the physical property through exterior and/or interior renovations in order to increase income and/or decrease the expenses.

Yield Maintenance

A penalty paid by the borrower on a loan if the principal is paid off early. 

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