Commercial Real Estate Jargon Investors Should Know

Commercial real estate investment is a new territory for many real estate investors. The following is the alphabetical list of most commonly used terms in this area.

Anchored tenants: big brand-name national tenants, e.g. Albertsons, Longs Drug, Walmart that bring in lots of traffic to the shopping center.

CAM: Common Area Maintenance. Associated with CAM is CAM fees. For NNN leases, the term CAM fees refer to the money tenants pay landlord to cover property taxes, insurance and maintenance.

Cap rate: Return of investment in the first year of ownership. Capitalization rate is the ratio of 1st year Net Operating Income over the purchase price. The higher the cap rate, the higher the rental income. For people who invest in the stock market, cap rate is the inverse of P/E ratio.

Cash on cash: annual percentage return of your down payment not including appreciation. First year cash flow divided by your initial down payment.

Conduit loan: also called Commercial Mortgage Backed Securities (CMBS) loan often with the lower rate than traditional commercial loan but either has high pre-payment penalty (called defeasance or Yield Maintenance Penalty) or does not have payoff flexibility.

CPD: Car Per Day or traffic volume on a road.

CPI: Consumer Price Index. It's often used to calculate annual rental increase to compensate for inflation.

Due Diligence Period: the duration after acceptance normally 15-30 days to allow buyer to investigate about the property. Buyer can cancel the contract during this time for any reasons and get full refund of the deposit.

Estoppel Certificate: a letter provided and signed by tenant confirming the current rent and terms.

Full-service lease: lease in which tenant pays rent that covers everything including utilities.

Gross income: total annual income before any expenses.

Gross lease: lease in which tenants just pay rent. Landlord pays tax, insurance, & maintenance.

GLA: Gross Leaseable Area or total rentable area. This is the space that can be leased and receive rental income. It does not include spaces for utilities room, elevator, etc.

GRM: Gross Rent Multiplier for apartment. Ratio of purchase price over annual income.

LLC: Limited Liabilities Company. A legal entity many investors formed to own commercial properties.

LOI: Letter of Intent/Interest or the normally non-binding offer letter used to make an offer to buy a commercial property.

MAI appraiser: Member Appraisal Institute commercial appraiser.

Master lease: lease signed by the seller to rent the vacant space to provide rent guarantee.

Mixed Use: commercial properties with retail on 1st floor and apartment on upper floors.

Triple Net (NNN) lease: lease in which tenants pay base rent plus property tax, insurance & CAM fees. Absolute NNN lease is NNN lease that tenants also pay property management fee.

NOI: Net Operating Income. Annual income after all expenses (property taxes, ins., & maintenance) except mortgage payment.

Pad: stand alone building in a prime location of a big shopping center.

Pass Thru: see reimbursement.

Percentage lease: lease in which tenant pays base rent plus a percentage of tenant's revenue.

Phase I Report: inspection report that provides an assessment for soil/environment contamination. It's normally required by the lender as part of loan approval process for a commercial property.

Phase II Report: inspection report for soil & groundwater subsurface investigation. This inspection is more extensive which involves testing to see if there is any soil and water contamination.

Proforma income: potential, i.e. higher, income when the property is 100% leased.

Proforma Cap rate: potential cap rate assuming property is 100% leased at market rent.

Reimbursement: the share of property tax, insurance & CAM fees that a tenant has to pay the landlord besides the base rent.

Rent guarantee: rent paid by the seller to buyer for vacant spaces until they are leased.

SBA Loan: a government-guaranteed loan for owner-occupied properties.

SNDA: Subordination, Non-disturbance, and Attornment. it's an agreement required by lender, signed by the tenants agreeing: the new lien in 1st position; lender as landlord in case of foreclosure; lease as valid as long as tenant is not in default.

TIC: Tenants In Common. A way for small/self-directed IRA investors to own a fraction of high-valued properties as tenants in common.

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New Jersey Commercial Mortgage Brokers

Owning real estate was never so easy in New Jersey. The state is bursting at its seam, thanks to commercial brokerage services. With the increasing competition among lenders, we are witnessing an unprecedented boom in commercial mortgages. They have made owning a dream property, a relatively easy possibility. Many New Jersey malls owe their existence to these commercial mortgage brokers.

Increased competition has resulted in lower mortgage rates. This trend is visible, through most parts New Jersey. Ads rave about "the lowest commercial mortgage rates." Lower interest rates are the first things that many a cost conscious customer looks for in a loan, and the literal barrage of these ads will tempt most. The adding appeal lies in the fact that the loan can be paid back over an extended period of time. Some lenders offer a thirty-year period to repay the loan, making it feel very possible to pay back an astronomical amount of money. However, there are potential risks involved in going in taking on one of these loans with low mortgage rates. For one thing, you cannot foresee and forecast the future, accurately. Interest rates are liable to up and down. What happens to your loan, if the rate rates shoot through the roof" What happens if you want to move on to another commercial property" What happens if real estate prices, come crashing down" All these questions have to be answered. Otherwise, there are genuine chances that you will end up paying more than what you had anticipated.

You can get extensive information on New Jersey mortgage brokers, on the Internet. You can surf through the web sites of leading online lenders. You can also find reviews of offers that are currently available. You can get in touch with your friends, who have taken advantage of these commercial mortgage loans and ask their opinion. You can also consult a financial advisor, who will definitely help you make a prudent decision.

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Today's Commercial Mortgage Rates

This discussion is regarding commercial mortgage rates for loan amounts between $500,000 - $10,000,000 and for owner user type loan requests as well as non-multifamily investment properties, such as office, retail, and industrial as well as special purpose properties such as restaurants.

The good news is that rates are still at very low levels when looked at from a historical levels, however many of the indexes that commercial mortgages are tied to have increased dramatically in the last 30 -45 days.

For example the LIBOR SWAP Rates have jumped up between 40 and 75 basis points in this time period. No one really knows why this is occurring as the FEDS are doing all in their power to reduce and maintain low commercial loan rates. You may have heard of the Quantitative Easing measures that have been implemented by Bernanke. Regardless of the reasons why, rates have gone up by.5% -.7%.

Also related, and is good news, is the fact that conventional commercial mortgage lending is starting to come back, more and more. Over the last 2 years most of the loan programs out there have been backed by the government through such programs as the SBA. Now however, non-government backed loan programs are coming back and this means more competitive pressure in the market. Which translates into more loan options for borrowers, increased underwriting flexibility and a reduction in commercial mortgage rates on the banks margin side. More competitive pressure is the best news possible for commercial mortgage borrowers.

This is because commercial loan rates have two components, one is the index and the other is the margin that the bank charges. The combination of the two is the "effective rate" or your rate on the loan. Currently, margins are at some of the highest levels seen in decades. At between 4 - 6%, compared to 1.25%-2.25% that was normally charged in 2006 - 2007. As the competitive pressures step up, banks will lower these margins in an effort to win deals. And bowers will enjoy more aggressive lending standards.

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Commercial Real Estate Investors Should Know jargon

Commercial Real Estate Investment is a new area for many real estate investors. Below is an alphabetical list of terms used in this field.

Anchored tenants: large national brand tenants such as Albertsons, Longs Drug, Walmart, who bring a lot of traffic in the middle of the shopping cart.

CAM: Maintenance Area. Common fees associated with CAM CAM. NNN leases to refer to the term CAM taxes, tenants pay rent money to cover propertyTaxes, insurance and maintenance.

Cap Rate: The return of investment in the first year after purchase. Capitalization rate is the ratio of 1 Years operating income for the purchase price. The higher the cap, the higher the rental income. For people who invest in the stock market, the maximum rate is the reciprocal of P E.

Cash On Cash: APR return of your deposit without detection. First year cash flow from your original down dividedPayment.

Conduit loan: as Commercial Mortgage Backed Securities (CMBS) loans, often at lower cost than traditional commercial loans, but in a high prepayment penalty (the so-called sale of a penalty or yield maintenance) or no flexibility in payment.

CPD: car per day or volume of traffic on a road.

CPI. Consumer Price Index is often used to compensate for inflation to calculate the annual rent increase.

Due DiligencePeriod: the period after the decline of 15-30 days in order to investigate the property buyer. The buyer may cancel the contract at that time and for any reason and receive a full refund of the deposit.

estoppel certificate: a letter signed by the lessee provided and confirms the terms and conditions of the current lease.

Full-service leasing: leasing, in which tenants pay rent, utilities, includes all-inclusive.

Gross Income: annual income firstCosts.

Gross lease: the tenant lease to pay rent. The owner pays, insurance fees and maintenance.

Total: Gross Lease able area or gross lettable area. This is the space that can be hired and receive rental income. Not included are facilities for services, elevator, etc.

GRM: Gross Rent Multiplier for apartment. Ratio between purchase price and annual income.

LLC: limited liability company. A legal person established in many investors toown commercial real estate.

LOI: Letter of Intent / Interest or binding for your letter does not normally at the property, a bid for a commercial.

May verifier: Member Appraisal Institute accountants.

Master Lease: Lease signed by the seller to rent space to ensure clear offer for rent.

Mixed Use: retail commercial real estate with the first floor and apartments upstairs.

Triple Net (NNN) Lease: Lease intenants to pay the basic fee plus tax on rental property, insurance and CAM. Absolute NNN NNN lease rental agreement that tenants also pay for property management.

NOI: net operating income. annual income, after all costs (taxes, ins., & Maintenance) other than the payment of the loan.

Hall: Stand-alone building in a strategic position in a large shopping center.

Pass Through: see refund.

Percentage lease: Leasing, in which tenant pays rent based moreShare of income of the tenant.

Phase I Report on the inspection report is an assessment that the contamination of the soil / environment. It is usually required by the lender as part of the process of loan approval for a commercial property.

Phase II Report: Inspection report for background investigation of soil and groundwater. This control is more complete, including testing to see if there is a pollution of soil and water.

Pro-forma net income: potential, iehigher income when the property is 100% leased.

Proforma Cap Rate: maximum potential rate of adoption is 100% leased property for rent to the market.

Repayment: The amount of the fee for insurance and property taxes CAM, the tenant must pay a basic fee, the owner of the next.

Guaranteed rent: rooms for rent paid by the seller to the buyer for the vacant until it rented.

SBA loans: the government guaranteed loans for home ownership.

SNDA:Subordination, non-interference Attornment. This is an agreement pursuant to the agreement signed by the tenants banks: the lender of a new bond in the position, as landlord in the case of exclusion, tenant rent as valid as long as it is not in default.

TIC: Tenants in common. One way for small / self-directed IRA investors own a share of ownership of high quality as tenants in common.

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