Commercial real estate has its own vocabulary, and most of it is shorthand that gets tossed around assuming everyone in the room already knows what it means. They usually do. If you're newer to the industry, sitting on the borrower side, or just want a quick reference for terms you've heard but never had time to look up, this glossary is for you.
The definitions below cover the language you'll hear in deal conversations, lender calls, OMs, term sheets, broker reports, and partnership agreements. Each entry includes what the term means, why it matters in CRE specifically, and a short example or note where helpful. We've linked out to deeper guides where one exists.
Use the alphabetical jump links to get to a specific term, or scroll through to see what's in the broader CRE vocabulary.
Jump to: A · B · C · D · E · F · G · H · I · L · M · N · P · R · S · T · Y
A
Air Rights
The legal right to use, develop, or sell the vertical space above a piece of property. In dense urban markets, air rights are often valuable assets in their own right. A property owner can sell or lease the unused vertical development capacity above an existing building (often called Transferable Development Rights or TDRs) to a neighboring developer who wants to build taller than zoning would otherwise allow. Air rights deals are common in cities like New York, where land is constrained and zoning is strict.
Appraisal
A formal valuation of a property conducted by a licensed third-party appraiser, following regulated methodology (USPAP). Appraisals are required for most commercial loan closings, estate settlements, and litigation. They're more expensive and slower than a broker opinion of value (BOV) but carry more weight as an independent number.
AUM (Assets Under Management)
The total dollar value of real estate (or other assets) a firm manages on behalf of investors. AUM is a common shorthand for the size and scale of a CRE investment manager.
B
BOV / BPO (Broker Opinion of Value / Broker Price Opinion)
An informal valuation of a property prepared by a real estate broker rather than a licensed appraiser. BOVs and BPOs are faster and cheaper than appraisals but aren't accepted by lenders for closing. CRE investors typically use them for pre-acquisition screening, pre-listing decisions, and refinance planning. See our full guide on BOVs in real estate.
Bridge Loan
Short-term financing (usually 6 to 36 months) used to "bridge" the gap between an immediate financing need and a longer-term solution. Bridge loans are common when a borrower needs to close quickly, when a property needs improvement before qualifying for permanent financing, or during a value-add repositioning.
C
Cap Rate (Capitalization Rate)
The annual net operating income (NOI) of a property divided by its purchase price (or value), expressed as a percentage. A property purchased for $10M with $700K of NOI has a 7% cap rate. Cap rates are the dominant valuation shorthand for income-producing CRE: lower cap rates signal higher prices and lower expected returns; higher cap rates signal cheaper prices and higher expected returns.
Cap Stack (Capital Stack)
The combination of debt, equity, and any other financing layers used to fund a CRE acquisition or development. A typical capital stack moves from least risky and lowest yield (senior debt) at the bottom up to most risky and highest yield (common equity) at the top. Mezzanine debt and preferred equity sit in the middle.
CMBS (Commercial Mortgage-Backed Securities)
Bonds backed by pools of commercial mortgages. CMBS loans are originated by lenders, then bundled and sold to investors as securities. CMBS financing is typically non-recourse, longer-term, and offers competitive rates, but with less flexibility than balance-sheet lenders.
Cost Segregation
A tax strategy that breaks a commercial property into its component assets (building structure, fixtures, land improvements, personal property) so the components with shorter useful lives can be depreciated faster. Cost segregation studies can dramatically accelerate depreciation deductions in the early years of ownership, which improves after-tax cash flow. The trade-off is upfront cost (engineering studies typically run $5,000 to $15,000) and the eventual recapture if the property is sold.
D
Debt Service
The annual cash required to make principal and interest payments on a loan. If a property's NOI doesn't cover its debt service, the property has negative cash flow and the borrower is at risk of default.
Debt Yield
The annual NOI of a property divided by the loan amount, expressed as a percentage. A property with $1M of NOI and an $11M loan has a debt yield of about 9.1%. Lenders use debt yield as a sizing metric: it tells them how much income the property generates per dollar of debt, independent of interest rates or amortization. Most CRE lenders want to see debt yields of at least 8% to 10% on stabilized properties, with higher floors for riskier asset classes.
Defeasance
A process used to prepay a loan (usually CMBS or other securitized debt) when the loan documents prohibit standard prepayment. Instead of paying off the loan directly, the borrower buys a portfolio of U.S. Treasury securities that produce the same cash flows the loan would have produced. Those securities are substituted as collateral, and the borrower is released from the loan. Defeasance is expensive (Treasury portfolios cost more in low-rate environments), administratively complex, and almost always handled by specialized defeasance consultants.
DSCR (Debt Service Coverage Ratio)
NOI divided by annual debt service. A DSCR of 1.25 means the property produces 1.25x the income required to cover the loan payments. Lenders typically require DSCRs of 1.20 to 1.30 minimum on stabilized CRE deals, with higher requirements for riskier asset classes or borrowers.
E
Estoppel Certificate
A document signed by a tenant confirming the key terms of their lease (rent, term, security deposit, any defaults). Estoppels are commonly required by lenders during refinancing and by buyers during acquisition diligence to confirm what the rent roll says is actually what the tenant agrees is happening.
Equity Multiple
The total cash an investor receives over the life of an investment divided by the cash invested. A 2.0x equity multiple means an investor got back twice what they put in (including their original capital). Equity multiple is a complementary metric to IRR: IRR captures time value, equity multiple captures total return.
F
FF&E (Furniture, Fixtures, and Equipment)
The movable property inside a commercial building, especially relevant in hospitality and senior living. FF&E is treated separately from the real property in valuations and financing because it has a shorter useful life and depreciates faster.
G
GP / LP (General Partner / Limited Partner)
In a real estate partnership, the General Partner is the operating sponsor who finds, manages, and operates the deal. Limited Partners are the passive investors who put in most of the equity but don't have day-to-day involvement. The GP typically earns a promote (carried interest) on top of their pro rata share of profits, in exchange for sourcing and managing the deal.
Gross Rent Multiplier (GRM)
The purchase price of a property divided by its annual gross rental income. A property bought for $5M with $500K of gross rent has a GRM of 10. GRM is a quick screening metric, especially for smaller multifamily and rental property deals where buyers don't yet have detailed expense information. It ignores operating expenses, so it's less precise than cap rate but useful for quick comparisons.
H
Hard Money Loan
A short-term loan secured by real estate, typically from a private lender rather than a bank. Hard money loans have higher interest rates and shorter terms than conventional loans but close faster and accept properties or borrowers banks won't. Common in fix-and-flip deals, distressed acquisitions, and bridge situations.
I
IRR (Internal Rate of Return)
The annualized rate of return on an investment, calculated by finding the discount rate that makes the net present value of all cash flows equal zero. IRR is the dominant return metric in institutional CRE because it accounts for the timing of cash flows, not just the total. A 20% IRR over five years is much better than a 20% IRR over ten years.
L
Leasehold (Commercial Property)
A long-term lease interest in a property, as opposed to fee simple ownership. In a leasehold deal, the tenant (or "leaseholder") has the right to use, develop, and often sublease the property for a defined period (commonly 50 to 99 years), but the underlying land is owned by another party. Leaseholds are common in dense urban markets, on land owned by institutions (universities, governments, land trusts), and in ground-lease structures where the land owner wants long-term income without selling the land.
LOI (Letter of Intent)
A non-binding (mostly) document outlining the basic terms of a proposed deal. In acquisitions, the LOI typically covers price, deposit, due diligence period, financing contingency, and closing timeline. It signals serious intent and gets both sides aligned before drafting a binding purchase and sale agreement.
LTV (Loan to Value)
The loan amount divided by the property's value (or purchase price), expressed as a percentage. A $7M loan on a $10M property has a 70% LTV. LTV is the most common measure of leverage in CRE: lower LTV means more equity in the deal, less risk for the lender, and typically better loan terms.
M
Marketplace Financing
A financing approach where a platform connects borrowers with multiple lenders rather than relying on one bank or capital source. Marketplace financing platforms (like Lev) match a property and borrower with the lenders most likely to fund the deal, based on asset type, geography, loan size, and structure. The advantage is competition: multiple lenders bidding on the same deal typically produces better terms than a one-lender conversation.
Mezzanine Debt
A subordinated layer of debt that sits between senior debt and equity in the capital stack. Mezzanine lenders take more risk than senior lenders (they get paid second in a default) and charge higher rates, but the borrower gets to access more leverage without giving up equity. Often used in larger, more complex deals. See our guide on preferred equity vs mezzanine debt.
MOU (Memorandum of Understanding)
A document outlining the basic terms of a proposed deal or relationship before a binding contract is signed. Like an LOI, an MOU is mostly non-binding, used to align two sides on intent and major terms. See our full MOU guide for what to include and how it differs from an LOI.
N
NNN (Triple Net) Lease
A lease structure where the tenant pays not just base rent but also property taxes, insurance, and maintenance (the "three nets"). NNN leases shift most operating responsibilities to the tenant, which is why they're common in single-tenant retail, industrial, and credit-tenant deals. NNN properties trade as quasi-bond investments because the income stream is predictable and tenant-driven. See our triple net lease guide.
NOI (Net Operating Income)
A property's annual rental income minus operating expenses (taxes, insurance, maintenance, management) but before debt service or capital expenditures. NOI is the foundational income measure in CRE: cap rate, debt yield, DSCR, and most other return metrics build on top of it.
Non-recourse Loan
A loan where the lender's only remedy in default is the property itself (the collateral), not the borrower personally. Most CMBS and agency loans are non-recourse with "bad-boy carve-outs" (specific exceptions for fraud, willful damage, etc.). Non-recourse is generally preferred by sophisticated borrowers because it limits personal liability.
P
Pari Passu
A Latin phrase meaning "on equal footing." In CRE, two parties are pari passu when they share the same priority of payment. Common in equity partnerships where multiple investors get paid out at the same rate of return before any promote kicks in.
Portfolio Loan
A loan that the originating lender keeps on its own balance sheet rather than selling into the secondary market or securitizing into a CMBS pool. Portfolio lenders (often regional banks, credit unions, life insurance companies) tend to be more flexible than CMBS lenders on terms, prepayment, and underwriting, but typically offer shorter terms and lower leverage. The trade-off: speed and flexibility versus rate and term.
Preferred Equity
A layer of equity that gets paid before common equity in the capital stack. Preferred equity holders typically receive a fixed return (similar to interest) and have priority on distributions, but their upside is usually capped. Like mezzanine debt, preferred equity sits between senior debt and common equity in the cap stack, but it's structured as equity rather than debt.
Pro Forma
A financial projection of a property's expected performance under a specific operating plan. Pro formas are central to acquisition underwriting (what we expect the property to do under our ownership) and are typically presented alongside historical financials in OMs.
R
Recourse Loan
A loan where the borrower is personally liable beyond the property itself. If the property doesn't cover the debt in a default, the lender can pursue the borrower's other assets or income. Most bank loans on smaller CRE deals are recourse; CMBS and agency loans are typically non-recourse.
S
Sponsor
The lead party who sources, capitalizes, and operates a CRE deal, typically the General Partner in a partnership structure. Sponsors are the people lenders and equity investors are betting on as much as the property itself.
T
Term Sheet
A non-binding document from a lender outlining the proposed terms of a loan: amount, rate, term, amortization, fees, prepayment, and key covenants. Term sheets are issued during the financing conversation and become the basis for the formal commitment letter and loan documents.
Y
Yield on Cost
A property's projected stabilized NOI divided by the total project cost (acquisition plus all renovation, leasing, and carry costs). Yield on cost is the development and value-add equivalent of cap rate: it tells you what the property will yield once the business plan is executed. Investors typically target a meaningful spread between yield on cost and the going-in cap rate to compensate for execution risk.
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