Commercial real estate terms for buildings and space describe what a property is, how much of it a tenant pays for and how quickly a market fills it.
This glossary groups the vocabulary of commercial real estate (CRE) by the document where you meet it: the listing, the lease, the valuation and the loan. Each entry gives the meaning in a line or two, and a linked term leads to the guide that explains it in full.
| Term | What it means |
|---|---|
| Building class | A grade of A, B or C that brokers give a building for its age, location, finishes and systems. |
| Flex space | A low-rise industrial building that combines office or showroom space with warehouse or light production space under one roof. |
| Shell space | Unfinished space delivered with its structure, exterior walls and base utilities. |
| Pad site | A small parcel at the front of a shopping centre, sold or leased for a freestanding building such as a bank branch or a restaurant. |
| RSF | Rentable square feet: the area the rent is charged on. It adds a share of lobbies, corridors and washrooms to the tenant's own space. |
| RBA | Rentable building area: the total rentable square feet in a building. |
| GLA | Gross leasable area: the floor area a tenant occupies exclusively, the usual measure in shopping centres. |
| Load factor | Rentable area divided by usable area. A load factor of 1.15 means the tenant pays for 15% more area than it occupies. |
| FAR | Floor area ratio: a building's total floor area divided by the area of its lot. A zoning code caps it, which limits how much an owner can build. |
| I-N zoning | A district label that each municipality defines in its own zoning code. An "I" prefix usually marks an industrial district, so read the local code for the uses I-N allows. |
| Stacking plan | A floor-by-floor diagram of a building that shows each tenant, its area and its lease expiry. |
| Absorption | The space a market leases over a period. Net absorption subtracts the space tenants gave back. |
The US Office of the Comptroller of the Currency (OCC) supervises national banks and publishes a glossary for its examiners. It defines the absorption rate as the "rate at which available properties are leased or sold in a specific market during a given period of time" (OCC handbook).
Commercial lease terms describe who pays a building's costs, how the rent changes and which documents record the deal. The parties negotiate a commercial lease clause by clause, so two leases with the same label can split the costs differently.
| Term | What it means |
|---|---|
| Gross lease | A lease with one all-in rent. The landlord pays the building's operating costs out of it. |
| NNN lease | Triple net lease: the tenant pays base rent plus its share of property taxes, insurance and maintenance. |
| STNL | Single-tenant net lease: a net lease of a whole building to one tenant, often a national retailer. |
| TMI | Taxes, maintenance and insurance: the Canadian label for the costs a net tenant pays on top of base rent. |
| CAM charges | Common area maintenance: each tenant's share of the cost of running the lobbies, parking and grounds. |
| Operating expenses | The costs of running a building: taxes, insurance, utilities, repairs and management. |
| Percentage rent | Rent a retail tenant pays as a share of its sales above an agreed threshold, on top of base rent. |
| CPI escalation | A clause that raises the rent each year in step with the Consumer Price Index (CPI). |
| TI | Tenant improvements: the construction that fits a space to a tenant, such as walls, flooring, lighting and wiring. |
| TIA | Tenant improvement allowance: the money a landlord contributes toward that construction, usually quoted per square foot. |
| Leasehold improvements | Renovations that make a leased space suitable for the tenant's business. Canadian leases and accountants use this term for tenant improvements. |
| Key money | A payment a tenant makes to a landlord or to a departing tenant to secure a sought-after space. |
| Ground lease | A long-term lease of the land alone. The tenant builds on it and owns the building until the lease ends. |
| Sale-leaseback | A deal in which an owner sells its building and leases it back from the buyer. |
The US Bureau of Labor Statistics (BLS) publishes the CPI. It lists rental contracts among "the most frequently used escalation applications" of the index (BLS, CPI escalation).
| Term | What it means |
|---|---|
| Letter of intent | LOI: a short, mostly non-binding letter that sets out the main terms before the lawyers draft the lease or the purchase contract. |
| RFP | Request for proposal: a tenant's written request that invites several landlords to quote terms for the same space. |
| Rent roll | A table of a property's leases: each tenant, its area, its rent and its dates. |
| Lease abstract | A short summary of one lease's key terms: rent, dates, options and duties. |
| WALT | Weighted average lease term: the average time left on a building's leases, weighted by rent or by area. |
| Estoppel certificate | A tenant's signed statement that confirms its lease terms and reports any default. |
| SNDA | Subordination, non-disturbance and attornment agreement: it ranks the lease behind the mortgage, and the lender agrees to leave a paying tenant in place after a foreclosure. |
Commercial real estate valuation and investment terms turn a building's rent into an income figure, a price and a return. Most of them are ratios built on net operating income.
| Term | What it means |
|---|---|
| NOI | Net operating income: a year's income from the property less its operating expenses, before loan payments and income taxes. |
| Cap rate | Capitalization rate: NOI divided by the price. A buyer who accepts a lower cap rate pays more for each dollar of income. |
| Gross rent multiplier | GRM: the price divided by a year's gross rent. It ignores expenses and vacancy. |
| Internal rate of return | IRR: the annual return that makes all of an investment's future cash flows, including the sale, equal to the price paid. |
| Pro forma | A projection of a property's income and expenses for the coming years, built on stated assumptions. |
| T12 | Trailing twelve months: the operating statement for the last 12 months. |
| Broker opinion of value | BOV: a broker's estimate of the price a property would fetch, prepared to win or support a listing. |
| Syndication | A pooling of money from several investors to buy one property, run by a sponsor. |
| Investment sales | The brokerage business of selling income properties to investors. |
| Capital markets | The sources of debt and equity that pay for property, and the brokerage teams that arrange them. |
| Cost segregation | A US tax study that splits a building's cost among its parts, so the shorter-lived parts depreciate sooner. |
| Opportunity zone | A designated low-income area in the United States where an investment through a qualified fund earns a tax incentive. |
| CREW | Commercial Real Estate Women: CREW Network is a professional association for women in the industry. |
The OCC defines NOI as "annual gross income less operating expenses" (OCC handbook). Its glossary calls the capitalization rate the "ratio between a property's stabilized NOI and the property's sales price".
The two tax terms come from the Internal Revenue Service (IRS). It describes opportunity zones as "an economic development tool that allows people to invest in distressed areas in the United States" (IRS, opportunity zones). Its depreciation tables give nonresidential real property a recovery period of 39 years, the schedule a cost segregation study shortens for parts of a building (IRS Publication 946).
Take a building with 20,000 rentable square feet leased at $30 a square foot a year. A buyer pays $6,000,000 and borrows $3,900,000 at 6.5% interest, repaid over 25 years. Every figure here is an assumption for the arithmetic.
| Term | Calculation | Result |
|---|---|---|
| Gross income | 20,000 square feet at $30 | $600,000 |
| Effective gross income | Gross income less 5% vacancy | $570,000 |
| Operating expenses | Assumed | $210,000 |
| NOI | $570,000 less $210,000 | $360,000 |
| Price per square foot | $6,000,000 over 20,000 square feet | $300 |
| Cap rate | $360,000 over $6,000,000 | 6.0% |
| GRM | $6,000,000 over $600,000 | 10.0 |
| LTV | $3,900,000 over $6,000,000 | 65% |
| Annual debt service | 12 payments of $26,333 | $315,997 |
| DSCR | $360,000 over $315,997 | 1.14 |
| Debt yield | $360,000 over $3,900,000 | 9.2% |
One building produces all eleven figures, and they can disagree. This loan sits at 65% of value and covers its payments only 1.14 times. A lender that asks for income of 1.25 times the payments would lend about $3,554,000. Run your own figures in the commercial mortgage calculator.
Commercial real estate loan and deal terms describe how a lender sizes a loan and which documents carry a purchase from the first look to the closing.
| Term | What it means |
|---|---|
| DSCR | Debt service coverage ratio: NOI divided by the year's loan payments. |
| Debt yield | NOI divided by the loan amount, as a percentage. |
| Leverage ratio | A measure of debt against value or equity. Loan-to-value (LTV), the loan divided by the property's value, is the most common one. |
| Bridge loan | A short-term loan that carries a property until its owner leases it up, sells it or refinances it. |
A leverage ratio compares what an owner borrowed with what the property is worth. US bank regulators publish supervisory limits on the loan-to-value ratio for each type of loan. The same guidelines tell banks to "establish their own internal loan-to-value limits for real estate loans" (Interagency Guidelines for Real Estate Lending).
Source: Interagency Guidelines for Real Estate Lending Policies, supervisory loan-to-value limits (12 CFR Part 34, Subpart D, Appendix A), as published by Cornell's Legal Information Institute.
The limit rises as a property gets closer to earning rent. The OCC adds that these limits "do not establish a safe harbor" (OCC handbook).
| Term | What it means |
|---|---|
| CA | Confidentiality agreement: the agreement a buyer signs before it receives a seller's financial records. |
| Offering memorandum | The marketing package a seller's broker sends to buyers: the rent roll, the operating history, the market and the asking terms. |
| Purchase and sale agreement | PSA: the binding contract between the buyer and the seller. |
| Due diligence | The buyer's review of the leases, the financial records, the title and the building while it can still withdraw. |
| PCA | Property condition assessment: an engineer's report on the structure, the roof and the building systems, with the cost of the repairs ahead. |
| Encumbrance | A claim or a limit attached to a property's title, such as a mortgage, a lien or an easement. |
People most often mix up five pairs of commercial real estate terms: NNN and a standard lease, TI and TIA, rentable and usable square feet, cap rate and return, and DSCR and debt yield.
NNN names a family of leases. The OCC warns its examiners that net lease terms "lack universally agreed-upon definitions" (OCC handbook). One NNN lease leaves the roof with the landlord and the next one hands it to the tenant, so read the clauses that assign each cost.
TI is the construction and TIA is the money. The Business Development Bank of Canada (BDC) describes the allowance as "a cash amount offered by a landlord to help you pay for renovations to a leased space" (BDC, leasing terms). When the work costs more than the allowance, the tenant pays the difference.
Rent runs on rentable square feet. A tenant that occupies 4,000 usable square feet at a load factor of 1.15 pays rent on 4,600. The pillar guide explains how commercial space is measured and quoted.
A cap rate is one year's NOI over the price, before any loan and any growth. An investor's return also depends on the debt, the rent growth and the sale price, and the IRR captures all three.
DSCR moves with the interest rate and the repayment period, and debt yield ignores both. The OCC writes that debt yield "provides a measurement of risk that is independent of the interest rate, amortization period, and capitalization rate" (OCC handbook). A loan can pass one test and fail the other, which is why lenders run both.
Lease vocabulary and tax vocabulary change at the border:
- Lease costs. A Canadian lease bills "additional rent" or TMI where a US lease bills NNN or CAM charges.
- Fit-out. Canadian leases say leasehold improvements where US leases say tenant improvements.
- Tax. Cost segregation, opportunity zones and the 1031 exchange are US tax terms. The investing guide answers whether Canada has a 1031 exchange.
The commercial real estate learning centre lists every guide in this series.