Real Estate Definitions – Part 2 – D to H

Here is part 2 of my new blog series with definitions and terminologies used in ICI Real Estate. View the previous post here and stay tuned for more next week.

Debt Coverage Ratio – The debt coverage ratio is the ratio of the net operating income to the mortgage payment. If net operating income is projected to change over time, the investor typically reports the first year’s net operating income.

Delivered – A building that has completed construction (i.e. obtained its certificate of occupancy). With a COO, the property will be considered delivered whether or not tenants have occupied the space. (Synonyms: completion; new supply)

Direct New Space – Space that is offered for lease directly by the building owner or landlord. If space is offered for lease by a building tenant, it is not direct space but rather is sublet space.

Direct Vacancy Rate – The total amount of physically vacant space divided by the total amount of existing inventory, expressed as a percentage. Space that is under construction (and, therefore, is vacant) is not included in vacancy calculations.

Discount Rate – Interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Distribution Building – A type of warehouse facility designed to accommodate efficient movement of goods. (Typical characteristics are shown in the Industrial Building Types Matrix.)

Dock-high Door – A loading dock door that is not at ground level but rather is elevated to 4 feet in order to be even with the standard tractor-trailer height for loading or unloading goods without a change in elevation. Some doors, called “semidock” or “half dock,” are constructed at a 2-foot height to accommodate smaller or lower delivery trucks.

Door-to-square-foot Ratio – The ratio of the total number of loading docks and drive-in doors to the building’s total square feet.

Drive-in Door – A door through which trucks, forklifts, and other machinery or vehicles can enter and exit without a change in elevation.

E-commerce – Electronic commerce is the buying and selling of products or services mostly through the Internet. Typically, transactions are carried out via desktop and laptop computers as well as on mobile devices such as smartphones and smart tablets.

Effective Rent – Expressed in dollars per square foot either per year or per month depending on market standards, it is a measurement of the value of the lease when all the concessions plus escalations are included. Effective rent calculations may vary according to local market practices; for example, in some markets, broker commissions are included.

Effective Rent Calculation – Effective Rent = (total rent – free rent – cash allowances) / lease term / rentable square foot Total Rent = rent paid during the term of the lease including escalations Note: Cash allowances can include free rent, moving allowances and other cash considerations.

Encumbered Space – A block of space offered for lease by a landlord to which another tenant has some right to lease or occupy at some future date.

Energy Star® – Also referred to as an “EPA rating” or an “Energy Star rating,” the rating is a standardized national benchmark that helps architects and building owners assess energy use relative to similar buildings in the program. An Energy Star-qualified building means the building meets EPA criteria for energy efficiency and displays the Energy Star building label.

Experiential Retail – The notion that people buy goods online but pursue experiences at brickand- mortar locations (i.e., do yoga, eat at restaurants, visit flagship stores for experience and entertainment, etc.).

Exurban – An emerging residential area beyond built-up suburbs and edge cities.

Flex Facility – As its name suggests, an industrial building designed to be used in a variety of ways. It is usually located in an industrial park setting. Specialized flex buildings can include service centers, showrooms, offices, warehouses and more. (Typical characteristics are shown in the Industrial Building Types Matrix.)

Floor Area Ratio – FAR is the relationship between the total square footage of a building and the total square footage of the parcel on which the building is located. It is typically calculated by dividing the total square footage of the building by the land area in square feet. For example, if a 20,000-square-foot building is built on a 10,000-square-foot lot, the FAR is 2.0.

Floor Plate – The gross square footage of each floor in a multistory building. Individual floor plate sizes may vary according to the design of a building.

Freestanding – A stand-alone retail structure that is not part of a complex (i.e., bank, bowling alley, Walmart, etc.). (See Retail Building Types Matrix.)

Fulfillment Center – An industrial property type that enables goods to be efficiently moved or transported from a warehouse directly to a consumer. (Typical characteristics are shown in the Industrial Building Types Matrix.)

Full Service Lease – A legally binding contract in which a landlord receives stipulated rent from a tenant and is obligated to pay all or most of the property’s operating expenses and real estate taxes. Note: Disclosure of the specified costs of operation is required in some states. (See Common Lease Types Matrix.) (Synonym: full service lease)

Functional Obsolescence – A descriptive term used to characterize a building that cannot be improved to meet current market standards or tastes without a complete replacement of buildings systems and finishes.

Go Dark – A clause in a retail tenant’s lease that allows a tenant to cease operations at a property if a defined event, such as the departure of an anchor tenant, should occur.

Government Office Building – A building that is owned (and typically occupied) by public sector entities.

Green Globes® – Founded in Canada in 1996, Green Globes is a green building guidance and assessment program that offers a way to advance the overall environmental performance and sustainability of commercial buildings. After achieving a minimum of 350 of the total number of 1,000 points, new and existing commercial buildings can be certified for their environmental achievements and sustainability by pursuing a Green Globes certificate that assigns a rating of one to four globes.

Gross Absorption – The total amount of space occupied over a given period of time, without subtracting the amount of space vacated. (Synonym: leasing activity)

Gross Building Area (GBA) – The total interior floor area of a building, usually measured from the innermost edge of the outside walls.

Gross Leasable Area (GLA) – A site calculated as the summation of all rentable areas plus all common areas of a building.

Gross Lease – A legally binding contract in which a landlord receives stipulated rent from a tenant and is obligated to pay all or most of the property’s operating expenses and real estate taxes. Note: Disclosure of the specified costs of operation is required in some states. (See Common Lease Types Matrix.) (Synonym: full service lease)

Ground Lease – A lease agreement (contract) whereby the landowner (lessor) agrees to lease a parcel of land for a set period of time to a third party (lessee). Depending on the agreement, the lessor can stipulate what the lessee can or cannot do with the property or build on the property. The lease term is typically 20 years or more, but many extend to 99 years. Upon expiration of the lease agreement, the lessor typically gains control and ownership of whatever is constructed on the land, unless the lease is renewed or an exception is created in the lease.

High Cube – A relative term that refers to industrial buildings with an abundance of clear height or vertical cubic space. (Synonym: high bay)

High Street Retail – A concentration of shops in urban or urban-like areas that may also be referred to as “Main Street retail” in the United States and Canada.