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Absorption The amount of space that is leased and taken off the market during a given time frame.
Absorption Analysis A series of tests designed to identify (a) the likely and probably occupancy rate to be expected from a project and (b) the time required before full absorption is likely to be realized.
Active Participation A threshold definition used in tax law to define whether or not an individual is allowed to deduct losses in real estate investments; active participation requires a minimal recurring involvement in tenant selection, maintenance of properties, and decisions concerning rent levels and timing of a property purchase or sale.
Adjusted Gross Income (AGI) An individual’s gross income before deducting tax exemptions and itemized or standard deduction.
Anticipation A principle of valuation, stating that market value often is affected by expectations about future events.
Appraisal The process of estimating a property’s current value, based on comparison to similar properties and recent sales; or based on income levels for multi-unit investment properties or retail properties.
Asset Allocation The spreading of risk through an expanded form of diversification, in which investment capital is placed in several different markets (such as real estate, stocks, bonds and the money market) rather than in one market.
BANANA Acronym for Build Absolutely Nothing Anywhere, Not Anytime, describing those opposed to all types of new development; NIMBYs who want nothing to change in their neighborhoods.
Base Year The 12 month period upon which a direct expense escalation of rent is based. Typically the calendar year the lease commences.
Big Box Retail stores typically serving as anchor tenants in larger malls, so called due to their cube-shape and name recognition.
Business Plan A general description of a document intended to justify a business venture, notably for lenders; plans include narrative descriptions of a proposed course of action; revenue forecasts, cost and expense budgets and cash flow projections; and biographies of the business owners.
Business Travelers In the lodging industry, a potential guest whose primary reason for travel is business-related. This group includes the solitary business traveler, corporate small groups, and convention business.
Cap Rate Abbreviated form of “capitalization rate,” the rate of return used in income properties. It is a comparison between net operating income and sales prices of properties, used by appraisers to estimate value based on similar income property sales in the same area.
Capitalization the overall funding of a project; capitalization may consist of debt (financing provided by lenders) or equity Capitalization (through capital formation provided by investors). Capitalization may be raised directly between developer and lenders or investors, or indirectly through conduit investment programs, such as real estate investment trusts (REITs).
Capitalization Rate A percentage rate composed of return on investment, risk factors and rate of recapture. Principally used to determine the economic value of an investment by dividing the rate into the net operating income.
Cash Flow Projection An estimate of future cash-based revenues and cash payments (including operating expenses, capital expenditures, and debt service); as part of a project’s feasibility study, the cash flow projection is intended to demonstrate that cash flow is adequate to ensure that the project will work financially.
CAVE Acronym for Citizens Against Virtually Everything, extreme NIMBY interests against any and all forms of new development in a city, town or county.
CBD The Central Business District of a city, which includes business activity and buildings as well as financial and government areas.
Change A principle of valuation, stating that no condition remains the same indefinitely; change is part of the economic cycle.
Class A Building Most prestigious buildings competing for premier office tenants. Buildings have high quality standard finishes, state of the art systems, excellent accessibility, and definite market presence.
Class B Building Buildings competing for a wide range of users with occupancy costs for tenants in the average range for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A buildings at the same occupancy cost.
Class C Building Buildings competing for tenants requiring functional space at gross and net rents below average for the area. Some Class C buildings are renovated historic structures that produce fairly high Amortized NPV rents, while other are not competitive in today's market.
Comparable Property In appraisal, a property that has sold recently, and that is reasonably similar to a subject property, based on condition, lot size, neighborhood, square feet, and other features; used for the purpose of estimating current value.
Competition A principle in valuation, stating that opportunities for profitable investment lead to competition.
Competitive Analysis A study of competitive forces for a project, considering the size and location, amenities, and other features of a project; the analysis includes identification of the actual competition and does not assume that all properties sharing the same zoning are competitors.
Condemnation (or, Expropriation) the act of changing status of property as part of a government’s exercise of eminent domain.
Conformity A principle of valuation, stating that a property is most likely to appreciate in value along with other, similar properties in the same neighborhood.
Consumer Price Index (CPI) A measurement of inflation published by the Bureau of Labor Statistics (BLS), compiled to report changes in the average prices paid for a basket of consumer goods and services.
Contribution A principle of valuation, stating that improvements add to market value as a factor of current supply and demand, and not necessarily on the basis of actual cost.
Convention Business In the lodging industry, customers needing not only rooms, but convenient restaurants, exhibit space and support, and access to shopping and recreational amenities.
Corporate Contracts agreements entered between lodging and corporations; these include travel agencies and online travel websites committing to fill blocks of rooms; airline employees; government and military travelers; and out-of-town employees visiting a home office.
Corporate Small Groups Business travelers who reserve blocks of lodging rooms and interested in business meeting facilities on-site, such as day rooms and small meeting rooms.
Cost Method An appraisal method in which current value is based on the current cost that would be required to duplicate the improvements on the same land.