| Rate of Return | An investment calculation, usually comparing operating income to the purchase price (net operating income is divided by the basis in property). |
| Real Estate Investment Trust (REIT) | A conduit (pass-through) program in which investment funds of many investors are pooled together to fund real estate development; REITs may be classified as mortgage, equity, or hybrid. Trust shares are as liquid as shares of stock, and are traded on public stock exchanges. |
| Real Estate Market | The combined group of sellers and buyers who exchange property among themselves; further defined by property type and location; income production; and investor, tenant or customer attributes. |
| Recovery Period | The number of years over which specific classes of capital assets can be depreciated. |
| Regional Centers | Also called power centers or regional malls, these range between 250,000 and one million square feet of retail space and normally include at least three anchor tenants, typically “big box” stores. |
| Regression | A principle of valuation, stating that a property’s value may decrease due to the existence of similar properties in similar locations, containing lower quality. |
| Replacement Value | The value required to replace current improvements, based on both the cost of construction and duplication of the quality of workmanship (for example, handmade fixtures in older homes). |
| Scientific Method | An objective method for evaluating questions of fact, premised on the belief that an original hypothesis may or may not be true; that such a hypothesis may be verified or disproved through a series of tests; and that the outcome of such tests should be conclusive in either direction because of the overall validation of information. The method has five steps: validation, hypothesis, prediction and testing. |
| Second Home | As defined for tax purposes, a second residence; deductions of mortgage interest and property taxes are deductible by individuals on second homes when they are used as part-year residences. |
| Secondary Market | A market for resell of investments; in the mortgage business, an active secondary market exists to purchase mortgages from lending institutions; package those mortgages into pools; and sell pool shares to investors. Programs performing secondary market services include the General National Mortgage Association (GNMA) and the Federal National Mortgage Association (FNMA). In some forms of investment, a secondary market may not exist or may be expensive. |
| Site Evaluation | Comparative analysis of a specific site’s physical properties such as topography, shape of the land, surrounding uses, proximity to important features; and of the locational features such as off-site visibility and access to transportation routes such as freeway off-ramps or commuter stations. |
| Site Specific Attributes | The features of a specific site including size, shape and topography, that affect or contribute to market value. |
| Small-Scale Mall | A mall with between 100,000 and 300,000 square feet of retail space, sited on 20 to 30 acres with one to two anchors. |
| Solitary Business Traveler | A business person traveling alone and primarily interested in convenience of a site to transportation and local business districts. |
| Spread | The difference between asked and sale prices in residential real estate; trends in spread are indicative of the overall supply and demand trend. |
| Straight-Line Depreciation | A method of calculating depreciation in which the same amount is deducted each year until the full value has been deducted. |
| Strip Mall | A very small retail shopping area, located on primary roads and consisting of limited retail space and parking; typically, five to 10 shops and stores are found in the strip mall. |
| Subsidized Housing | A program of incentives provided by the government in the form of tax credits and other financial incentives, designed to encourage affordable and low-income housing developments. |
| Substitution | A principle of valuation, stating that a property’s greatest potential market value is limited by the market value of other, similar properties. |
| Supply and Demand | An economic comparison that affects pricing of all products and commodities; the analysis of supply and demand recognizes that prices rise and fall as a direct result of changes in both supply and demand of a particular product. In real estate, three distinct supply and demand markets coexist: for properties (reflected in prices of real estate); for rentals (“rental demand” is a comparison between the demand among tenants and the supply of rental units); and for financing of real estate purchases and developments. |
| Sweat Equity | Appreciation in market value derived from the owner’s individual efforts, usually relating to improvements and renovations to run-down properties. |
| Takings | Limitations on development activity, changes in zoning that prevent an owner from using land as intended or desired, or the requirement by a city or county that in order to gain approval, a developer must pay for additional benefits or donate land. |
| Tax Incentives | Tax provisions and rules designed to encouragement investment in a particular product, such as real estate. Incentives for individuals include allowance for deduction of annual losses on real estate investments that are managed directly. |
| Time on the Market | In residential real estate, a test of a market’s trend. As the average time on the market between listing and final sale changes, analysts may judge the broader trend in residential supply and demand. |
| Trade Area | The area where the entire potential customer base is found, which may extend beyond the primarily geographic market area. The trade area is defined based on a project’s attributes; location and drive times; population and competition distances; and demand features. |
| Transition | An observed trend in a neighborhood that will affect valuation; a transition may be either positive or negative, and is an important aspect of judging investment value for a project. |
| Urban Growth Area | Under growth management laws, defined areas where development will be allowed, beyond zoning classifications. In many states, UGA infill is a requirement before additional development is allowed outside of the UGA boundary. |
| Vacancy Rate | The percentage of total potential gross income, representing vacant units. This rate is usually expressed as a percentage of dollar amounts, but may also be reported on the basis of square feet or number of units. |
| Vacant Inventory | The currently available rental space, normally expressed in the number of square feet. |
