Guidance for The Movement in the Real Estate Market


Definitions and vocabulary for landlords:

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Annual Operating Budget:
The property’s annual operating budget to maintain, manage, and market the property. It is a line by line report that details expenses and categorizes them into specific categories.

Annual Debt Service:
This is the amount paid to service the debt of the property.

Capital Expenditures:
An expense to acquire a long term asset. A capital expenditure is considered to add value to the property. A capital expenditure is a structural addition or betterment to the property that extends the life of the building or equipment.

Gross Square Footage:
The area bounded by the partition walls, plus the unit’s percentage interest of the building's common area which include bathrooms, electrical rooms, hallways, elevators, and any other common area space. This is the square footage that the property is rented at.

Gross Potential Income:
This is the income potential for the property. If it were fully leased at current market rents.

Load Factor:
This is used to charge the tenant for a percentage of the common areas, so that the total leased is equal to the floor's total area.

Maintenance Plan:
Once maintenance program objectives or goals have been determined, the next step is to develop a maintenance plan. This would require to assessing the status of the property including visual inspection of its components, scheduling maintenance tasks for the year, defining the scope of work and tasks needed to manage the property. The plan most provide for evaluation of vendors while working within the budget constraints of the property.

Marketing Plan:
This is used to advertise and relay information about the property for purposes of attracting tenants.

Net Operating income (NOI):
This represents the amount of money that remains after operating expenses are subtracted from the effective gross income. It is the primary measure of a property's value.

Operating Expenses:
These are line by line expenses associated with the property’s management, maintenance, and reserve contribution (if applicable).

Pass-Through Expenses:
A property’s operating expenses that become the financial responsibility of the tenant. Obligation of payment is determined by the terms of the Lease Agreement.

Periodic Return:
It is the cash flow generated by the real estate investment. It is what remains after the operating expenses and debt service have been deducted from the Effective Gross Income.

Preventative maintenance:
Is proactive maintenance approach that requires planning and prioritizing maintenance activities.

Property Information Report:
A comprehensive report that details the components and elements of the property. Details will include such information as square footage, operating budget, rent roll, vendor name and contact details, and year to date financial records of the property. Property managers will use this information to prepare a bid to manage your property.

Scope of Work for tenant improvements:
A written summary, in general terms, of the work that is to be completed. It can include information about the materials and finishes of the tenant improvements.

Reconciliation Packets:
Annual audits prepared by the landlord to tenants that have “Pass Through Expenses” in their lease. The landlord shall annually furnish the tenant with an accounting of actual and accrued assessments and expenses with comparison to the property’s estimated budget. The tenant shall pay the landlord the amount of underpayment of assessments and expenses and the landlord shall credit the tenant for any over payment of expense.

Reserve for Replacements:
This is not always required. It depends on the requirement of the owner. It may be deducted before NOI, after NOI, or not at all.

Useable area:
The area bounded by the partitions that separate ones tenant space from another.

Floor Common Area:
The interior floor building area which includes such items as bathrooms, janitorial closets, electrical rooms, elevators, and common area lobbies.

Vacancy and Debt Collection:
This figure is based on market conditions and historical experience of vacancy and collection losses for the property. It includes three elements: economic vacancy (includes concessions for leases), physical vacancy, and delinquent rents.