GLOSSARY OF TERMS - R

The percentage return on each dollar invested. Also known as yield.

The regularly repeating sequence of economic downturns and upturns and associated changes in real estate market transactions tied to market dynamics and changing macroeconomic conditions, whose phases include (in order) recession, recovery, expansion, and oversupply.

Short-term variations in real estate prices or rents (usually lasting anywhere from one day to a few months) caused by natural hazards (such as tornadoes, hurricanes, floods, earthquakes, and wildfires) or boosts or shocks to the local economy (such as the entry or exit of major employers).

A trust or association that invests in a variety of real estate investment assets. REITs are managed by one or more trustees, like a mutual fund, and trade like a stock. No federal income tax is paid by the trust if at least 75% of the income is real-estate related and 95% of the income is distributed to investors. Created in 1960 (act of Congress) and was part of an Act regarding excise tax on cigars. See 1031-721 Exchange for exchanges involving REITs.

Long-term movements or tendencies in the demand for commercial real estate (which can typically last for years or decades), usually tied to macro-economic or business cycles.

Land and buildings (improvements), including but not limited to homes, apartment buildings, shopping centers, commercial buildings, factories, condominiums, leases of 30-years or more, quarries and oil fields. All types of real property are exchangeable for all other types of real property. In general, state law determines what constitutes real property.

A period of reduced economic activity or a general economic downturn marked by a decline in employment, production, sales, profits, and weak economic growth that is not as severe or prolonged as a depression. As a result, sales in real estate markets are slow, property values and price levels are flat or decreasing, and there is virtually no construction of new stock given excess supply in most real estate markets.

A loan obligation where the borrower is liable for the full amount of the remaining balance of the loan, even if the collateral value is less than the amount of the loan.

A period of increasing economic activity or a general economic upturn, typically following a stabilization of key sectors and industries, marked by increasing sales and recovering prices in real estate markets as a direct result of an external shock (for example, a favorable tax code revision) or an increase in demand for commercial real estate which, in turn, leads to the absorption of excess space. Little or no construction occurs during the initial stages of this phase until most of the excess space is absorbed or until reasonable financing opportunities become available.

Information meant to distract. Fallacy in which an irrelevant topic is presented in order to divert attention from the relevant issues. Also used to refer to preliminary prospectus issued to gauge interest in a prospective offering.

This center type provides general merchandise (a large percentage of which is apparel) and services in full depth and variety. Its main attractions are its anchors: traditional, mass merchant, discount department stores, or fashion specialty stores. A typical regional center is usually enclosed with an inward orientation of the stores connected by a common walkway and parking surrounds the outside perimeter.

In reference to land use, they are restrictions or guidelines on development or use of land, properties, or facilities as defined in accordance with design standards, building construction requirements, land use plans, occupancy codes, and zoning classifications as determined by the controlling or governing parties at the municipal or county levels.

Any person bearing a relationship to the Investor as described in Section 267(b) of the Internal Revenue Code. Related parties include family members (spouses, children, siblings, parents or grandparents but not aunts, uncles, cousins or ex-spouses) and a corporation in which you have more than a 50% ownership; or a partnership or two partnership in which you directly or indirectly own more a 50% share of the capital or profits.

The property to be sold or disposed of by the Investor in the tax-deferred, like-kind exchange transaction.

Is the usable amount plus share of the common areas of the building that utilize; i.e., lobbies, restrooms, hallways, etc. The common area space is generally between 12-15% of the total building area.

A period of free rent given to the tenant by the lessor.

Items specified in a lease such as base rent, operating expenses, and taxes that may increase by predetermined amounts at stated intervals or by a constant annual percentage. Also see index lease and expense stop.

The like-kind property to be acquired or received by an investor in the tax-deferred, like-kind exchange transaction.

A gap analysis performed specifically on retail floor space in a given market or trade area.

Also referred to as service area, is generally defined as the geographic or formal area from which a sustained patronage is attracted to support a retail center or establishment; the extent to which is determined by numerous factors including the site characteristics of the center or establishment, its accessibility, the presence or absence of physical barriers to movement, and general limitations imposed by driving time, congestion, and distance/separation.

Performance measure used to compare different investments expressed as a percentage. Calculated by dividing the investment gain less its cost by the cost of the investment. See Yield.

Set of guidelines published by the IRS in February of 2002 that if complied with would classify a tenant-in-common (TIC) interest as real estate, not a partnership. Important because it made TICs a viable 1031 Exchange Replacement Property option (partnerships do not qualify as 1031 Replacement Property). Some of the key elements are that TIC properties are not to exceed 35 investors, must not do business as a separate entity, limited TIC agreement, unanimous consent to hire manager/encumber property or lease, no restriction on alienation, proportionate sharing of profits and losses, limitation on options to purchase, limited business activity, management agreement with annual renewal, bona fide leases, limitation on advancing money and limitation on payments to sponsors. To help make the TIC structure workable the IRS issued Private Letter Rulings 200327003 and 200513010 that provides for the unanimous consent to renew management through an annual notice of right to cancel and unanimous consent for leases through approved leasing criteria.

In a typical 1031 Exchange, the investor sells a property (relinquished property) and then purchases a replacement property. A Reverse 1031 Exchange works in the opposite direction, allowing the investor to first purchase a replacement property and later sell the relinquished property. A Reverse 1031 Exchange can also be used when the investor wants to acquire a property and construct improvements on this "replacement" property before taking title.

A lump-sum cash benefit that an investor receives or expects to receive upon the sale of an investment.

For hotels the average daily room rate, or ADR, charged, multiplied by the average daily occupancy rate for a given period of time.

The probability that actual cash flows from an investment will vary from the forecasted cash flows.

The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is a form of compensation for investors who tolerate the extra risk - compared to that of a risk-free asset - in a given investment.

The basic premise that the greater the risk the greater the return needed to attract investors. In a perfect market all investments would reflect their correct risk vs. reward ratio. Commercial real estate is an imperfect market meaning that just because an investment has a lower return does not necessarily mean that has a lower risk.