Commercial Real Estate Glossary

  • 1031 Exchange
    A tax-deferral strategy allowing an investor to sell one property and reinvest the proceeds in another like-kind property, deferring capital gains taxes.
  • Cap Rate (Capitalization Rate)
    A measure of return on investment based on the property’s income. Calculated as Net Operating Income (NOI) divided by the property’s purchase price.
  • Due Diligence
    The investigative process before closing a transaction—includes reviewing leases, financials, title, zoning, environmental reports, and building condition.
  • Gross Lease
    A lease where the landlord covers property expenses like taxes, insurance, and maintenance. The tenant pays a flat rent.
  • Net Lease (NNN)
    A lease structure where the tenant pays base rent plus property taxes, insurance, and maintenance (called the “triple net”).
  • Letter of Intent (LOI)
    A non-binding agreement outlining the basic terms of a future purchase or lease agreement. Often the first step in formal negotiations.
  • Zoning
    Local government regulations that define how properties can be used (e.g., commercial, residential, industrial). Santa Fe has detailed zoning codes that vary by district.
  • Vacancy Rate
    The percentage of all available units in a rental property or market that are unoccupied. A lower vacancy rate generally signals stronger demand.
  • Tenant Improvement (TI) Allowance
    Funds provided by the landlord to customize or renovate a space for the tenant’s use, usually negotiated as part of a lease deal.
  • Operating Expenses
    The costs associated with running a property—includes utilities, repairs, property management, taxes, and insurance.
  • NOI (Net Operating Income)
    Income generated from a property after operating expenses are deducted from gross income. NOI does not include mortgage payments.
  • Build-to-Suit
    A development where a landlord or developer constructs a space specifically tailored to a tenant’s specifications.
  • CAM (Common Area Maintenance)
    Fees tenants pay in addition to rent to cover shared building expenses such as landscaping, security, and lobby maintenance.
  • Escalation Clause
    A lease clause that allows rent to increase over time, often tied to inflation (CPI) or a fixed percentage annually.
  • Broker Opinion of Value (BOV)
    An estimate of a property’s market value prepared by a commercial broker—less formal than an appraisal but useful for pricing decisions.
  • Phase I Environmental Site Assessment
    A report evaluating a property for potential contamination—typically required by lenders and investors to assess environmental risk.
  • Absorption Rate
    The rate at which available properties are leased or sold in a market during a specific time period—used to gauge demand.
  • Anchor Tenant
    A major, typically well-known tenant (like a grocery store or national retailer) that drives traffic to a retail center.
  • Mixed-Use Property
    A development that combines commercial, residential, cultural, or industrial spaces in one integrated project—popular in Santa Fe’s urban core.
  • Opportunity Zone
    A federally designated area offering tax benefits to investors who develop or reinvest capital gains in economically distressed neighborhoods.

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