Glossary

The maximum, which an adjustable-rate mortgage may increase, regardless of index changes. An interest rate cap limits the amount the interest can change, while a payment cap limits the increase in monthly payment to a specific dollar amount.

Line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, etc.

The ratio of the first year NOI to the asking price (NOI/Asking price). Not the rate of return.

The Cap Rate is utilized in commercial real estate financing and sales transactions. It is the percentage derived by dividing the income generated from the use of the property by the value of the property. It is used to determine debt service coverage for a loan or potential return on investment. It also used for appraisal of properties whereby appraisers will use an assumed Cap Rate" (according to market conditions) to determine the value of the property when using the "income approach" to valuation. See Commercial Real Estate Appraisal below. "

The definition used for the inclusion of recourse in loan documents for fraud and misrepresentation.

For Financial Reporting Purposes This generally refers to cash on hand and the value of assets that can be converted into cash immediately such as bank accounts.

When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.

The downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing.

An entity that receives and disburses funds to the various parties involved in 504 financing under a master servicing agent agreement with SBA.

Certificate issued by the designated authority in a State (generally the Secretary of State) to verify that a corporation or other business entity actually exists, has paid all its statutory fees, has met all filing requirements and, therefore, is authorized to transact business in that State. A Good Standing Certificate is generally required for any type of closing to take place, whether acquisition or financing.

A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. The 504 CDC Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide. Each CDC covers a specific geographic area.

The distance between the building_s floor and effective storage ceiling.

An industrial and self-storage term that represents temperature controlled commercial space.

The date upon which real estate documents are recorded and title passes from Seller to Buyer. On this date the Buyer becomes the legal owner.

Actions and procedures associated with the documentation and disbursement of loan funds after the application has been approved and all required documents are filed and recorded.

The costs and fees associated with the official change in ownership of the property and with obtaining the mortgage, that is assessed at the closing.

A bond or other financial obligation secured by a pool of mortgage loans.

Index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11th District of the Federal Home Loan Bank.

Collateral is the property pledged to a lender or other party to secure repayment of a loan or performance of some required task.

Development and transitional land acquired for investment use: land for lots, site selection and assemblage of parcels.

An estimate of the "market" value of Commercial Real Estate prepared by a licensed appraiser. Appraisers may be licensed by the State and may also be designated as an MAI appraiser (usually required by banks). When making business loans collateralized by real estate lenders will generally require the appraisal to conform to the Uniform Standards of Professional Appraisal Practice (USPAP), which sets forth guidelines for valuing property. Generally, appraisers use three methods for determining values: the "cost approach," which refers to the value of the land and the cost to construct the building and improvements, the "sales comparison approach," which analyzes the sales of similar properties in the area, and the "income approach," which analyzes the income generated or projected to be generated by the use of the property and applying a capitalization rate to that number. Appraisers will often use and reconcile all 3 approaches to arrive at a value.

Amounts charged to commercial tenants, generally in shopping centers, for their pro rata share of expenses to maintain hallways, restrooms, parking lots, and other common areas.

An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.

Interest is compounded when the interest due on a business loan for a given period is added to the principal amount of the loan and that amount then also accrues interest.

The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CMBS market.

A type of senior housing that typified by a central eating facility, smaller rooms, and a higher level of care for its tenants.

An index based on the U.S. Treasury that is used in the pricing of debt for banks.

A short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.

A fee charged by the lender for the construction component of a loan. The fee is typically calculated as a percentage of the total construction costs. Points can also be charged by lenders on Permanent Loans as well as by mortgage brokers and loan brokers for services rendered in connection with obtaining a loan.

The type of construction used for a commercial building, (i.e. concrete tilt-up, etc.).

An element of an agreement that must be satisfied before the total agreement can be consummated.

A lender agreement that is not guaranteed or insured by the federal government.

A commercial loan, secured by a mortgage, for a residential investment property that has two or more residential tenants.

A commercial real estate loan for an investment property that is fully leased to a single tenant.

A loan, secured by a mortgage, for an investment property that may be a combination of retail, office and/or residential space.

A loan, secured by a mortgage, for an investment property that is leased to tenants in the manufacturing and trade industries and is industrial in nature.

A business loan, secured by a mortgage, to a borrower that uses all or substantially all of the property securing the loan for the operation of its business. Loan purposes may include the purchase or refinance of a commercial business property (owner-user), construction and improvements.

Inventory costs of those goods a business has sold during a particular period. Costs are associated with particular goods using one of several formulas, including specific identification, first-in first-out (FIFO i.e. first purchased is first sold), or average cost. Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and saleable condition. Costs of goods sold by the business include material, labor, and allocated overhead.

The coupon on U.S. Government securities expressed as an annual percentage of face value, is the interest rate the U.S. Government promises to pay to the holder on an ongoing basis until maturity.

A report containing detailed information on a person's credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders with the borrower's permission, to determine his or her creditworthiness.

Credit Score Often referred to as the FICO score is a numerical rating determined by an analysis of your Credit Reports. The FICO scores range between 300 and 850, with the lower number allegedly representing a greater credit risk.

A tenant, who has obtained a debt rating by S&P or Moody_s of BBB-" or better."

A lease with a tenant that has a credit rating of BBB- or better.

Cash Accounts receivable, marketable securities, inventory and other assets of a business that can be converted into cash within a year.

Current or Short Term Debt Liabilities or debts of a business that mature or become due within one year.

The total amount of long-term debt (such as a mortgage loan) that must be paid within a year period.

A liquidity ratio that measures the ability of a business to pay short-term obligations. It is often used by banks when evaluating business loan requests. Formula: Current Ratio = Current Assets _ Current Liabilities.