Commercial Real Estate Glossary
The terms that come up when you sell a commercial building, in plain English. We use these on our property reviews — here’s what they mean, with no jargon for its own sake.
Income and value
Capitalization rate (cap rate)
A property’s net operating income divided by its price or value, expressed as a percent. It’s the quickest way to compare income properties: a higher cap rate generally means a higher return for the buyer (and a lower price for the seller), and rates vary by asset class, location, and risk.
Net operating income (NOI)
A property’s income after operating expenses but before debt service and income taxes — rents and other income, minus expenses like taxes, insurance, maintenance, and management. NOI is the number a cap rate is applied to.
In-place income
The income a property is actually producing right now under its current leases — as opposed to projected or market income. Buyers weight in-place income heavily because it’s real, not hoped-for.
Rent roll
A list of the building’s tenants, units, lease terms, rents, and key dates. It’s one of the first documents a buyer reviews on income property.
Leases
Gross lease vs. net lease
Under a gross lease the landlord pays most operating expenses; under a net lease the tenant pays some or all. The structure changes who carries taxes, insurance, and maintenance — and therefore the building’s NOI.
Triple-net (NNN)
A net lease where the tenant pays the three main operating costs — property taxes, insurance, and maintenance — on top of rent. Single-tenant NNN properties trade largely on the strength of the tenant and lease.
Occupancy and vacancy
The share of a building that is leased (occupancy) versus empty (vacancy). Vacancy lowers income and makes a building harder to finance, which is why vacant buildings often suit a direct sale.
Estoppel certificate
A signed statement from a tenant confirming the lease terms, rent, and that no disputes exist. Buyers request them to confirm a rent roll is accurate.
Condition and the deal
Due diligence
The review period when a buyer verifies the property — title, leases, condition, income, zoning, and environmental status — before closing. A direct, as-is buyer typically needs far less of it than a financed buyer.
As-is
Sold in its present condition, with the buyer accepting known and unknown issues; the seller isn’t expected to make repairs.
Deferred maintenance
Repairs and upkeep that have been put off — roof, HVAC, paving, structure. It reduces value and can block conventional financing.
Financing contingency
A clause letting a buyer back out (or delay) if their loan doesn’t come through. A cash/capital-in-place buyer has none, so there are fewer ways for the sale to fall through.
Ownership, title, and closing
Owner-occupied
A commercial building used by the business that owns it (rather than leased to tenants). Valuing it separates the real estate from the business and may involve a lease-back.
Title and lien
Title is legal ownership; a lien is a claim against the property (a mortgage, tax lien, judgment, or mechanic’s lien) that generally must be cleared or paid at closing.
Payoff
The amount needed to satisfy a loan in full as of a given date. In a sale, payoffs and lien releases are coordinated through the title company at closing.
Property types
Mixed-use
A building combining commercial and residential space — e.g., storefronts with apartments above. Value turns on the split, separate utilities, and the lease mix.
Special-use property
A building designed for one purpose — a church, restaurant, daycare, funeral home — with a small buyer pool and a possible build-out or zoning change for the next use.
Environmental, tax, and exchanges
Phase I / Phase II environmental assessment
A Phase I is a records-and-inspection review for environmental risk (no sampling); a Phase II involves actual testing if the Phase I flags a concern. Common on former gas stations, dry cleaners, and industrial sites.
1031 exchange
A tax provision (IRC Section 1031) that lets an owner defer capital-gains tax by reinvesting sale proceeds into a “like-kind” property within set timelines. (Tax matters depend on your situation — consult a professional.)
Sale-leaseback
A transaction where an owner-occupant sells the building and simultaneously leases it back, freeing the capital while staying in place as a tenant.
Circuit breaker (Indiana property-tax cap)
Indiana’s constitutional caps that limit a property-tax bill to a set percent of gross assessed value — 3% for commercial property. The excess above the cap is automatically credited off the bill. (See our Indiana-vs-Kentucky article.)
Fair cash value (Kentucky assessment standard)
Kentucky’s constitutional requirement (Section 172) that property be assessed at 100% of fair cash value — essentially fair market value — as of January 1 each year.
Who you’re dealing with
Direct buyer (principal)
A company that buys property for its own account, rather than listing it or representing a seller as an agent. There’s no commission and no public marketing.
Broker / agent
A licensed professional who lists and markets a property and represents a party for a commission. A direct buyer is not a broker.
Where owners go from here
Have a building to discuss?
We’ll review the property and walk you through any of these as they apply. A property review is free, confidential, and carries no obligation.