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| What is meant by a Net Lease? |
 | In a net lease, the tenant pays all or some of the property charges in addition to the rent. The monthly rent is net income for the landlord after operating costs have been paid. Leases for interior commercial or industrial buildings and land on which they are located, ground leases and long-term leases are usually net leases. |
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| What does CAP Rate mean? |
| It is also knowns as Capitalization Rate and is an income rate for a total property that reflects the relationship between a single year's net operating income expectancy and the total property price or value; it is used to convert net operating income into an indication of overall property value. |
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| What does NNN mean? |
| In a triple-net lease, or net-net-net (NNN) lease, the tenant pays all operating and other expenses in addition to a periodic rent. These expenses include taxes, insurance, assesesments, maintenance, utilities and other chores related to the premises. |
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| What is a 1031 Exchange? |
| This provision of the Internal Revenue Code allows property owners to exchange their property for other like-kind property without recognition of capital gains. It makes possible to transfer the financial gain that is realized from the sale of a property into another property without federal capital gains tax at the time of the sale. |
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| What is NOI (Net Operating Income) and how is it calcluated? |
| Net operaing income (NOI) is the actual or anticipated net income remaining after all operating expenses are deducted from effective gross income, but before mortgage debt service and book depreciation are deducted. |
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| How is the purchase price calculated from Cap Rate and NOI (or Net Rent)? |
| You can obtain an indication of value by calculating the following formula: Income (NOI) ÷ Cap Rate = Value or Income (NOI) ÷ Value = Cap Rate or Value x Rate = Income (NOI). |
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| What is DCR (Debt Coverage Ratio) and how is it calculated? |
| The Debt Coverage Ratio (DCR) is the ratio of net operating income (NOI) to annual debt service on outstanding loans. The higher the ratio, the lower the risk to the lender. |
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| What does CAM stand for? |
| Common Area Maintenance (CAM) is the amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often this does not include any capital improvements that are made to the property. |
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| What is a credit rating and what makes a tenant classified as investment grade? |
| Ratings are basically tools for differentiating credit quality. Standard & Poor's defines a rating as an opinion on the general creditworthiness of an obligor, or with respect to a particular debt security or other financial obligation. Under S&P's ratings system, companies in the AAA, AA, A and BBB categories are regarded as "investment grade", or blue chip entities. Ratings in the BB, B, CCC, CC and C categories are those with significant speculative characteristics. |
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| What is a balloon payment? |
| A mortgage that is only partially amortized and so requires a lump sum (balloon) payment at maturity. |
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| What is a subordination non-disclosure agreement (SNDA)? |
| As used in a lease, the tenant generally accepts the leased premises subject to any recorded mortgage or deed of trust lien and all existing recorded restrictions, and the landlord is often given the power to subordinate the tenant's interest to any first mortgage or deed of trust lien subsequently placed upon the leased premises. |
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| What is an estoppel certificate? |
| A document signed by the Tenant that confirms they are the tenant, that their lease is legitimate, and the amount of any security deposit the Landlord is holding. It is usually required to be signed by the Tenant when an owner sells the property. |
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| How do I find out more about 1031 exchange requirements? |
| Contact accountant or 1031 Deferred Exchange Intermediary. |
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| How do you calculate rent (net) per SF? |
| Rent or Net operating income (NOI) ÷ Building Square Footage |
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| How do you calculate building price per SF? |
| Purchase Price ÷ Building Square Footage |
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| What is a Letter of Intent? |
| A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent. |
