Glossary of Terms

Accredited Investor

An accredited investor is a term used by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D defined as an investor who meets at least one of the following criteria:

1) Earn an individual income of more than $200,000 per year, or a joint spousal income of more than $300,000 per year, in each of the last two years, and expect to maintain the same level of income.

2) Have a net worth exceeding $1 million, either individually or jointly with his or her spouse (excluding a primary residence).

3) Be an organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.

4) Be a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii).

5) Be an entity in which all of the equity owners are accredited investors.


In business, amortization refers to the spreading out of payments over multiple periods or installments. In real estate, the term is applied to the method of repayment for a certain type of loan as determined by an amortization schedule. As opposed to an interest-only loan in which each repayment installment consists only of interest payments with a single lump-sum principal repayment at the end of the loan period, each repayment installment of an amortizing loan consists of both principal and interest. Over the course of the loan period, the entire principal will be paid back through periodic repayment installments. Common amortization periods for commercial real estate loans are 20, 25, or 30 years.


Typically, a landlord will sign a lease with a tenant in exchange for monthly rent. In addition to the rent, the value of the real estate may increase or decrease in value over time. An increase in value is referred to as “appreciation” and a decrease in value is referred to as “depreciation”. There are many reasons why a property may increase or decrease in value, most notably: (1) The rate of inflation (2) The growth in the nearby surrounding market

Basis Point

A basis point (bps) is equal to 1/100th of 1% or .01% and is a common unit of measure for interest rate changes.

Capital Gains Taxes

A capital gains tax is a tax applied to realized capital gains upon the sale of an asset, such as stocks or real estate. Capital gains tax rates depend on many factors, including the duration of ownership and the asset owner’s tax bracket. Capital gains earned on assets bought and sold within less than one year are considered short-term. Capital gains earned on assets held for at least one year are considered long-term. Capital gains taxes may be deferred or reduced depending on many factors, including the investment vehicle through which they were earned and how the capital gains are used after they are realized.

Short-term capital gains are taxed as ordinary income. Long-term capital gains are generally taxed at a lower rate than ordinary income, but the tax rates vary. Generally, taxpayers fall into the following tax brackets for capital gains taxes: Taxpayers at or below the 12% marginal income tax bracket will generally pay no long-term capital gains tax. Taxpayers in the 22% - 35% income tax brackets will generally pay a 15% capital gains tax. Taxpayers that fall into the 37% income tax bracket will generally pay 20%.

Capital Stack

The capital stack refers to the legal organization of the capital invested in a project. The stack contains the most risk at the top, traveling down the stack to the position with the least risk. Higher positions in the stack expect higher returns for their capital because of the higher risk. Lenders and equity stakeholders are highly sensitive to their position in the stack. Typically, the stack is arranged as follows, though not all levels are present in all transactions: 1. Sponsor equity 2. Preferred equity 3. Mezzanine investors (hybrid debt and equity) 4. Second and other junior mortgages 5. Investment-grade first mortgages The capital stack determines who has legal rights to certain assets and income and the priority of payment in the event of default or sale or liquidation of the property.

Capitalization (Cap) Rate

Cap rate is the rate of return for a property based on its annual income. It is calculated by dividing the net operating income of the property by the total value of the property. Cap rates can provide a good initial measure to compare different investment opportunities but should not be the sole factor considered. While a meaningful way to assess risk and value, they are best understood within the context of the particular market the property is found in and by their relationship to prevailing interest rates. The most competitive primary markets, like NYC, frequently have far lower cap rates than secondary or tertiary markets. When analyzing the assumptions made by Sponsors about the sale of an asset, real estate investors will frequently look at the assumed exit Cap Rate and test the impact on their net returns if the assumption is incorrect.

Depreciation Recapture

Depreciation recapture is taxable income that is earned when the sale price of capital property exceeds the depreciated price of the property.

Distribution Waterfall

A distribution waterfall is the order in which an investment vehicle makes payment distributions.


Any security representing an ownership interest. In real estate, equity generally refers to the amount of value that a property owner has in the specific property. Equity can be measured as the amount of capital a property owner (sometimes referred to as a “sponsor”) invests into a property at purchase. It can also be measured as the difference between the current market value of the property and the amount owed on any outstanding debt. Therefore, valuing a property accurately is an important factor in determining how much equity exists in an investment.

Free Cash Flow (FCF)

Free Cash Flow is a measure of a property’s ability to generate cash after setting aside reserves for capital expenditures such as future development, tenant improvements, and leasing commissions. FCF is calculated by subtracting capital expenditures from Net Operating Income (NOI). In real estate, FCF can provide a clearer picture of a property’s ability to generate cash after taking into account potential funds needed for future contingencies such as leases expiring, building upkeep, and renovations needed for new tenants.

GP Investor

The GP (or “general partner”) investor refers to the managing party on an investment. “GP Investor” is typically synonymous with “the Sponsor” – the party responsible for originating the investment, sourcing debt and equity financing, and managing the project through to completion. As such, GP investors assume greater risk, take an active role in ensuring success of the investment (as opposed to passive LP investors), are afforded greater potential return in the structuring of the investment.

Gross Potential Income

Gross potential income is the income that will be realized if a property is fully occupied and all rents are collected.

Hold Period

The length of ownership of an asset, usually for investment real estate.

Income Property

Income property is property that is bought or developed specifically for the purpose of generating income for its owner through leasing, renting, or price appreciation. These properties can be commercial or residential.

Internal Rate of Return (IRR)

The rate of discount on an investment that equates the present value of the investment’s cash outflows with the present value of the investment’s cash inflows. You can think of IRR as the rate of growth a project is expected to generate. While the actual rate of return that a given project ends up generating will often differ from its estimated IRR rate, it is a useful metric to use to compare investment opportunities. IRRs can also be compared against prevailing rates of return in the securities market. IRR projections for property investments are dependent on a number of assumptions made in the project underwriting and those assumptions should be examined in conjunction with IRR. IRR, like other measures of return, also has a correlation to investment risk.

Limited Partner (LP) Investor

LP investors in equity investments assume both a limited share of risk and, consequently, a limited share of potential profits as compared with the GP investor(s) (GP investor is typically synonymous with “the Sponsor” or the “managing partner”). LP investors are not liable for debt, and are exempt from much of the legal risk inherent in the real estate project, the GP investor is typically entitled to a proportionally greater share of profits.

Mezzanine Debt

Mezzanine debt is a hybrid lending vehicle, commonly used by real estate developers, to secure supplementary financing. Mezzanine debt gives the lender the right to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.

Modern Portfolio Theory

Modern portfolio theory refers to the quantitative practice of asset allocation that maximizes projected (ex ante) return for a portfolio while holding constant its overall exposure to risk. Or, inversely, minimizing overall risk for a given target portfolio return. The theory considers the covariance of constituent assets or asset classes within a portfolio, and the impact of an asset allocation change on the overall expected risk/return profile of the portfolio.

The theory was originally proposed by nobel-winning economist Harry Markowitz in the 1952 Journal of Finance, and is now a cornerstone of portfolio management practice. Modern portfolio theory generally supports a practice of diversifying toward a mix of assets and asset classes with a low degree of mutual correlation.

Multifamily Real Estate

One of the four major commercial real estate asset classes, multifamily refers to properties with more than one distinct unit, suitable for multiple tenants or groups of tenants to occupy. The term may refer to apartments, condo complexes, or even co-living spaces.

Net Operating Income (NOI)

The income stream generated by the operation of the property, independent of external factors such as financing and income taxes. A property’s yearly gross income less operating expenses.

Net Present Value

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. Because of the time value of money, a dollar earned in the future won’t be worth as much as one earned today. The discount rate in the NPV formula is a way to account for this.

Opportunity Fund

Opportunity Funds are qualified investments in Opportunity Zones – under-invested communities established as part of the Investing in Opportunity Act, a component of the late-2017 tax reform bill. See QOF definition.

These investment vehicles may afford investors substantial tax advantages and deferment capabilities. For more on Opportunity Zones, Opportunity Funds, and the attendant tax benefits, please visit our Opportunity Zones Resource Page.

Opportunity Zone

Opportunity Zones are qualified census tracts across the United States where investors can receive tax-advantaged treatment for qualifying investments (referred to as Opportunity Funds) into real estate and other assets.

Opportunity Zones were established as part of the Investing in Opportunity Act, a component of the late-2017 tax reform bill. There are over 8,700 qualified Opportunity Zones across that country that were nominated by state governors and ratified by the U.S. Department of Treasury. More below at QOZ definition.

Preferred Return

A preferred return is a mechanism for allocating cash flow to certain parties in a real estate transaction before others. Investors or partners entitled to a preferred return will receive cash flows returned by the investment before other equity investors receive any portion of the profit. Preferred returns signal that the General Manager feels that the transaction’s performance will not only achieve, but also exceed, the level of the preferred return, because the General Manager's profits depend on it.

Private-Market Real Estate

Private-market real estate and private real estate investing refers to the universe of non-traded real estate investments; illiquid by definition and typically characterized by investment in a discrete property. Private-market real estate investments stand in contrast to publicly-traded REITs (real estate investment trusts) which are liquid but tend to correlate with public equities markets.

EquityMultiple and other syndication platforms allow individual investors to access private real estate at relatively low minimums. This form of real estate investment is often considered an “alternative asset”.


Pro Forma financial statements are financial statements prepared in advance of a planned transaction, and model the anticipated results of the transaction and business plan, with particular emphasis on the projected cash flows and net revenues.

Qualified Opportunity Fund (QOF)

Qualified Opportunity Fund. A taxpayer may defer "eligible gain" by investing some or all of the gain amount into a QOF within 180 days of the sale giving rise to the eligible gain. A QOF can be a C corporation, S corporation or partnership. In general, a QOF must hold at least 90% of its assets as qualified opportunity zone business property or face a penalty ("the 90% test.")

Qualified Opportunity Zone (QOZ)

Qualified Opportunity Zone. Sec 1400Z-1 allowed for the designation of certain low-income community population tracts as QOZs. In addition, a limited number of other, contiguous, census tracts could be designated as QOZs. These designations were made in 2018 and will remain in effect until Dec. 31, 2028. A listing of these zones can be found in Notice 2018-48.

Qualified Opportunity Zone Business (QOZB)

If a QOF conducts business indirectly by holding qualified opportunity zone stock or qualified opportunity zone partnership interest, the subsidiary must meet the definition of a QOZB. A QOZB, among other requirements, must hold at least 70% of its assets as qualified opportunity zone business property ("the 70% test.")

Qualified Opportunity Zone Business Property (QOZBP)

QOZBP is tangible property used in a trade or business that was purchased after 2017 from an unrelated party, and, in genera, either 1. the "original use" of the property in the QOZ begins with the QOF orQOZB, or 2. the QOF or QOZB "substantially improves" the property. In addition, during "substantially all" of the QOF or QOZB's holding period of the property, "substantially all" of the property must be in the QOZ.

Qualified Opportunity Zone Property (QOZP)

A QOF must conduct a trade or business within a QOZ, either directly - by holding qualified opportunity zone business property - or indirectly, by holding qualified opportunity zone stock or qualified opportunity zone partnership interest.

Real Estate Investment Trust (REIT)

Real Estate Investment Trusts are tax efficient entities that own or invest in income producing real estate. There are a variety of types of REITs, some are publicly traded, some are privately traded and others are privately held. REITs must comply with specialized operating rules in order to receive special tax considerations.


Refinancing is the practice of replacing an older loan with a new loan that offers better terms, such as a lower interest rate.

Regulation D (“Reg D”)

Reg D is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows companies to raise capital from accredited investors (link to definition) by selling equity or debt securities without registering such securities with the SEC. Reg D is a widely utilized financing mechanism for a range of businesses, accounting for over $1 trillion a year. As a result of the JOBS Act, Reg D was amended to allow for, among other things, general solicitation of the public for investment offerings conducted under Rule 506(c) of Reg D.


A “reversion”, “reversion event” or “exit” is the terminal event the concludes a real estate project, where the Sponsor or developer expects to exit the property or portfolio of properties via sale, partial sale, or refinance. In many cases, the particulars of the projected reversion impact the overall profitability of the investment to a very large extent. As such, projected cap rates at reversion – or “terminal cap rates” – are closely examined.

Sales Comps

Sales comps (or ‘comparables’) are prices for recently-traded assets in the immediate vicinity of a target property. Sales comps provide substantiation to the investment thesis during underwriting, serving as proof points for projected sale (or exit) price.

GP investors typically present sales comps as part of an offering memorandum when seeking passive investors.

Secondary Markets

Secondary markets are metropolitan areas with mid-sized asset liquidity and property transaction volume. Examples include Las Vegas, Portland, and Cleveland.


A real estate Sponsor is a principal investor in a real estate project, responsible for sourcing the investment and executing on its business plan. In many cases the Sponsor has a background in asset management and construction/development, as well as real estate finance.

Triple Net Lease

A Triple Net Lease (Net-Net-Net or NNN) is a lease agreement where the lessee agrees to pay all real estate taxes, building insurance, and maintenance on the property in addition to the rent fee applied under the lease. This form of lease is commonly used for commercial freestanding buildings.


Underwriting is the process by which an underwriter performs due diligence on and otherwise scrutinizes a financing request made by a Sponsor seeking funding for a real estate project to determine how much risk to accept.

Value Add

Value add properties are those which require improvements but have existing income. The improvements are of somewhat higher risk, such as larger rennovations or curing deferred maintenance. Investing in value-add properties is a moderate to high risk strategy (due to the nature of larger improvements to a property) with moderate to high returns.


In the context of commercial real estate, yield refers to the annual cash return on the investment, expressed as a percentage of the investment’s initial cost, or less frequently, its estimated current value.

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