Reference

Institutional CRE Glossary

Plain-English definitions of the institutional commercial real estate terms most relevant to disposition, acquisition, and capital formation strategy. Not legal or tax advice — see your attorney and CPA for situation-specific guidance.

Cap rate (capitalization rate)

NOI divided by purchase price, expressed as a percentage. A property's cap rate is the unlevered initial yield to a buyer. Lower cap rates mean higher prices on the same income; higher cap rates mean lower prices.

NOI (net operating income)

Property gross income less operating expenses, before debt service and capital expenditures. The standard institutional measure of property cash flow for valuation purposes.

IRR (internal rate of return)

The discount rate at which the net present value of a series of cash flows equals zero. The standard institutional measure of total levered (or unlevered) return on a real estate investment over a hold period.

Cash-on-cash return

Annual pre-tax cash flow divided by total cash invested. A measure of current yield to equity, often the most relevant near-term return metric for buyers using fixed-rate leverage.

1031 exchange

A federal tax-deferred exchange of like-kind investment real estate under IRC Section 1031. Allows a seller to defer capital gains and depreciation recapture tax by reinvesting proceeds into qualifying replacement property within strict timelines (45 days to identify, 180 days to close).

DST (Delaware Statutory Trust)

A fractional-interest investment structure that qualifies as 1031 replacement property. Allows multiple investors to own interests in institutional-grade properties, with passive management. Commonly used by 1031 exchangers who want to avoid sole ownership responsibility.

QI (Qualified Intermediary)

An independent third party who holds the proceeds of a 1031 sale and acquires the replacement property on the exchanger's behalf, preserving the tax-deferred treatment. The exchanger cannot touch or control the funds.

NNN lease (triple net)

A lease in which the tenant pays base rent plus all three of property taxes, insurance, and operating expenses. The most common lease structure for single-tenant retail and industrial properties.

Modified Gross / Industrial Gross lease

A lease in which the tenant pays base rent and some (but not all) operating expenses. Specific allocations vary; common in office and some industrial. Tenant typically pays utilities and janitorial directly, landlord pays taxes and insurance.

Loss to lease

The difference between gross potential rent at market and the actual in-place rents. Material loss-to-lease implies mark-to-market upside for the buyer at lease renewal or unit turnover.

Mark-to-market

The process of adjusting in-place rents to current market rates as leases renew or units turn. The largest single source of value-add in many multifamily and office disposition underwritings.

BOV (Broker Opinion of Value)

A broker's written pricing analysis on a property, typically delivered as a confidential opinion to a prospective seller. Less formal than an appraisal; built on sales comparable analysis and submarket judgment.

OM (Offering Memorandum)

The marketing document delivered to qualified buyers for a property being sold. Includes property description, financial summary, market analysis, and disposition strategy. Institutional OMs typically run 40–120 pages.

LOI (Letter of Intent)

A non-binding letter from a buyer outlining proposed deal terms — price, deposit, contingency timelines, financing structure. The first formal step in a transaction; typically followed by a binding purchase and sale agreement (PSA).

PSA (Purchase and Sale Agreement)

The binding contract between buyer and seller. Typically negotiated in the 1–2 weeks after LOI acceptance. Sets the formal terms of the transaction including contingency periods, closing date, and remedies for default.

Due diligence period

The buyer's contractual window (typically 30–60 days post-PSA) to investigate the property, review documents, and confirm assumptions. The buyer can terminate without penalty during this period in most institutional PSAs. After DD expires, the deposit typically becomes non-refundable.

Hard money / non-refundable deposit

The buyer's deposit after DD expiration, which is forfeit if the buyer fails to close (subject to a few buyer-favorable exceptions like seller default or title defects). Often the moment of "hard close" commitment in an institutional transaction.

GP/LP (General Partner / Limited Partner)

Standard real estate fund structure. The GP is the active manager (sponsor) with day-to-day decision authority. LPs are the capital providers with limited liability and limited decision-making rights. The GP earns management fees and (above a hurdle) carried interest / promote.

Promote / carried interest

The GP's share of investment profits above a preferred return hurdle to LPs. Typical institutional structure: LPs receive a preferred return (often 8% IRR), then the GP earns a "promote" share of profits above the preferred (often 20% above the pref, scaling higher in additional tiers).

Distribution waterfall

The order in which proceeds from a real estate investment are distributed among GP and LPs. Typical tiers: return of capital, preferred return to LPs, GP catch-up, then profit split above the catch-up. Waterfall structures materially affect GP economics.

Catch-up

A waterfall tier where the GP receives a disproportionate share of profits until the GP's cumulative share of profits matches a target percentage. Common in private equity and real estate fund structures.

Density bonus

California state law (Government Code §65915) allowing developers to build above local zoning's base density in exchange for providing a percentage of affordable housing units. Often the single largest source of entitled-yield upside on Bay Area development sites.

TOD (Transit-Oriented Development)

Development located near major transit (BART, Caltrain, light rail). Often eligible for density bonuses, reduced parking requirements, and streamlined entitlement processes under state law. Frequently commands premium pricing from institutional buyers.

CEQA (California Environmental Quality Act)

The state's environmental review framework for development projects. Historically a major source of project delay and litigation risk in California. Recent reform legislation (SB-330, SB-423) provides streamlined CEQA treatment for qualifying housing projects.

SB-9 / SB-10 / SB-330 / SB-423

California state housing reform laws. SB-9 (2021) allows ministerial lot splits and duplex conversion on single-family parcels. SB-10 (2021) allows up to 10-unit by-right entitlement near transit. SB-330 (2019) caps local discretion on housing project review. SB-423 (2023) extends SB-35 streamlining. Collectively reshape Bay Area development feasibility.

Rent control overlay

The set of local rent stabilization, just cause eviction, and tenant protection regulations governing a multifamily property. Material to underwriting; varies by jurisdiction (Oakland, San Francisco, Berkeley, Mountain View, San Jose all have distinct overlays).

Costa-Hawkins

California state law (1995) limiting local rent control to pre-1995 buildings (or earlier local cutoffs) and exempting single-family homes, condominiums, and post-1995 multifamily construction from local rent caps. The structural backstop that has shaped Bay Area multifamily investment economics.

Cross-border capital

Investment capital from non-U.S. sources. In Bay Area CRE, particularly from APAC (Singapore, Hong Kong, China, Korea, Japan) and the Middle East (UAE, Saudi Arabia, Qatar). Cross-border capital often has longer hold horizons and lower yield expectations than U.S. domestic institutional, creating cap-rate compression on the right assets.

Sovereign wealth fund

State-owned investment fund. Major Bay Area real estate sovereign investors include Singapore's GIC and Temasek, Abu Dhabi's ADIA and Mubadala, Norway's Norges Bank Investment Management, Qatar's QIA, and Kuwait's KIA. Typically very long-duration, large-check institutional capital.

Family office

A private wealth management entity for a single ultra-high-net-worth family (single-family office) or several families (multi-family office). In Bay Area CRE, family offices have become major capital providers — often longer-duration than institutional and more relationship-driven than transaction-driven.