25 commercial real estate terms for broker and agent success

Familiarity with industry-specific terminology is critical for anyone seeking success in the exciting, lucrative world of commercial real estate (CRE). Whether you're a seasoned broker or just starting out, mastering these commercial real estate terms will empower you to communicate effectively with clients and close more deals.

Use our comprehensive guide to become fluent in the essential terms that every CRE professional needs to know.

Commercial Real Estate Terms: The Basics

1. CRE (Commercial Real Estate)

CRE is an acronym for Commercial Real Estate, which encompasses all properties used for business purposes, including retail, office, and industrial spaces.

2. Broker/Co-Broker/Agent

A broker is a licensed professional who can represent buyers or sellers in real estate transactions. A co-broker arrangement occurs when two brokers collaborate on a transaction, sharing the commission based on a pre-agreed split.

This is common in larger deals or transactions involving out-of-area properties.

Agents work under a licensed broker and are typically independent contractors. In large brokerage firms, teams often consist of one broker leading multiple agents. Smaller firms may have just a few brokers and agents, who might rotate responsibilities based on specific transactions.

3. Commissions

Commissions are fees paid to brokers or agents for their services, typically calculated as a percentage of the sale or lease amount. These can range from 1% to 6%, depending on the transaction.

4. Leads

Leads are potential transactions that have not yet reached the deal stage. They are categorized into stages such as pitching and sourcing, as opposed to deals which may be negotiating, in contract, closed, or dead/lost. Tracking leads effectively is crucial for brokers and agents to manage their pipelines and close deals.

Commercial Real Estate Terms: Lease Agreements and Rent

5. Lease Agreement

A lease agreement is a legal document that outlines the terms of a rental arrangement, including the rent schedule, lease duration, and other conditions such as permitted uses and option periods.

6. Anchor Tenant

An anchor tenant is a large, well-known retail tenant, such as a national chain store or regional department store, that serves as the primary draw in a shopping center. Their presence helps attract other tenants and customers to the property.

7. Capital Expenditures (CapEx)

Capital expenditures are funds used to acquire or upgrade physical assets such as property, buildings, or equipment. These expenditures are essential for maintaining or improving the value of the property over time.

8. Common Area Maintenance (CAM)

Common area maintenance (CAM) fees are charges that tenants must pay for the upkeep of shared spaces in a commercial property, such as lobbies, hallways, and parking lots. These fees are typically in addition to the base rent.

9. Gross Lease

A gross lease is a type of lease where the landlord is responsible for paying all property-related expenses, such as repairs, taxes, insurance, and utilities. The tenant pays a single, flat rent amount.

10. Net Lease

In a net lease, the tenant is responsible for paying rent plus some or all of the property expenses, which may include taxes, insurance, and maintenance costs. Net leases can be single, double, or triple, depending on the extent of the tenant's financial responsibilities.

11. Rent Escalations

Rent escalations refer to the periodic increases in rent over the term of a lease, often tied to inflation or other predefined metrics. For example, a lease may stipulate a 3% annual increase in rent.

12. Rent Roll

A rent roll is a summary that lists all the tenants occupying a building or property portfolio. It typically includes lease start and end dates, monthly and annual rent amounts, and any options for lease renewal.

13. Rent Schedule

The rent schedule outlines the base rent amounts and any applicable escalations throughout the lease term. This schedule is usually presented in a chart format within the lease agreement.

14. Turnover Vacancy

Turnover vacancy refers to the period when a rental unit is unoccupied between tenants, usually due to the previous tenant not renewing their lease. This vacancy period can vary depending on the type and size of the space.

Commercial Real Estate Terms: Property and Investment

15. 1031 Exchange

A 1031 exchange allows property owners to defer paying capital gains taxes when they reinvest the proceeds from a sale into a similar "like-kind" property. This strategy is often used by investors to build their portfolios while deferring tax liabilities.

16. Acquisition Criteria

Acquisition criteria are the specific parameters provided by a buyer to their broker, which guide the search for a property. These criteria typically include aspects such as purchase price, location, square footage, and capitalization rate.

17. Capitalization Rate (Cap Rate)

The capitalization rate, or cap rate, is a metric used to assess the return on investment for a property. It is calculated by dividing the net operating income (NOI) by the property’s purchase price. A higher cap rate generally indicates a higher potential return, albeit with greater risk.

18. NOI (Net Operating Income)

NOI stands for Net Operating Income, which is the total income generated from a property after deducting operating expenses, but before taxes and interest.

19. Product Type

Product type refers to the category or sub-industry of a commercial property, such as retail, office, multifamily, or industrial. Understanding the product type is crucial for investors and brokers to match properties with client needs.

20. RSF (Rentable Square Footage)

Rentable square footage, or RSF, refers to the amount of space in a building that can be rented out, excluding common areas used by all tenants.

21. Vacancy Rate

The vacancy rate is the percentage of all available rental units in a property that are unoccupied at a given time. This metric is a key indicator of market health, with lower vacancy rates generally signaling stronger demand.

Commercial Real Estate Terms: Transaction and Legal

22. Exclusivity Agreement

An exclusivity agreement is a contract where a buyer or seller commits to working exclusively with a specific broker or agent for a set period. This agreement ensures that the client agrees not to work with any other brokers or agents during the term of the agreement.  The main benefit to the broker or agent is to ensure that they will be compensated for their effort in the event of a successful sale or purchase.

23. Flyer

A flyer is a brief document, usually 1-5 pages, summarizing the key details of a property for lease or sale. It’s a marketing tool used to attract potential buyers or tenants to a property.

24. Letter of Intent (LOI)

A Letter of Intent (LOI) is a preliminary, non-binding agreement that outlines the key terms of a transaction between a buyer and seller or landlord and tenant. It serves as a foundation for drafting the final, legally binding contract.

25. Offering Memorandum (OM)

An Offering Memorandum is a detailed document provided to potential investors or tenants, outlining the specifics of a property for sale or lease. It typically includes property details, financial data, tenant information, and future projections.

Turn Your Knowledge of Commercial Real Estate Terms into Income

Whether you're involved in leasing, investment, or transaction management, having a firm grasp of our terminology list will help you navigate the complexities of the CRE market with confidence. Mastering these commercial real estate terms is essential for CRE success.

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