Global Definitions Database

Calibration

The selection of parameters in a stochastic process so as to make the prices on financial instruments generated by the process replicate observed market prices.

Capital Allocator

A company or manager that distributes and invests financial resources in ways that seek to generate as much wealth as possible for its shareholders or investors through the reliance on third-party operators, who may perform any number of roles, including sourcing, executing, operating, and/or disposing of assets or investments.

Capital Asset Pricing Model (CAPM)

A financial model that describes the relationship between systematic risk (i.e., beta) and expected return for assets.

Capital call

The legal notice granted to a vehicle, based upon the capital commitment made by an investor, to request all or a portion of the investor's outstanding commitment. This may include funding for fees and other expenses outside of capital commitements.

Capital call notice

A notice issued by a vehicle instructing investors to make a capital contribution to the vehicle; sometimes referred to as a “drawdown”.

Capital commitment

The obligation of an investor in a vehicle to fund the total agreed capital contributions to the vehicle over a specified period of time, as defined in the vehicle documentation.

Capital contribution

Amount of capital called or drawndown from the investor in accordance with the vehicle documentation or other documents such as a subscription agreement.

Capital distribution

Also known as return of capital, it is the amount of capital returned to investors in accordance with the vehicle documentation. Along with capital distribution, there are other types of distributions that may be present. See the definition of distributions.

Capital expenditure (Capex) Facility

A loan that must be used for capital expenditure (i.e. investment in physical assets such as land, buildings and equipment).

Capital expenditures (CAPEX)

Costs related to capital improvements for an asset that lengthen its life and increase its value. This is an addition to any maintenance operating expenses. 

Capital Gain

The amount by which the net proceeds from the sale of a capital item exceeds the book value of the asset.

Capital Market Line (CML)

A graphical representation of all the portfolios that optimally combine risk and return; a theoretical concept that gives optimal combinations of a risk-free asset and the market portfolio; the slope of the CML is the Sharpe ratio of the market portfolio.

Capital Market Risk

The risk associated with investing; the potential of experiencing losses following a fluctuation in security prices; also known as “investment risk”.

Capital Markets

Venues where savings and investments are channeled between the suppliers who have capital and those who are in need of capital; the entities that have capital include retail and institutional investors while those who seek capital are businesses, governments, and people; composed of primary and secondary markets.

Capital Structure

The structure as defined in the vehicle documentation describing the various components of an investments's equity and debt. Also known as "capital stack".

Capitalization

With reference to accounting:  a method by which a firm expenses the costs associated with the acquisition of an asset over the useful life of the asset rather than at the time it is acquired; With reference to finance:  a measure of a firm’s book value (the sum of its stock, long-term debt, and retained earnings) or its market value (the product of the number of outstanding shares and the stock price).

Capitalization (Cap) Rate

The rate at which net operating income is discounted to determine the value of a property; calculated as the net operating income divided by the sales price or value of a property expressed as a percentage.

Capitalization-Weighted Index (CWI)

A type of market index with individual components, or securities, weighted according to their total market capitalization; components with larger market capitalization exert a greater impact on the index value while components with a smaller market capitalization carry less significance; also known as a “value-weighted index”.

Caps (Interest)

An interest hedging instrument that provides for maximum increases allowed in interest rates, payments, maturity extensions and negative amortization on reset dates.

Capture Rate

The sales or leasing rate of a real estate development compared to the sales or leasing rate of all developments in the market area.

Carbon Disclosure Project

The Carbon Disclosure Project (CDP) works with shareholders and corporations to disclose the greenhouse gas emissions of major corporations.

Carbon trading

Carbon emissions trading (also known as cap and trade) is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.

Carried interest

A re-allocation of profits from the investor's capital account to the investment manager capital account based on the ability of the latter party to outperform a certain predetermined benchmark. Carried interest is structured as a re-allocation of equity within the capital accounts rather than a straight charge to the investment manager generally due to tax purposes. 

Carve-outs (lending)

Provisions within nonrecourse commercial real estate loans where the borrower may become personally liable in the event of certain egregious acts (e.g. fraud). Recently, lenders have expanded the scope of carve outs to include risks of exposure to the property's economic deterioration or neglect.

Cascading Pledge

An alternative tiered-collateral structure employed when tax, regulatory or ERISA concerns prevent a feeder fund from guaranteeing and directly pledging collateral to the lender to support a fund borrower’s obligations under a subscription-backed credit facility.

Cash Flow Before Tax (CFBT)

For a property, the result of calculating the effective rental income, plus other income not affected by vacancy, less total operating expenses, less annual debt service, funded reserves, leasing commissions, and capital addition; also known as “before-tax cash flow (BTCF)”.

Cash management fee third party

See definition Bank charges.

Cash Sweep

The right to redirect cash from an underlying asset to meet debt service obligations where the borrower is unable to fulfil its debt service obligations.

Catch-up

A special distribution, as agreed beween investors and the investment manager, meant to compensate the investment manager once the investors' pre-established hurdle has been achieved (thus allowing the investment manager to "catch-up"). A common structure where investors receive distributions up to a pre-established level of preferred return, at which point the investment manager receives a percentage of distributions therafter (this could be up tp 100% of distributions) until a pre-established balance between the investors and investment manager is reached. 

Census Tracts

Small, relatively permanent statistical subdivisions of a county or equivalent entity that are updated by local participants prior to each decennial census; generally have a population size between 1,200 and 8,000 people, with an optimum size of 4,000 people; usually cover a contiguous area, but the spatial size varies widely depending on the density of settlement.

Certificate of Occupancy (CO)

A document issued by a local government agency, certifying that a building meets certain requirements and codes that indicate its fitness to house tenants; these requirements differ across building types, as well as cities and states, and are usually required to be met by new developments.

CFA Institute

The CFA Institute is a global not-for-profit association of investment professionals. The Institute awards the CFA (Chartered Financial Analyst designation). See www.cfainstitute.org. The Institute established and interprets the Global Investment Performance Standards (GIPS®). See www.gipsstandards.org.

Chain Linking Returns

The geometric compounding of returns by taking returns over a single-holding period and combining or linking those returns over multiple periods, resulting in the cumulative return of an investment.

Class A

A subjective division of buildings by desirability among tenants and investors; generally high quality, well designed, using above-average materials, workmanship, and finish; sought by investors and prestigious tenants; excellently maintained and very well managed, especially if the building is more than 10 years old; attractive and efficient, the most desirable in their markets.

Class B

A subjective division of buildings by desirability among tenants and investors; generally offer useful space without special attractions; have functional layout and design, though not unique; average to good maintenance; typically 10 to 50 years old.

Class C

A subjective division of buildings by desirability among tenants and investors; generally older buildings that offer space without amenities; average to below-average maintenance and management, average to poor mechanical, electrical, and ventilation systems; attracts moderate to low-income tenants who need affordable space.

Claw back

A reduction to previously received or allocated / accrued performance fees or carried interest due to investment performance falling below a predetermined level or benchmark, and whereby the investment manager may be obligated to return a portion / all of its previously received performance fee or carried interest payments. 

Climate Risk

Climate risks result from the impacts of climate change and comprise 'Physical Risk' and 'Transition Risk'. Both components of climate risks might have significant impact on  real estate assets and investments as real estate is a location-bound and a long-term investment. (In line with TCFD Definition)  

Closed End Vehicle

An investment Vehicle with a fixed amount of capital and a finite life. Limited liquidity, with the redemption of units provided for at the end of the life of the Vehicle.

Club Deal

Informal industry term used to describe an investment Vehicle or structure (often a fund) with generally a limited number of investors investing in a common strategy. Typically investors have more discretion and control than in a typical fund, and have veto rights over major decisions.

Co-Investment

An ownership interest in an investment alongside a fund, typically by an investor in the fund but also potentially by an investor not invested in the fund; When two or more pension funds or groups of funds share ownership of a real estate investment; relative ownership is always based on the amount of capital contributed; An arrangement in which an investment manager or adviser co-invests its own capital alongside the investor.

Co-Investment Program

An investment partnership or insurance company separate account that enables two or more pension funds to co-invest their capital in a single property or portfolio of properties; the primary appeal for investors is to achieve greater diversification or invest in larger properties typically outside the reach of small- to mid-sized tax-exempt funds, with a greater measure of control than is afforded in typical commingled fund offerings.

Collateral

A property or asset that a borrower pledges to a lender in the event of default.

Collateral Account/Package

A deposit or securities account into which collateral in the form of capital contributions is deposited and over which a lender has a perfected security interest.

Collateralized Mortgage Obligation (CMO)

A specific class of commercial mortgage backed security issued against a pool of mortgages pass-through securities for which the cash flows have been allocated to different classes or tranches, each having a different claim against the cash flows of the pool.

Collection Loss

A deduction from potential gross income due to current or expected future space not rented due to tenant turnover and/or loss from uncollected rent due from delinquent tenants.

Commercial

A term often used to refer to any income-producing real estate, including multifamily.

Commercial mortgage-backed securities (CMBS)

A security which is backed by a portfolio of mortgages secured against commercial properties.

Commingled Fund

A term applied to all open-end and closed end pooled investment vehicles. A Commingled Fund may be organized as a group trust, partnership, corporation, insurance company separate account, or other multiple-ownership entity.

Commitment

The total agreed capital an investment manager can draw down from an investor, with a specified notice as outlined in the vehicle documentation.

Commitment fees

A commitment fee is a charge to investors on undrawn committed capital for the duration of the commitment period. This is seen to be part of the fund management fee.

Commitment period

The commitment period is the period of time as defined in the vehicle documentation during which an investor is obliged to contribute capital upon receiving a drawdown/capital call notice from the Investment Manager / General Partner (GP).  

Common Area

The areas of a building (and its site) that are available for the nonexclusive use of all its tenants, such as lobbies, corridors, and parking lots.

Common Area Maintenance (CAM) Charges

Charges paid by a tenant for the upkeep of areas designated for use and benefit of all tenants; tenants usually pay as determined by a negotiated agreement or the tenant’s pro rata share; costs vary but common items may include janitorial services, landscaping, common area electricity, security, trash removal, and snow removal.

Common parts

Areas which are shared with other occupants in multi-let buildings, including entrance areas, corridors, lifts, staircases, waste storage stores, communal kitchen or breakout facilities and any other parts within the asset and outside which are intended for the use of the occupiers of that asset.

Community Center

In addition to convenience goods, provides for the sale of goods such as apparel or furniture. Typical area is 100,000 to 350,000 square feet with two or more anchor tenants.

Community Development

(Related to Impact Investing) Community development is a process for generating solutions to common problems that involves a community coming together to take collective action. The aim is to build stronger and more resilient local communities by focussing on participative democracy, sustainable development, rights, economic opportunity, equality and social justice. Impact investment strategies focussed on sustainable communities may choose to actively involve community members in decision making and focus on the organisation, education and empowerment of people within their communities. 

Comparables (Comps) or Comparable Sales

Recently sold properties that are similar in important respects to a property being appraised; the sale price and the physical, functional, and locational characteristics of each of the properties are compared to those of the property being appraised in order to arrive at an estimate of value; by extension, sometimes used to refer to properties with rent or income patterns comparable to those of a property being appraised.  

Compensation Prepayment Proceeds

Payments which are required to be used in mandatory Prepayment.

Compliance

A series of policies and processes that an investment advisor implements to meet requirements specified by the Securities and Exchange Commission.

Composite

A composite is an aggregation of one or more portfolios into a single group that represents a particular investment objective or strategy. See www.gipsstandards.org.

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or Superfund

The federal Superfund program, administered by the US Environmental Protection Agency (EPA) is designed to investigate and cleanup sites contaminated with hazardous substances; sites managed under this program are referred to as "Superfund" sites.

Concessions

A benefit given by a buyer, seller, landlord or tenant in order to help facilitate a real estate transaction; can be given in both residential and commercial real estate, and are often predetermined during the negotiation period; often included in closing costs, but come in various forms: covering moving expenses and repair costs, rent reduction, or even cash back to the buyer.

Condemnation

The process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain.

Conditions Precedent

Conditions of a loan facility agreement which must be fulfilled prior to a borrower being able to drawdown principal amounts under the loan.

Conditions Subsequent

Conditions which cannot be satisfied prior to entering into a loan and which have to be satisfied within a certain period of time following entry into the loan. Failure to satisfy these conditions, within an agreed timeframe, is typically an event of default.

Conduit

The financial intermediary that functions as a link between the lender(s) originating loans and the ultimate investor(s).

Consent Rights

Certain class rights that require certain pre-defined actions that cannot be undertaken by a company or fund without the approval of the holders of a majority (or other specific percentage) of their class or series of shares.

Constitutional Documents

See definition Vehicle Documentation

Construction Completion Guarantee/Guaranty

A guarantee granted by a project sponsor or a contractor to ensure a development project will achieve final completion; In the case of the project sponsor:  an agreement to provide subordinated financing or equity contributions to the project company if required to complete the construction of the project; In the case of the contractor:  an agreement to complete the project in accordance with agreed specifications, which is usually secured by performance bonds or liquidated damages.

Construction Loan

Any loan where the proceeds are used to finance construction of some kind. In the United States Financial Services industry, however, a construction loan is a more specific type of loan designed for construction and containing features such as interest reserves, where repayment ability may be based on something that can only occur when the project is built. Thus, the defining features of these loans are special monitoring and guidelines above normal loan guidelines to ensure that the project is completed so that repayment can begin to take place

Construction Risk

The risk associated with construction and the potential of experiencing losses due to a variety of controllable and uncontrollable factors.

Consumer Behavior

The study of individuals, groups, or organizations and all the activities associated with the purchase, use and disposal of goods and services, including the consumer's emotional, mental and behavioral responses that precede or follow these activities.

Consumer Price Index (CPI)

Measures inflation in relation to the change in the price of goods and services purchased by a specified population during a base period of time; commonly used to increase the base rent periodically as a means of protecting the landlord's rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record-keeping necessary for operating expense escalations.

Consumption Per Household

All purchases made by a household (home or abroad) to meet its everyday needs:  food, clothing, housing services (rents), energy, transport, durable goods (notably cars), spending on health, on leisure, and on miscellaneous services.

Contiguous Space

Multiple suites/spaces within the same building and on the same floor that can be combined and rented to a single tenant, or a block of space located on multiple adjoining floors in a building.

Contingent Interest

A percentage of property net income or cash flow after debt service in a participating loan.

Contingent liabilities

An existing condition, situation, or set of circumstances involving uncertainty as to possible outcome (such as Guarantees and/or Carve-Outs) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.

Contingent Rent

It is a rental payment which is triggered by meeting a certain condition precedent defined in the lease agreement.

Continuous Operations Clause

A clause commonly written in retail leases that requires a tenant to continuously operate at a property for the entire term of the lease; as anchor tenants may act as a demand driver for a retail center, landlords may enforce this clause to minimize the risk of a major tenant “going-dark”.

Contract Rent

The rental obligation, expressed in dollars, as specified in a lease; also known as “face rent” or “stated rent”.

Contractual Interest

The base or minimum interest rate paid exclusive of amounts payable as a result of the participation feature.

Contractual Principal

The nominal principal of a loan exclusive of amounts payable as a result of any participation feature.

Contributory Value

The amount a component of a property contributes to the total market value; for improvements, contributory value must be distinguished from cost.

Controlled Commercial Entity (of Section 892)

Any entity engaged in commercial activities as defined in the Internal Revenue Code (IRC) (whether conducted within or outside the US) for which a foreign government directly or indirectly owns at least 50% of the economic or voting interests in, or otherwise exercises effective practical control over, the entity.

Controlling Equity Interest

An ownership position that meets the requirements of control according to the governing accounting literature.

Convertible Debt

A mortgage position that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period.

Convertible Debt/Loan/Mortgage

A debt financing obligation issued to a company or an individual by a bank or similar financial institution that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period.

Convertible Preferred Stock

Preferred stock that is convertible to common stock under certain formulas and conditions specified by the issuer of the stock.

Core (INREV Style)

A fund which invests mainly in income producing investments. The fund will use low leverage, have no or very low development exposure and generate a high proportion of return through income.

Core (RS Style)

An Account that includes a preponderance of core attributes; the Account as a whole will have low leasing exposure and low leverage. A low percentage of noncore assets is acceptable. As a result, such portfolios should achieve relatively high-income returns and exhibit relatively low volatility.

Core Plus

High quality assets, often with slightly more leverage than core assets and perceived to have slightly more risk than Core assets.

Core-Based Statistical Area (CBSA)

Statistical area that consists of the county or counties or equivalent entities associated with at least one core (urbanized area or urban cluster) of at least 10,000 population, plus adjacent counties having a high degree of social and economic integration with the core as measured through commuting ties with the counties associated with the core; represents a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core; refers collectively to metropolitan statistical areas and micropolitan statistical areas.

Corporate Blocker

An entity, often a C-corporation, through which tax-exempt investors invest in a  fund so as to shield such tax-exempt investors from having to file a US federal tax return and/or to pay US income tax; also known as “blocker” or “blocker corporation”.

Corporate Governance

Corporate governance is a cornerstone for the success of non-listed real estate Vehicles. Corporate governance defines how responsibility for key decisions is allocated, and impacts the structure, processes, policies and legal framework that determine how a Vehicle is managed and controlled. Corporate governance frameworks work alongside and are complementary to the external legal and regulatory environment at both international and national levels.  Corporate governance includes principles, such as transparency, accountability, and acting in the best interest of investors and other stakeholders.

Corporate Housing

A furnished apartment, condo, or home rented on a temporary basis to individuals, military personnel, intern groups, or corporations as an alternative to a traditional hotel or an extended hotel stay.

Correlation

A measure of  the degree to which two variables move in relation to each other; computed into what is known as the “correlation coefficient”.

Correlation Coefficient ( )

A measure of the degree to which two variables’ movements are associated with a range of values from -1.0 (i.e., perfect negative correlation) to 1.0 (i.e., perfect positive correlation).

Cost Approach (valuation technique)

Based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).

Cost Index

An index showing the variations in construction costs over time; sometimes, by extension, a set of similar numbers showing the relative costs of construction in different geographic areas.

Cost of development portfolio

All costs paid up in relation to all assets under development.

Costs of Sale

An estimate of the incremental direct costs to transact the sale of the property. These costs generally include brokerage commissions, closing costs and fees, and other necessary disposition expenses.

Counter Party Risk

The likelihood that another entity involved in a transaction may not be able to complete its legal obligations.

Country Risk

The risk that a foreign government will default on its bonds or other financial commitments.

Covariance

A measure of the degree to which returns on two investments move in tandem; a positive covariance means that investment returns move together, while a negative covariance means investment returns move inversely.

Covenant

A legally-binding clause that requires an investment to meet certain conditions, e.g. a loan may have covenants that require the borrower to have certain Debt Yield, Debt Service Coverage Ratio or Loan-to-Value ratios. If the condition is breached, default remedies are specified.  

Credit Committee

The committee that assesses the credit risk of making a Loan to a Borrower. The credit committee ultimately approves the terms on which a Loan is made to that Borrower and the Security it requires from the Borrower. 

Credit Default Swap (CDS)

A financial derivative product that transfers credit risk from one counterparty to another. 

Credit enhancements

Additional collateral, insurance, or third party guarantee required by the borrower generally in exchange for a lower interest rate or cost of capital.

Credit Facility

A short-term loan arrangement provided by a bank to a fund secured again the investors’ commitments in the fund.

Credit Rating

Assessment of the creditworthiness of a Borrower in general terms or with respect to a particular debt or financial instrument, usually issued by an independent rating agency such as S&P, Moods or Fitch.

Credit Risk

The risk of loss that may occur from the failure of any party to abide by the terms and conditions of any financial contract, principally the failure to make required payments on loans due to an entity.

Credit Tenant

A tenant with the size and financial strength worthy enough of being rated as investment grade by one of the major credit agencies.

Cross Collateralization

The act of using an asset that is currently being used as collateral for a loan as collateral for a second loan

Cross-Over Demand

Space that is flexible in terms of what it can be used for (for example, space that could be utilized for industrial or office activities); also known as “flex space”.

Cumulative TWR returns

Returns for periods longer than a single period, calculated by geometrically linking all periods in the measurement period.

Cure Period

A specified timeframe during which a borrower that has gone into technical default on a contractual payment is permitted to submit payment without further prejudice, and without being considered to have defaulted.

Cure Rights

Cure Rights are designed to remedy a breach of a financial covenant and, within an agreed timeframe, avoid the occurrence of an event of default as a result of such breach.

Currency exposure

Net amount of balances denominated in currencies other than the vehicle reporting currency expressed as a percentage of NAV.

Currency Risk

The potential risk of loss from fluctuating foreign exchange rates when an investor has exposure to foreign currency or in foreign-currency-traded investments, also known as “exchange rate risk”.

Current Capital Closing Period

As defined in the Vehicle Documentation, it is the current period during with the Vehcile remains open to new Subsription Agreements prior to the Final Closing. Generally, this period begins following the Initial Closing and continues until the Final Closing. 

Current development exposure as percentage of Gross Asset Value (GAV)

The percentage of vehicle Gross Asset Value (GAV) that is invested in development projects. This equals fair value of development portfolio/ GAV of vehicle.

Current Expected Credit Losses (CECL)

An expected credit loss accounting standard issued by the Financial Accounting Standards Board (FASB) in 2016, which introduced new methodology for estimating allowances for credit losses; under the accounting standard, financial institutions are required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of a loan; effective for most Securities and Exchange Commission (SEC) filers in fiscal years and interim periods beginning after December 15, 2019, and for all others it takes effect in fiscal years beginning after December 15, 2022.

Current Occupancy

The current leased portion of a building or property expressed as a percentage of its total area or units.

Custodian costs

Also known as depository costs, these are charged by a fiduciary entity entrusted with holding and safeguarding securities or assets, deposit transactions and keeping records for institutional clients.

Customer Spotting Technique

An approach to estimating the retail trade area (and sales/revenue potential) for a given establishment or center based on the location of existing customers via point-of-sale information (by obtaining customer address or zip code data) or customer surveys (by interviewing customers as they enter the store); data which can later be mapped to determine the extent of the trade area.