Global Definitions Database

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

A measure of a company's or investment’s overall financial performance; utilized as an alternative to simple earnings or net income in some circumstances.

Easement

A legal right to use another's land for a specific limited purpose.

Economic Development

Economic development is an intervention endeavour with the aim of improving the economic and social well-being of people. Real estate impact investment strategies that are focussed on economic development would set performance goals such as local jobs creation, wage increases and improvements in the economic performance of local businesses.

Economic Feasibility

The feasibility of a building or project in terms of costs and revenue, with excess revenue establishing the degree of viability.

Economic Life

The period over which an entity expects to be able to use an asset, assuming a normal level of usage and preventive maintenance.

Economic Obsolescence

The reduction in a property’s value due to external circumstances (outside of the property’s boundaries), which may be caused by economic or locational factors; generally deemed to be incurable on the part of the owner, landlord, or tenants; also known as “locational obsolescence”.

Economic Ownership

With reference to performance calculations:  the actual ownership interest in an investment, which may differ from the legal ownership and which reflects the post-promote sharing of the investment’s economics; also known as “effective ownership”.

Economic Regime

A given set of rules and/or institutions which are said to govern the economy as a system and account for its qualitative (static or dynamic) behaviors; can be defined in terms of four key factors, which tend to dominate financial market performance: economic growth, inflation, monetary policy, and labor market slack.

Economic Share

Please see Effective Share. 

Effective Age

The typical age of a structure equivalent to the one in question with respect to its utility and condition, as of the appraisal date.

Effective Buying Income (EBI)

An individual's disposable income, consisting of salary and wages, dividends, interest, and other profits, less all government taxes and deductions.

Effective Gross Income (EGI)

The total income from a property generated by rents and other sources, less a vacancy factor estimated to be appropriate for the property; expressed as collected income before expenses and debt service.

Effective Ownership Share

With reference to performance calculations:  the actual ownership interest in an investment, which may differ from the legal ownership and which reflects the post-promote sharing of the investment’s economics; also known as “economic ownership share”.

Effective Practical Control (of Section 892)

May be achieved through a minority interest which is sufficiently large to achieve effective control, or through creditor, contractual, or regulatory relationships, which together with ownership interest held by a foreign government, achieve effective control; an entity engaged in commercial activity may be treated as a controlled commercial entity if a foreign government holds sufficient interests in such entity to give it effective  practical control.

Effective Rent

The actual rental rate to be achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.

Effective Share

Also known as Economic Share, a term used to describe the ownership of the Fund's interest in a particular investment based on the current period hypothetical liquidation (i.e., waterfall) calculation. (As used herein, joint venture means any investments which is other than wholly owned). At different points in the life of the investment, the Effective Share may differ from the contractual (i.e., legal or contribution) share for the investment.

Effective Tax Rate

The average tax rate paid by a corporation or an individual; The tax rate expressed as a percentage of market value, will be different from the nominal tax rate when the assessment ratio is not equal to 1; The relationship between dollars of tax and dollars of market value of a property; may be calculated either by dividing tax by value or by multiplying a property’s assessment level by its nominal tax rate.

Effective Yield

The actual return on an investment rather than the yield anticipated or promised when the investment is made.

Effectively Connected Earnings and Profits

The earnings and profits (without diminution by reason of any distributions made during the taxable year) which are attributable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business within the US.

Effectively Connected Income (ECI)

All income from sources both within and outside the US connected with a trade or business conducted within the US by a non-resident alien individuals and/or foreign corporations.

Efficiency Ratio

The ratio of leasable space to gross space of a building, expressed as a percentage.

Efficient Frontier

The set of optimal portfolios (i.e., dominant portfolios) that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.

Egress

An outlet or exit or means of exiting.

Elasticity

C concept used to measure the sensitivity of one variable to change in another variable; typically used to gauge consumer demand for a good or service; can be measured by the change in aggregate quantity demanded following a change in price or quality.

Emerging Issues Task Force (EITF)

The Emerging Issues Task Force (EITF) was formed in 1984 in response to the recommendations of the FASB's task force on timely financial reporting guidance and a FASB Invitation to Comment on those recommendations. The mission of the EITF is to assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing authoritative literature. See www.fasb.org/.

Emerging Manager

A fund manager with a limited track record, typically of less than two years.

Employee Retirement Income Security Act of 1974 (ERISA)

Legislation passed in 1974 and administered by the Department of Labor that controls the investment activities primarily of corporate and union pension plans.

Encumbrance

Any limitation that affects property rights and value.

End of Investment Period

The end of the period as defined in the Vehicle documentation during which the vehicle can acquire assets.

End of maximum extendable vehicle term

The maximum vehicle termination date based on either pre-determined extensions at the discretion of the manager or extensions with advisory board or investor vote.

Endowment

An organization that is created through donations and gifts, e.g a university endowment.  Generally designed to preserve the donated principal while using investment income for its charitable purpose.  

Enterprise Zone

A designated area within a depressed, usually inner-city, area in which firms are given favorable tax treatment and freedom from a number of planning constraints.

Entitlement

A legal right conveyed by an approval from a governmental entity to develop a property for a certain use, intensity, building type or building placement.

Entitlement Risk

The risk that the various government agencies with jurisdiction over a construction project will not issue the required approvals necessary to proceed with the development.

Entity Investing

An investment in an entity, such as a company or partnership, that controls an investment rather than directly in the underlying assets.

Environment, Social and Governance (ESG)

ESG refers to a set of factors related to environmental, social and governance issues. They may present both risks and opportunities for a particular investment, and can be used to define investment strategies, performance and risk metrics, and criteria for investment. Taking them into account in the investment process as well as in the ongoing operations, can help improve future financial performance. Environmental criteria may include climate change and carbon emissions, air and water pollution, biodiversity, deforestation, energy efficiency, waste management and water scarcity. Social criteria may include tenant satisfaction, gender and diversity, employee engagement, community relations, human rights and labour standards. Governance criteria may include board composition, audit committee structure, bribery and corruption, executive compensation, lobbying, political contributions and whistleblower schemes. The UN PRI defines ESG integration as “the explicit and systematic inclusion of ESG issues in investment analysis and investment decisions”. It is more than a decision about doing what is environmentally or socially responsible or morally right. Instead, it is about generation of long-term returns which is dependent on stable, well-functioning and well-governed social, environmental and economic systems. (Reference: https://www.unpri.org/fixed-income/what-is-esg-integration/3052.article) Ultimately, Integrating ESG into investment decision making contributes to better long term decisions for stakeholders through visibility of risk and structured management of material risks.

Environmental Assessment

A report showing the results of investigation into environmental contamination; report is often required by the Environmental Protection Agency (EPA) and other regulatory agencies to establish the extent of contamination; depending on the type and extent of contamination suspected, “Phase I Environmental Site Assessment (ESA)” or more extensive “Phase II Environmental Site Assessment (ESA)” may be required.

Environmental Indemnity Agreement

An agreement under which a borrower (and often a guarantor) contracts to indemnify, defend and hold another person (typically the lender) harmless from any liability arising out of existing or potential environmental violations (such as contamination from a release of prohibited substances like petroleum) related to the property which is the security for a loan.

Environmental Protection Agency (EPA)

An agency of the US government established in December 1970 and created to promote and protect human and environmental health by creating standards and laws that support this mission.

Environmental Risk

The risk stemming from environmental conditions of a property or risks based on regulatory programs concerning a property or resource limitations.

Environmental, Social and Governance (ESG) Criteria

A set of standards for a company’s or fund’s operations that socially conscious investors use to screen potential investments; environmental criteria consider how a company or fund performs as a steward of nature; social criteria examine how a company or fund manages relationships with employees, suppliers, customers, and the communities where it operates; governance deals with a company’s or fund’s leadership, executive pay, audits, internal controls, and shareholder rights.

Equal-Weighted Index

A type of market index with individual components, or securities, weighted equally, regardless of capitalization.

Equilibrium

A state of rest achieved by a balance of the forces that impel change; a market is said to be in equilibrium when the factors of production are used in the production of an array of consumer goods that maximize consumer welfare.

Equilibrium Vacancy

Vacancy unrelated to disequilibria in supply and demand, producing no upward or downward pressure on rents; a typical vacancy rate in a given market operating in equilibrium; also known as “frictional vacancy”.

Equity Capitalization (Cap) Rate

Equity component of an overall direct capitalization rate; computed by dividing equity earnings by the market value of equity.

Equity Method

A type of accounting used for intercorporate investments; used when an investor holds significant influence over a investee but does not exercise full control over it, as in the relationship between a parent company and its subsidiary; generally, an investor is deemed to have significant influence over an investee if it owns between 20% to 50% of the investee’s shares or voting rights; if, however, the investor has less than 20% of the investee’s shares but still has a significant influence in its operations, then the investor must still use the equity method.

Equity multiple (Gross)

Current equity multiple (Gross) is the same as the Current equity multiple (Net) but adjusted so as to remove the effect of vehicle-level fees, taxes and carried interest deductions. This uses as a numerator the aggregate of the cash flows used to calculate the IRR since inception gross and as a denominator total capital drawn down (for the avoidance of doubt, not Total capital commitments drawn).

Equity multiple (Net)

Current equity multiple (Net) = [Total return of capital + Total Income/Interest/Dividend distributions + Fair value of vehicle (NAV)] / Total capital drawn down. This uses as a numerator the aggregate of the cash flows used to calculate the IRR since inception net and as a denominator the Total capital drawn down since inception (for the avoidance of doubt, not Total capital commitments drawn).

Equity multiple- gross, projected

Current projected gross equity multiple from inception to end of vehicle term (gross of taxes, fees and carried interest) per the manager's estimate, or in the case of an open end vehicle over a period agreed between the manager and investors. This is the weighted average of the equity multiple of realized investments and the manager's projection of the equity multiple of unrealized investments.

Equity multiple-net, projected

Current projected net equity multiple from inception to end of vehicle term (net of all taxes, fees and carried interest) per the manager's estimate, or in the case of an open end vehicle over a period as agreed between the manager and investors. This is the weighted average of the equity multiple of realized investments and the manager's projection of the equity multiple of unrealized investments.

Equity Yield or Equity Yield Rate

The return on the portion of an investment financed by equity capital, taking into account periodic cash flow and the proceeds from resale.

Equity-share

Used to define organisational boundaries for financial and sustainability (and especially GHG emissions) reporting. Equity share reflects the economic interest, which is the extent of rights a fund has to the risks and rewards flowing from an asset. Typically, the share of economic risks and rewards in an operation is aligned with the fund’s percentage ownership of that asset, and equity share will normally be the same as the ownership percentage.

ERISA

Employee Retirement Income Security Act of 1974, a US federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.  

ERISA Fund

A fund that consists of, or is deemed to hold, plan assets and operates as a plan asset vehicle that is subject to Title I of ERISA and/or Section 4975 of the Internal Revenue Code (IRC); in the context of a subscription-backed credit facility, borrowers and lenders may have concerns regarding ERISA funds and potential prohibited transactions with lenders that may subject the fund and the lender to tax penalties and/or other fines.

ERISA Limited Partner

An investor that is (i) an employee benefit plan (as defined in ERISA) subject to Title I of ERISA; (ii) any plan defined in and subject to Section 4975 of the Internal Revenue Code (IRC); or (iii) any other entity whose assets include or are deemed to include the assets of one or more such employee benefit plans in accordance with ERISA and related regulations.

Escheat

The right to have property revert to the state for nonpayment of taxes or when there are no legal heirs of someone who dies without leaving a will.

Estimated Rental Value (ERV)

The current rent at which space within a property could reasonably be expected to be let given current market conditions.

Euro Interbank Offered Rate (EURIBOR)

Daily reference interest rate for a given period published by the European Money Markets Institute based on the average interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market (or interbank market).

Event of Default (EOD)

Contractual breaches or other events, the occurrence of which gives the lender the right to demand a full and immediate repayment of the loan (subject to cure rights). These are defined within the loan agreement.

Event Risk

The risk of an unexpected, future decrease in credit quality that is a result of events such as a corporate acquisition or material changes in taxes, laws, or regulations.

Excess Return

An indication of the degree to which a fund or investment has been successful at adding value or meeting a hurdle rate; calculated by subtracting a predetermined rate of return (such as a risk-free rate, minimum acceptable return or benchmark return) from the net return of a fund or investment over a specified period; used in the calculation of statistics, such as the Sharpe ratio.

Exchange Rate 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 “currency risk”.

Excluded Recovery Proceeds

Amounts recovered from a Property Vendor or a report provider which do not have to be used in prepayment provided they are used for a particular purpose within a certain time.

Exclusion Clause/Provision

A term in a contract which seeks to exclude or limit the liability of one of its parties.

Exclusivity Right

A legally binding clause that specifies that all investments that meet certain criteria will only be allocated to a particular investment vehicle managed by an investment manager and not be allocated to any other investment vehicles.  Usually limited to the Investment Period or when a certain percentage of the Committed Capital has been invested.  

Execution Risk

The risk that a transaction will not be executed or consummated within the range of predetermined parameters or recent market prices.

Exempt fees and costs

Specific fees and costs which are not included in the TER and REER calculations. See example of exempt fees and costs in the fee and expense metrics module.

Exit Capitalization (Cap) Rate

The estimated or actual capitalization rate used to estimate the resale value of a property at the end of the holding period; calculated by dividing the expected net operating income (NOI) by the expected sale price and expressed as a percentage; also known as the “residual cap rate” or “terminal cap rate”.

Exit LTV

The anticipated ratio of the principal amount of the loan to the value of the property as at the date of property disposal or repayment of the loan.

Expansion

Extending an existing building via construction of additional space.

Expense Policy

A policy or legal clause that defines which expenses will be allocated to the property or fund or will be covered by the Manager under the Asset Management Fee.  

Expense Ratio

The ratio of expenses to gross income; a typical expense ratio is the relationship of normal expenses to effective gross income.

Expense Reimbursements

Costs which are paid back to a landlord by a tenant; generally includes property taxes, property insurance, maintenance and repair costs, and other operational expenses; at the end of the year (or the end of the lease), the landlord will reimburse the tenant if actual costs are less than expected costs; alternately, the landlord will bill the tenant any additional expenses that were not covered by their monthly tenant reimbursement bill; also known as “recoveries”.

Expense Stop

The level (or maximum amount) up to which the landlord will pay certain operating expenses; amounts above the stop are the responsibility of the tenant.

Extension Term

A pre-determined additional time period, usually in years, by which a time period such as, the Investment Period or Termof a Vehicle may be prolonged, as defined in the Vehicle Documentation.  

External leasing commissions

Commissions charged by the listing agent/broker and tenant representative after a new lease or a renewal lease is signed. These include marketing of vacant space. Commission ranges vary and may depend on the market and/or the value of the transaction.

Externality

An economic term that describes a third-party factor that has a positive or negative impact on an individual or firm where the third party factor has no direct control over the creation of a cost or benefit.