multifamily real estate

Multifamily Real Estate Glossary

Absorption Rate
The rate at which available rental units are leased over a specific period, usually expressed monthly or quarterly. This metric indicates the demand for rental housing in a particular market.

Acquisition Fee
A one-time fee paid to the sponsor or syndicator for sourcing, analyzing, and closing a multifamily property purchase. It compensates for the work involved in finding and securing the investment.

Affordable Housing
Residential units offered at below-market rents, often supported by government incentives, to serve low- and moderate-income tenants.

Amortization
The process of paying off a loan through scheduled, periodic payments of principal and interest over a set term.

Annual Rate of Return (ARR)
The percentage gain or loss on an investment over a one-year period, calculated as net profit divided by the initial investment.

Appraisal
A professional, third-party assessment of a property’s market value, often required by lenders before issuing a loan.

Asset Class
A grouping of similar investment types, such as multifamily, office, or industrial properties.

Bridge Loan
Short-term financing used to "bridge" the gap until permanent financing is secured or until a property is stabilized, such as after renovations or lease-up.

Broker Opinion of Value (BOV)
An estimate of a property’s value provided by a real estate broker, often used before a formal appraisal.

Building Class (A, B, C, D)
A grading system for properties based on age, location, amenities, and condition.

• Class A: Newest, best locations, top amenities

• Class B: Older, good locations, some updates

• Class C: Older, fewer amenities, often in less desirable areas

• Class D: Poor condition, high risk

CAM Charges (Common Area Maintenance)
Fees paid by tenants to cover maintenance of shared spaces, such as lobbies, hallways, and parking lots.

Cap Rate (Capitalization Rate)
A metric for evaluating investment profitability, calculated as Net Operating Income (NOI) divided by property price or value.

Capital Expenditure (CapEx)
Funds used for major property improvements or replacements, such as roofs or HVAC systems.

Cash Flow
The net income remaining after all expenses (including debt service) are paid.

Certificate of Occupancy
A government-issued document certifying a property’s compliance with building codes and suitability for occupancy.

Clear Title
Ownership of property free from legal claims, liens, or encumbrances.

Concession
An incentive offered to tenants, such as free rent or reduced deposit, to encourage lease signing.

Debt Coverage Ratio (DCR or DSCR)
A ratio measuring a property’s ability to cover debt payments, calculated as NOI divided by total debt service.

Debt Service
The total amount of principal and interest payments required to service a loan over a given period.

Depreciation
An accounting method to allocate the cost of a property over its useful life, providing tax benefits to owners.

Disposition
The sale or transfer of ownership of a property.

Due Diligence
The investigative process of evaluating a property’s financials, condition, leases, and legal standing before purchase.

Effective Gross Income (EGI)
Gross rental income plus other income, minus vacancy and credit losses.

Equity
The ownership value in a property after subtracting outstanding debts.

Escrow
A neutral third party holds funds or documents until conditions of a real estate transaction are met.

Exit Strategy
A plan for how investors will realize returns, such as through sale, refinancing, or buyout.

Expense Ratio
The percentage of gross income consumed by operating expenses.

Fund of Funds (Super Fund)
An investment vehicle that pools capital to invest in other funds, offering diversification and professional management.

General Partner (GP)
The sponsor or managing entity responsible for day-to-day operations and decision-making in a real estate syndication.

Gross Rent Multiplier (GRM)
A valuation metric calculated by dividing a property’s price by its gross annual rental income.

Gross Scheduled Income (GSI)
Total potential rental income if all units are leased at market rates, before deductions for vacancy or credit loss.

Guarantor
An individual or entity that guarantees loan repayment if the borrower defaults.

Internal Rate of Return (IRR)
A metric estimating the annualized effective compounded return rate expected from an investment, considering all cash flows and their timing.

Lease Agreement
A legally binding contract outlining terms between landlord and tenant, including rent, duration, and responsibilities.

Leasing Agent
A professional responsible for marketing and leasing rental units, often employed by property management firms.

Letter of Intent (LOI)
A non-binding document outlining preliminary terms of a transaction, often preceding a purchase agreement.

Loan-to-Value Ratio (LTV)
A measure of loan amount relative to property value, used by lenders to assess risk.

Market Analysis
The process of evaluating market trends, rental rates, supply/demand, and economic indicators to inform investment decisions.

Market Rent
The prevailing rental rate for similar units in a specific market area.

Mixed-Use Development
A property or project that combines residential, commercial, and/or retail spaces in one location.

Multifamily Property
A residential property with two or more separate housing units, such as duplexes, triplexes, apartment complexes, and condominiums.

Net Operating Income (NOI)
Income remaining after all operating expenses are deducted from effective gross income, but before debt service, capital expenditures, and taxes.

Non-Recourse Loan
A loan secured by collateral (the property) but not personally guaranteed by the borrower, limiting the lender’s recourse to the property itself.

Offering Memorandum (OM)
A detailed document provided by the seller or broker outlining a property’s business plan, financials, market analysis, and projected returns for potential investors.

Operating Expenses
Costs required to run and maintain a property, such as maintenance, management, insurance, and utilities.

Operating Statement
A financial report summarizing a property’s income, expenses, and net operating income over a specific period.

Physical Occupancy
The percentage of units that are actually occupied, as opposed to economic occupancy, which considers rent collection.

Preferred Return
A minimum annual return paid to equity investors before profits are distributed to the sponsor or general partner.

Property Management
The operation and oversight of a multifamily property, including leasing, maintenance, rent collection, and tenant relations.

Pro Forma
A financial projection estimating future income, expenses, and returns based on assumptions about occupancy, rent growth, and costs.

Recourse Loan
A loan where the lender can pursue the borrower’s personal assets if the property does not cover the debt.

Rent Control
Government-imposed limits on rent increases to protect tenants from rapid rent escalation.

Rent Escalation Clause
A lease provision allowing for periodic rent increases based on predetermined criteria.

Rent Roll
A detailed listing of all rental units, current rent rates, lease terms, and tenant information.

REIT (Real Estate Investment Trust)
A company that owns, operates, or finances income-producing real estate and offers shares to investors.

Return on Investment (ROI)
A measure of investment profitability, calculated as net profit divided by the initial investment.

Syndication
A structure where multiple investors pool capital to acquire and operate a property, typically led by a sponsor or general partner.

Tenant Improvements (TI)
Alterations or upgrades made to rental units, often negotiated as part of lease agreements.

Tenant Screening
The process of evaluating prospective tenants’ credit, background, and rental history to assess suitability.

Townhouse
A multi-story residential unit attached to others side-by-side, sharing common walls but with separate entrances.

Triplex
A building with three separate apartment units, each typically having its own entrance.

Vacancy Rate
The percentage of all available units in a property that are vacant or unleased at a given time.

Whisper Price
An informal, undisclosed asking price for a property, privately communicated among industry insiders to gauge interest and initiate negotiations.