Commercial Real Estate Glossary: (C-D)
Capital Gain
Taxable income derived from the sale of a capital asset. It equals the sale price less the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery
Capital Market
The supply and demand for resources to invest in real estate and other investments
Capitalization Rate
Otherwise known as the cap rate, it is the percentage that relates the value of the income-producing property to its future income, expressed as net operating income divided by purchase price.
Cash Flow
The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash
Cash Flow After Taxes (CFAT)
For commercial properties, it is calculated by taking a number of steps. The calculation below shows all of the steps involved to determine a property's cash flow after taxes:
Net Operating Income (NOI)
- Interest
- Cost Recovery
- Amortization of loan points
= Real Estate Taxable Income
x Investor's Marginal Tax Rate
= Tax Liability (Savings)
then......
Net Operating Income (NOI)
- Annual Debt Service
= Cash Flow Before Taxes
- Tax Liability (Savings)
= Cash Flow After Taxes
Cash Flow Before Taxes (CFBT)
Derived by taking the property's net operating income (NOI) and subtracting the annual debt service (if any). See example above
Commercial Real Estate
Any multifamily, office, industrial, or retail property that can be bought or sold in a real estate market.
Commercial Strip Property
A strip of commercially zoned land divided into parcels to be developed for retail use. These properties usually have a fairly narrow trade area and offer a variety of products and services.
Common Area
Areas within a building and its site, such as lobbies, hallways, grounds, and parking lots that are available for non-exclusive use by all tenants
Common Area Maintenance
Charges the tenant pays for the upkeep of areas designated for use and benefit of all tenants. Cam charges are common in most multi-tenant commercial properties.
Community Center
Retail property type that typically offers a wider range of apparel and other soft goods than neighborhood centers. Among the more common anchor tenants are supermarkets, super drugstores, and discount department stores.
Compound Interest
Interest computed on the original principal and accumulated interest
Compounding
A type of calculation in which interest earned is reinvested and earns additional interest
Contract Rent
The total monetary rental obligation specified in a lease.
Cost Recovery
An annual deduction based on the class life of an asset
Demographics
Characteristics of human populations as defined by population size and density of regions, population growth rates, migration, vital statistics, and their effect on socioeconomic conditions.
Discount Rate
The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium. Also referred to as the opportunity cost.
Discounting
The process of reducing the value of money received in the future to reflect the opportunity cost of waiting to receive the money.