Eric Barnes & Eric Massey | Commercial Advisors | MSC Commercial, Sarasota

Glossary

Commercial Real Estate Glossary for Property Owners

Plain-language definitions of the terms Sarasota and Manatee County owners see when selling or leasing commercial property. For questions about the sale process, see the commercial real estate FAQ.

Valuation and Income Terms

How commercial property is priced.

Capitalization rate (cap rate)

Net operating income divided by the purchase price or value. A lower cap rate means a buyer pays more for each dollar of income, usually because the buyer sees less risk.

Net operating income (NOI)

Annual rent and other income minus operating expenses, before debt payments and income taxes. Buyers of leased commercial property price the NOI.

Broker opinion of value (BOV)

A licensed broker’s written estimate of what a property would sell for, based on comparable sales, income, and current market conditions.

Appraisal

A formal value estimate prepared by a state-certified appraiser under national appraisal standards, required for most financing, estate, and legal purposes.

Price per square foot

Sale price divided by building square footage. It is useful for comparing similar buildings but ignores income and lease terms, so it checks a valuation rather than setting one.

Residual land value

The price a developer can pay for land, found by subtracting construction costs and profit from the value of the finished project.

Valuation and Income Terms

How commercial property is priced.

Capitalization rate (cap rate)

Net operating income divided by the purchase price or value. A lower cap rate means a buyer pays more for each dollar of income, usually because the buyer sees less risk.

Net operating income (NOI)

Annual rent and other income minus operating expenses, before debt payments and income taxes. Buyers of leased commercial property price the NOI.

Broker opinion of value (BOV)

A licensed broker’s written estimate of what a property would sell for, based on comparable sales, income, and current market conditions.

Appraisal

A formal value estimate prepared by a state-certified appraiser under national appraisal standards, required for most financing, estate, and legal purposes.

Price per square foot

Sale price divided by building square footage. It is useful for comparing similar buildings but ignores income and lease terms, so it checks a valuation rather than setting one.

Residual land value

The price a developer can pay for land, found by subtracting construction costs and profit from the value of the finished project.

Lease Terms

The lease language that determines income and value.

Triple net lease (NNN)

A lease in which the tenant pays base rent plus its share of property taxes, building insurance, and maintenance.

Gross lease

A lease in which the tenant pays one rent amount and the landlord pays the operating expenses.

Modified gross lease

A lease that falls between gross and triple net, with some operating expenses included in rent and others passed through to the tenant.

Common area maintenance (CAM)

Shared costs of parking lots, landscaping, lighting, and common areas, allocated among tenants under their leases.

Weighted average lease term (WALT)

The average remaining lease term across a property’s tenants, weighted by rent or square footage. Investors often ask for it first.

Tenant improvement allowance (TI)

Money a landlord contributes toward building out a tenant’s space, usually recovered through rent over the lease term.

Rent escalation

A scheduled increase in rent during the lease term, stated as a fixed amount, a percentage, or an index adjustment.

Lease Terms

The lease language that determines income and value.

Triple net lease (NNN)

A lease in which the tenant pays base rent plus its share of property taxes, building insurance, and maintenance.

Gross lease

A lease in which the tenant pays one rent amount and the landlord pays the operating expenses.

Modified gross lease

A lease that falls between gross and triple net, with some operating expenses included in rent and others passed through to the tenant.

Common area maintenance (CAM)

Shared costs of parking lots, landscaping, lighting, and common areas, allocated among tenants under their leases.

Weighted average lease term (WALT)

The average remaining lease term across a property’s tenants, weighted by rent or square footage. Investors often ask for it first.

Tenant improvement allowance (TI)

Money a landlord contributes toward building out a tenant’s space, usually recovered through rent over the lease term.

Rent escalation

A scheduled increase in rent during the lease term, stated as a fixed amount, a percentage, or an index adjustment.

Transaction Terms

The steps and documents in a commercial sale.

Letter of intent (LOI)

A short, usually non-binding document proposing the main terms of a purchase or lease before a contract is drafted.

Due diligence

The period after a contract is signed when the buyer reviews leases, records, title, survey, environmental reports, zoning, and condition.

1031 exchange

A transaction under Section 1031 of the Internal Revenue Code that lets an investor defer capital gains tax by reinvesting sale proceeds in like-kind real estate within set deadlines.

Qualified intermediary

A third party that holds sale proceeds during a 1031 exchange so the seller does not receive them directly.

Sale-leaseback

A sale in which the owner-occupant sells the property to an investor and signs a lease to stay in place.

Offering memorandum (OM)

The marketing document for a commercial listing, with property details, leases, financial history, and location information.

Off-market sale

A sale marketed privately to selected buyers rather than listed publicly.

Transaction Terms

The steps and documents in a commercial sale.

Letter of intent (LOI)

A short, usually non-binding document proposing the main terms of a purchase or lease before a contract is drafted.

Due diligence

The period after a contract is signed when the buyer reviews leases, records, title, survey, environmental reports, zoning, and condition.

1031 exchange

A transaction under Section 1031 of the Internal Revenue Code that lets an investor defer capital gains tax by reinvesting sale proceeds in like-kind real estate within set deadlines.

Qualified intermediary

A third party that holds sale proceeds during a 1031 exchange so the seller does not receive them directly.

Sale-leaseback

A sale in which the owner-occupant sells the property to an investor and signs a lease to stay in place.

Offering memorandum (OM)

The marketing document for a commercial listing, with property details, leases, financial history, and location information.

Off-market sale

A sale marketed privately to selected buyers rather than listed publicly.

Property and Land Terms

Physical and zoning terms buyers evaluate.

Clear height

The usable height inside an industrial building below the lowest obstruction, which limits how high inventory can be stored.

Dock-high loading

Loading doors set at truck-bed height for tractor-trailer freight.

Grade-level loading

Loading doors at ground level for vans, box trucks, and contractors.

Parking ratio

The number of parking spaces per 1,000 square feet of building area. Medical and restaurant uses need higher ratios than general office.

Floor area ratio (FAR)

Building square footage divided by land square footage, used to compare what is built with what zoning allows.

Future Land Use designation

The category assigned to a parcel in a county or city comprehensive plan, which guides what zoning the government will support.

Entitlements

The approvals, such as zoning, site plans, and development agreements, that allow a specific project to be built.