Absorption Rate – The amount of space that is leased or sold during a given time frame.

After Payout – Typically any cash distributed after all of the accrued preferred return and unreturned capital contributions have been paid.

Before Payout – Typically any cash distributed before and until all of the accrued preferred return and unreturned capital contributions have been paid.

Broker/Dealer – A company that buys and sells securities for itself and others. Broker/dealers must register with the Securities Exchange Commission.

Capital Stack – The sum of all debt and equity financing required to develop and complete a project which must always equal the total cost of a project. First lien debt financing is typically at the top of the Capital Stack (meaning that it is repaid first from any available cash flow); followed by second lien, mezzanine or bridge financing; preferred equity and remaining equity.

Capital Structure – The mix of equity and debt financing required to develop and complete a project.

Capitalization Rate (“Cap Rate”) – The ratio between cash flow produced by a property and its market value. The Cap Rate is used to determine or evaluate the acquisition cost of an existing property (e.g. office building, hotel or apartments) and/or the sale of a developed property. The higher the Cap Rate, the lower the acquisition or sale price.

Certificate of Occupancy – A certificate issued by a government entity verifying that a newly constructed building or space is compliant with all codes and regulations necessary for occupancy.

Class A Building – The highest quality space available in a given market. These properties are generally in an excellent location with superior access, attract high quality tenants, and are managed professionally. Building materials are high quality and rents are competitive with other new buildings.

Class B Building - Buildings with average to good locations, management, and construction, and tenant mix. Buildings have very little functional obsolescence and deterioration.  Average to good maintenance and management.

Class C Building – Typically an older space that offers space without amenities, as well as average to below average maintenance, mechanical, electrical and ventilation systems.  Attracts moderate- to low-income tenants who need affordable space. 

Common Area Maintenance – The maintenance and costs of operating the common areas of a property. Tenants pay for these charges on a prorated basis.

Compounded Annual Return (“CAR”) – The percentage an investment needs to increase each year over a specified period to reach a desired amount. CAR is used to evaluate the profitability of a project.

Credit Tenants – Generally, tenants that are national chains with strong financial balance sheets.

Debt Service Coverage Ratio (“DSCR”) – The relationship between projected net operating income (NOI) and expected debt service payments, calculated by dividing the NOI by the debt service payment. A DSCR of 1.0 means that NOI equals debt service. The higher the ratio, the greater the chance that the debt service will be paid and the greater the likelihood of obtaining favorable loan terms.

Entitlements – Approvals required by a governing jurisdiction to introduce a new or expanded land use activity on a site, including zoning changes, development agreements, plats, etc.

Gross Lease – A lease in which the tenant pays a base rent and all other expenses (e.g. taxes, insurance and maintenance costs) are paid by landlord. Gross lease rates are generally higher than other types of lease rates since the landlord must pay these additional expenses.

Guaranteed Maximum Price Contract (“GMP”) – A construction contract where the contractor estimates the cost for construction work and if actual costs are higher, pays the difference. If costs are lower, the developer may keep the savings or share them with the contractor as an incentive to control costs.

Hurdle – When a limited partner must receive sufficient distributions to achieve a specified return before cash flows will be split with the developer. Typically based on achieving a specified IRR.

Internal Rate of Return (“IRR”) – The annualized yield rate on capital generated over a period of ownership. IRR discounts all returns from the investment equal to the original capital investment. IRR is used to evaluate the profitability of a project and as a basis for negotiating Hurdles and Lookbacks.

Investment Highlights – Financial estimates of a project’s anticipated budget, capital structure, cash flows, project returns and sharing ratios that are included as part of the Investment Package and Private Placement Memorandum. Actual project performance may vary from these estimates.

Lookback – When a limited partner must achieve a specified return and if such return is not achieved, then the developer must contribute the difference from his share of distributions. If the limited partner’s actual return is higher than the specified return then no adjustment is made to the cash flow split with the developer. Typically based on achieving a specified IRR.

Net Operating Income (“NOI”) – A project’s operating income after deducting for operating expenses, but before deducting for income taxes and interest. NOI is used when calculating capitalization rates and debt service coverage ratios.

Occupancy Rate – The total leasable space occupied as of a particular date. Expressed as a percentage.

Partnership Controls – Restrictions RCP puts on a developer to mitigate the affect of specific project risks. Controls may include requiring the developer to receive RCP approval on major decisions regarding such items as the sale or refinance of a project, budget changes, additional capital requirements, and the ability to remove the developer if the need arises to protect clients’ capital contribution.

Preferred Return – A preferred, non-compounded rate, typically equal to 10% per year, paid on the unreturned capital contribution of each partner in a partnership. The preferred return is generally paid after any operating and debt expenses, and before repayment of capital contributions.

Pro Forma – Financial estimates of a project’s anticipated budget, capital structure, cash flows, project returns and sharing ratios. Actual project performance may vary from these estimates.

Sharing Ratios – The percentages assigned to a partner in connection with such partner's partnership interest. Used to determine how the project’s cash flow will be distributed. Each Partner shall have a “Before Payout” and “After Payout” Sharing Ratio.

Subscription Agreement – The agreement an investor completes to join a limited partnership.

Tenant Improvements – The improvements made to a property for the specific needs of a tenant, including interior construction and finishes.

Triple Net Lease – A lease in which the taxes, insurance and maintenance costs are paid by the tenants. Triple net lease rates are generally lower than other types of lease rates since tenants must pay these additional costs.

Vacancy Rate – The total leasable space vacant as of a particular date. Expressed as a percentage.