Glossary
A comprehensive glossary of commercial real estate terms — plain-English definitions for the Kansas City metro market.
1031 Exchange
An IRS provision letting investors defer capital-gains tax by reinvesting sale proceeds into a like-kind property within set timeframes. Named after Section 1031 of the Internal Revenue Code.
Absorption
The net change in occupied commercial space over a period. Positive absorption signals a tightening, strengthening market; negative absorption indicates rising vacancy.
ADA Compliance
Adherence to the Americans with Disabilities Act requirements for commercial properties, including accessible entrances, restrooms, parking, and common areas.
Anchor Tenant
A major tenant in a commercial property — typically a large retailer or institution — whose presence attracts foot traffic and smaller tenants to the development.
As-Is Condition
A property sold or leased in its current state with no obligation from the seller or landlord to make repairs or improvements before closing.
Base Rent
The minimum rent a tenant pays under a lease, before any additional charges for operating expenses, taxes, insurance, or CAM fees.
Broker Opinion of Value (BOV)
An informal estimate of a commercial property's market value prepared by a licensed broker, based on comparable sales and market conditions. Less formal than an appraisal.
Build-to-Suit
A development arrangement where a building is custom-constructed to a tenant's specifications, usually with a long-term lease commitment signed before construction begins.
Buildout
The construction or renovation work needed to prepare a commercial space for a specific tenant's use, including walls, flooring, electrical, plumbing, and finishes.
CAM (Common Area Maintenance)
Charges passed to tenants for maintaining shared areas — parking lots, landscaping, lobbies, elevators — in a multi-tenant commercial property.
Cap Rate (Capitalization Rate)
A property's net operating income divided by its price or value, expressed as a percentage. The core metric for valuing income-producing commercial real estate.
Certificate of Occupancy (CO)
A document issued by a local government confirming that a building meets all building codes, zoning laws, and regulations and is suitable for occupancy.
Class A / B / C
A classification system for office and commercial buildings. Class A represents the highest quality with premium rents; Class B is functional and well-maintained; Class C is older with below-average rents.
Comps (Comparables)
Recently sold or leased properties similar in size, type, location, and condition used to determine the market value or rental rate of a subject property.
Concessions
Incentives offered by landlords to attract tenants, such as free rent periods, tenant improvement allowances, or reduced rent during lease-up.
Debt Service
The total amount of principal and interest payments required on a property's mortgage over a given period, typically expressed annually or monthly.
Debt Service Coverage Ratio (DSCR)
A property's net operating income divided by its annual debt service. Lenders typically require a DSCR of 1.20x or higher for commercial loans.
Due Diligence
The investigation and analysis period before closing a commercial real estate transaction, including property inspections, title review, environmental assessments, and financial verification.
Easement
A legal right to use another party's land for a specific purpose, such as utility access, drainage, or road access, without owning it.
Effective Rent
The actual rent paid after accounting for concessions like free rent periods or TI allowances, giving a more accurate picture of the true cost of occupancy.
Entitlement
The legal rights and approvals — zoning, permits, variances — required before a property can be developed or redeveloped for a specific use.
Escalation Clause
A lease provision that increases rent at specified intervals, either by a fixed percentage, a dollar amount, or tied to an index like CPI.
Flex Space
A versatile commercial building type that can accommodate a mix of office, warehouse, light manufacturing, or retail uses, often with drive-in doors and open floor plans.
Gross Lease
A lease where the tenant pays a single rent amount and the landlord covers all operating expenses including taxes, insurance, and maintenance.
Ground Lease
A long-term lease of land only, on which the tenant constructs and operates improvements. Common for retail pad sites and institutional developments.
Highest and Best Use
An appraisal concept identifying the legally permissible, physically possible, financially feasible, and maximally productive use of a property.
Holdover Tenant
A tenant who remains in possession of a property after the lease term expires without signing a new lease, typically paying rent at an increased holdover rate.
Lease Abstract
A summary document extracting key terms from a commercial lease: dates, rent, escalations, options, responsibilities, and special provisions.
Lease Commencement
The date a commercial lease officially begins, which may differ from the rent commencement date if a free-rent or buildout period is included.
Leasable Area
The total square footage in a commercial building available for tenant occupancy, excluding common areas, mechanical rooms, and structural elements.
Letter of Intent (LOI)
A non-binding document outlining the key business terms of a proposed lease or purchase — rent, term, TI allowance, timing — before drafting a formal contract.
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value of the property. Commercial lenders typically cap LTV at 65–80% depending on property type.
Market Rate
The prevailing rental rate or sale price for comparable commercial properties in a specific market, submarket, or property class.
Modified Gross Lease
A hybrid lease where the tenant pays base rent plus some — but not all — operating expenses. The specific split varies by negotiation.
NNN (Triple Net)
A lease in which the tenant pays base rent plus the three 'nets' — property taxes, insurance, and maintenance. The standard structure for single-tenant commercial leases.
NOI (Net Operating Income)
A property's total income minus operating expenses, before debt service and income taxes. The numerator in a cap-rate calculation and the basis for commercial property valuation.
Occupancy Rate
The percentage of a property's leasable space that is currently occupied by tenants. The inverse of the vacancy rate.
Operating Expenses (OpEx)
The recurring costs of running a commercial property: property taxes, insurance, utilities, maintenance, management fees, and repairs.
Pad Site
A small parcel of land on the perimeter of a larger commercial development, typically used for standalone retail, restaurant, or bank buildings.
Percentage Lease
A retail lease where the tenant pays base rent plus a percentage of gross sales above a specified breakpoint threshold.
Phase I Environmental Assessment
A preliminary investigation of a property's environmental conditions and history to identify potential contamination risks before a transaction.
Pro Forma
A financial projection for a commercial property showing expected income, expenses, debt service, and returns over a holding period — used to evaluate investment potential.
PSF (Per Square Foot)
The standard unit for quoting commercial rent and price. Rent is typically quoted annually (e.g. $24 PSF/year); sale price as a total (e.g. $150 PSF).
Rentable Square Feet (RSF)
The total square footage a tenant pays rent on, including their usable space plus a proportional share of common areas. Always larger than usable square feet.
Right of First Refusal (ROFR)
A lease or contract provision giving a party the right to match any third-party offer before the property owner can accept it.
SBA 504 Loan
A Small Business Administration loan program providing long-term, fixed-rate financing for owner-occupied commercial properties with as little as 10% down.
Shell Condition
A commercial space delivered with basic structural elements — exterior walls, roof, concrete floor — but no interior finishes, requiring full buildout by the tenant.
Stabilized Property
A commercial property that has reached a consistent occupancy level (typically 90%+) and is generating predictable income, as opposed to a property in lease-up.
Sublease
An arrangement where a current tenant leases all or part of their space to a third party for the remainder of the original lease term.
Tenant Improvements (TI)
Customizations a landlord funds or allows to fit a commercial space to a tenant's specific use. Often expressed as a per-square-foot allowance in the lease.
Tenant Mix
The combination of tenants in a multi-tenant commercial property. A strategic tenant mix creates synergies, shared foot traffic, and reduces vacancy risk.
Triple Net (NNN)
See NNN. A lease structure where the tenant pays all operating costs — taxes, insurance, and maintenance — on top of base rent.
Usable Square Feet (USF)
The actual square footage a tenant exclusively occupies, not including shared hallways, lobbies, restrooms, or mechanical rooms.
Vacancy Rate
The percentage of a property's or market's total leasable space that is currently unoccupied. A key indicator of market health and supply-demand balance.
Variance
A local government exception allowing a property to deviate from current zoning regulations — for example, allowing a use not normally permitted in a zone.
Zoning
Municipal rules governing how a property may be used. Classifications like B3-3 pre-approve specific uses such as medical, retail, or office without requiring a variance.
