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Real Estate Financial Modeling Accelerator (Updated April 2024)

Prior to launching the Accelerator program, Michael and I fielded email after email requesting a more structured real estate financial modeling training program on the site. Over the years, we've covered hundreds of real estate modeling…

Under Water

Under Water refers to a financial condition in which the outstanding balance of a property's mortgage exceeds the property's current market value. This situation creates significant constraints for the property owner, limiting their ability…

Variable Costs

Operating expenses that vary based upon of the property’s level of operation. For example, property management fees vary directly based on the property’s revenue and therefore will likely be higher the greater the occupancy of the building.…

Wall Street Journal Prime Rate

The consensus interest rate charged by ten of America's largest banks to their most creditworthy customers, typically for loans with short-term maturities. The Wall Street Journal Prime Rate (or WSJP) is determined through a market survey and…

Acre

A unit of land that equals 43,560 square feet, or 4,047 square meters. Putting 'ACRE' in Context Overview: The Meadowlands Commercial Park is a hypothetical 150-acre mixed-use development situated in the burgeoning suburb of Cedar Grove,…

Walk Score

Walk Score is a measurement system introduced in 2007 by Front Seat, a Seattle-based company founded by Matt Lerner, Mike Mathieu, and Jesse Kocher. It quantifies the walkability of any address by evaluating the proximity to amenities like shops,…

Development Yield

Also referred to as a project's Yield-on-Cost, Development Yield is calculated as a development's net operating income (or sometimes cash flow from operations) at stabilization divided by the total project cost. Net Operating Income at Stabilization…

Yield-on-Cost

Yield-on-cost is the net operating income (or sometimes cash flow from operations) at stabilization divided by the total project cost, whereas the capitalization rate (cap rate) is the stabilized net operating income (or sometimes cash flow…

Zero Cash Flow Property

A real estate investment where all excess cash flow from a property goes to pay down the senior mortgage. Zero cash flow investments are generally leased to credit-rated, single-tenant NNN tenants, and the loan is sized/crafted such that the…

Warm Shell

Any building/rentable area that has been minimally fitted out with basic services (such as ceilings, lighting, plumbing and HVAC) and is now ready to lease to the tenant. Usually these “warm shell improvements” - necessary to convert the…

Yield Maintenance

A method for calculating prepayment penalty, yield maintenance considers the difference between prevailing interest rates and the contractual interest rate of the loan such that the borrower does not benefit from changes in interest rates and…

Absorption

See Net Absorption and Gross Absorption. Putting Absorption in Context Scenario: Consider a newly developed commercial district in a bustling city, which has brought to market a mix of retail and office spaces totaling 200,000 square…

Walkability

Walkability refers to the degree to which an area supports walking as a safe, convenient, and enjoyable mode of transportation and recreation. This measure considers the comfort and appeal of the environment, assessing factors such as sidewalk…

Weighted Average Lease Expiry

Weighted Average Lease Expiry (WALE) is a leasing metric in commercial real estate that measures the average time until the expiry of leases across a property, weighted by rental income. This metric is synonymous with WAULT (Weighted Average…

Annual Percentage Yield

Annual Percentage Yield (APY) is the true rate of return earned taking into account compounding interest. Also known as the Annual Effective Rate, the formula for APY is as follows: APY = ( 1 + APR / n ) ^ n – 1 Periodic Rate…

Net Absorption

Net absorption is the rate at which rentable area is leased up over a period of time in a given market. The net absorption figure considers construction of new space, demolition of existing space and any additional vacancies during that period.…