Commercial Real Estate Glossary


Carried Interest / Preferred Return

A share of profits from a private equity investment paid as compensation to the investment’s general partner. Carried interest is most commonly structured such that it is only paid if the investment achieves a certain minimum return (also called the 'Preferred Return' or 'Promote').

For example, if the Preferred Return is 9%, that means limited partner investors will receive a 9% return (compounded annually) before the general partner starts making performance fees.

Commercial Real Estate (CRE)

​​Property intended for uses other than personal residential purposes, including retail shopping centers, multi-family apartment buildings, office buildings, hotels and motels, and self-storage facilities.

Joint Venture

A formal business agreement between two or more parties that invest in a single business or investment property, commonly structured with a GP and one or more LPs.

Limited Partner (LP)

A passive partner in a real estate investment that contributes capital to the project to receive a return on the investment, but does not participate in the asset management of the property. LPs can have major decision rights around financing or major capital investment projects.

Property Manager

The management company responsible for day to day operations at the property level. These functions include leasing, tenant relations, maintenance, and property level accounting.

Real Estate Sponsor

Also referred to as an ‘operator’ or ‘general partner’ (GP), a sponsor is the real estate investment manager responsible for sourcing the asset and executing the business plan. The sponsor is a hands-on manager who maximizes the value through asset management and, in some cases, manages the day to day operations at the property level as well.


Core Plus

A higher risk and less conservative real estate strategy than Core Property (although lower that Value Add and Opportunistic). Core Plus generally targets newer properties with minor opportunities to improve operations and increase rents. These assets are typically located in major US cities that support a strong tenant base.

Core Property

The lowest risk and most conservative real estate strategy that aims to generate more predictable cash flows. These properties are typically recent constructions in strong markets, and easily financed (as the risk is relatively low).

In-Fill Development

Development in an area with little raw land, most often urban environments. In many cases demolition or major renovation of an existing building is needed to precede in-fill development.

Metropolitan Statistical Area (MSA)

A geographic region with high population density which is defined by the Office of Management and Budget (OMB) and used by the Census Bureau and other federal government agencies for statistical purposes.


The highest risk strategy that requires the highest expected level of returns to compensate. These opportunities are typically ground-up development or substantial repositioning of existing real estate products, where cash-on-cash returns are low and profit is generated mostly at sale of the investment.

Triple Net Lease

A lease in which the tenant pays all the operating expenses of the property including taxes, utilities, insurance, and repairs while the landlord receives a "net" rent. The debt service on the property and the landlord's own income taxes are not considered operating expenses and remain payable by the landlord.

Value Add

A higher risk strategy characterized by the focus on improving an asset in some way (renovations, new amenities etc.) to increase Net Operating Income (NOI). The increased risk of Value Add opportunities stems from the expectation that this improvement will generate higher cash flows and returns.


A legal mechanism for governments to regulate the use of privately owned real estate, prevent conflicting land uses and promote orderly real estate development. 



When a real estate sponsor is undertaking their diligence on a real estate investment opportunity, this will normally include a financial model with their assumptions on various inputs that drive the return of the asset. This can include market dynamics, rent growth and operating expenses, among others.

,It is important for investors to understand how conservative or aggressive each assumption is by referencing current market benchmarks and trends.

Cap Rate

The capitalization rate is the rate of return based on the Net Operating Income (NOI) divided by the Market Value of the property.

Example: If a property had an NOI of $1m and a valuation of $25mm, the cap rate would be 4.0%

Equity Multiple

The total cash distributions returned divided by the total amount of equity invested in the projects.

Example: if $1mm of equity was invested and over the investment horizon, $2mm of equity was returned - the Equity Multiple is 2x.

Internal Rate of Return (IRR)

The annualized rate of return over the investment horizon, including both the operating cash flow during the hold period of the investment as well as the capital appreciation from the sale of the property.

Pro Forma Statement

Financial statements showing what is expected to occur (as opposed to actual results).


A waterfall is a method for allocating the real estate cash flows between limited and general partner investors. Typically, return of invested capital precedes a waterfall structure. Once invested capital is returned, the first tier of a waterfall is typically the targeted preferred return which must be paid to limited partners before the general partner can begin earning promote in subsequent tiers of the waterfall. This structure is meant to incentivize the general partner to perform.


Capital Expenditures

Funds that are either earmarked or used by the real estate sponsor to make improvements to a property. This is different from maintenance expenditures which are for the upkeep of the property to a usable condition (versus improving it).

Capital Stack

Describes where the investment capital comes from in a real estate investment and is typically made up of senior debt and equity. Generally, the most secure part of the capital stack (senior debt) has the lowest return and highest security (i.e. lowest risk profile).

Debt Service Coverage Ratio (DSCR)

A measure of how many times the Net Operating Income (NOI) can pay for the current debt service obligations of the asset. If a property's NOI is $1m and debt service obligations are $500k, the DSCR would be 2x.

First Lien

Often a deed of trust or a mortgage that has priority over all other interests on an asset. In cases of foreclosure, the first mortgage will be satisfied before other mortgages.

Loan-To-Value Ratio (LTV)

The ratio of the loan amount to the total value of the asset. For example, a $20 million loan for a property that is valued at $40m million would have an LTV of 50%. Because the cost of debt is normally lower than the cost of equity, a higher LTV is often associated with the potential for higher returns, however carries higher risk.

Non Recourse

A loan where there is no personal liability and lenders can only take the property pledged as collateral to satisfy a debt.


Operating Agreement

A document that describes the investment ownership structure, rights, and responsibilities of the sponsor in a real estate investment as well as the rights of the members.

Private Placement Memorandum (PPM)

The key legal document where the real estate sponsor outlines and discloses everything about the investment opportunity, including all the risks that you should be aware of.

Subscription Agreement

A document an investor completes to subscribe to an investment offering that indicates the number of shares they are purchasing (or the capital that they are contributing).


Accredited Investor

An investor with a certain level of income or net worth who is able to participate in a private placement of securities under SEC guidelines.

The most common criteria for an accredited investor include:

  • Earning > $200k of annual personal income or
  • Earning > $300k of joint annual income with spouse or
  • Exceeding > $1 million net worth exclusive of your personal residence

However, you don’t have to be a millionaire to be an accredited investor. On August 26, 2020, the SEC amended its qualifications and can now qualify you as an accredited investor if you are a holder in good standing of the Series 7, Series 65, or Series 82 licenses.

Financial Industry Regulatory Authority (FINRA)

Oversees all firms that are in the securities business with the public and is responsible for training financial services professionals, licensing and testing agents, and overseeing mediation for any disputes between customers and brokers.

Regulation D 506(C)

The regulation sponsors on HoneyBricks are able to use to make public offerings of their private real estate investment opportunities. Filling a 506(C) offering also requires that investors are accredited, and that the Sponsor perform additional steps to actually verify that investors are in fact accredited.

Securities and Exchange Commission (SEC)

A federal agency created in the 1930s to carry out the provisions of the Securities Act and many other laws related to the selling of investments. The main focus of the agency is to protect the investing public by preventing misrepresentation, fraud, market manipulation, and other abuses in the securities markets

Self-Directed IRA

A retirement account that can invest in any investment allowed by law (including real estate, start-ups, and precious metals).



The loss in value of a building over time that can be used to offset the income tax incurred from an income-producing property.

Pass Through Income

Income that passes through to individuals from a pass-through entity such as a Limited Liability Corporation (LLC). Pass-through entities can also provide significant tax benefits such as passing through non-cash expenses such as depreciation.



A system of recording information in a way that makes it difficult to change or hack. Blockchains are a digital ledger consisting of blocks that are used to record transactions across many computers so that any involved block cannot be altered retroactively, without the alteration of all subsequent blocks.


DeFi is a form of finance that doesn’t rely on intermediaries such as brokers or banks to verify transactions like they do in traditional finance, but instead relies on software running on distributed ledgers. The goal of DeFi is to improve the efficiency of financial markets by reducing costs, improving compliance and improving the speed of transactions.

Security Token

A unique token issued on a blockchain representing a stake in an external asset or enterprise, different to a utility token which grant holders special access or promotions for a future product or service.


The process of dividing the ownership of an asset (such as real estate) into digital tokens that are verifiably on the blockchain. These tokens are similar to ‘shares’ that have their value tied to the underlying ownership in something