Glossary of Terms

D

DEBT SERVICE
The periodic payments (principal and interest) made on a loan.

DEBT SERVICE COVERAGE RATIO (or DEBT COVERAGE RATIO)
Measures a mortgaged-property�s ability to cover monthly payments defined as the ratio of net operating income over the periodic payments (principal and interest) made on a loan. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments. Typically a lender requires a DSCR of 1.25 or better depending on the property type.

DEFEASANCE
A clause in a mortgage that gives the borrower the right to prepay a commercial mortgage by purchasing US Treasuries in an escrow account to pay off ongoing debt service.

DENSITY
The number of buildings or persons occupying a certain area of land, generally an acre.

DEPRECIATION (ACCOUNTING)
Allocating the cost of an asset over its estimated useful life.

DEPRECIATION (APPRAISAL)
A charge against the reproduction cost (new) of an asset for the estimated wear and obsolescence. Depreciation may be physical, functional or environmental.

DISCOUNT RATE
The rate of interest that the Federal Reserve charges member banks for loans.

DISTRIBUTION WAREHOUSE
(also called Light Industrial) Generally is considered the least intense industrial use. Office-use is limited to management tasks for the distribution or warehouse facility, or about 15 percent of total space.

DOCK HIGH
Existence and/or number of dock level doors.

DUE DILIGENCE
The legal definition: a measure of prudence, activity or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances. In CMBS, due diligence is the foundation of the process because of the reliance securities-investors must place on the specific expertise of the professionals involved in the transaction.

E

EFFECTIVE GROSS INCOME
Gross income of a building if fully rented, less an allowance for estimated vacancies.

ENGINEERING REPORT
Report generated by an architect or engineer describing the current physical condition of the property and its major building systems (i.e., HVAC, parking lot, roof, etc.). The report also determines an amount for calculating replacement reserves, if needed.

ENTITLEMENTS
A right to benefits specified especially by law or contract.

ENVIRONMENTAL REPORT
Report generated by qualified environmental firms to determine potential environmental hazards in a building�s region or within the building itself. These reports are typically called a �Phase I�, �Phase II�, etc and subsequent reports are only required if the preceding report expresses any concerns as to the suitability of the property.

ENVIRONMENTAL RISK
Risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB�s, radon or leaking underground storage tanks on a property.

EQUITY
The difference between the fair market value and current indebtedness, also referred to as "owner�s interest."

EQUITY LOAN
A loan for an equity position which represents an ownership position in a property or a loan for the participation in the profits of the commercial property.

ESCROW
1. A special account set up by the lender in which money is held to pay for taxes and insurance. 2. A third-party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.

EXTENDED STAY
A hotel that caters to a business traveler on an extended lodging period.

F

FAIR MARKET VALUE
An appraisal-term for the price which a property would bring in a competitive market, given a willing seller and willing buyer, each having a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy or sell.

FARM
Land used for agricultural purposes for crop and livestock farming.

FEDERAL FUNDS (FED FUNDS)
Fed Funds is the interest rate charged by those banks with excess reserves on hand (reserves over and above the minimum required by the Federal Reserve) to those banks in need of overnight loans to meet reserve requirements. Since it is set daily, the Federal Funds rate is the most sensitive indicator of the direction of interest rates.

FIT�OUT
Tenant improvements within a commercial property.

FIXED�RATE MORTGAGE
A mortgage with an interest rate that remains constant for the life of the loan.

FIXTURES
Personal property which for some reason, such as the manner of attachment, has become realty. Such property is also referred to as chattel real.

FLEX SPACE
An industrial property, which has both an office and an industrial component.

FLOOR�TO�AREA RATIO (FAR)
The relationship between the total amount of floor space in a multi�story building and the base of that building. FAR�s are dictated by zoning laws and, in effect, stipulate the maximum number of stories a building may have.

FORECLOSURE
The process by which a lender takes back a property on which the mortgagee has defaulted. A loan servicer may take over a property from a borrower on behalf of a lender. A property usually goes into the process of foreclosure if payments are more than 90 days past due.

FOUNDATION
The concrete slab beneath the property, which holds the property in place.

FRANCHISE
A business arrangement undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise for a fee to another party (the franchisee) who in turn sells the product or service in the marketplace.

FRANCHISE FEES
The fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business.

FREESTANDING RETAIL
A building which contains only one retail business. Fast�food franchises and retail stores are often freestanding buildings.

FREESTANDING
One commercial building meant to be occupied by a single user.

FULL-SERVICE
A hotel definition that represents services provided to its guests outside of lodging (i.e. room service, concierge services, and restaurant).