The London Interbank Offered Rate, or LIBOR, is the interest rate central banks in London are charged for short-term borrowing.
A rent ceiling is the highest price that a landlord can charge for rent. In most cases, rent ceilings apply to multifamily properties and are a result of city and/or state rent control regulations. A rent ceiling is only effective if it actually sets rents below the current market rate. While rent ceilings are supposed to make properties more affordable for residents in a specific area, in practice, this isn’t always the result, especially due to increased “black market” costs in the form of key fees and additional rent paid in cash.
A special purpose entity or single purpose entity (SPE), also known as a special purpose vehicle (SPV), is a legal entity used to acquire and finance a specific investment while limiting risk for all parties involved. The main benefit of an SPE is that it is bankruptcy remote-- if the firm that owns the entity declares bankruptcy, there is only a limited risk that the SPE will become ensnared in the bankruptcy proceedings.
In real estate, a deed in lieu, also known as a deed in lieu of foreclosure, is a potential alternative to a foreclosure or a short sale. It generally involves handing a lender the deed to a property in exchange or being released from all related debt obligations. For commercial real estate borrowers who have defaulted on their loans, a deed in lieu of foreclosure has several advantages to foreclosures and short sales, but they aren’t a good option in every situation.
A conditional use permit (CUP) allows a landowner to use their land in a way not permitted by ordinary zoning regulations. Technically, this is considered “non-conforming use”, as the use does not conform to the zoning ordinance. Schools and religious institutions, such as churches, typically need to get a conditional use permit in order to operate in residential neighborhoods. In addition, home-based businesses also may need a CUP in order to operate in residential areas.
Zoning is the process of segmenting land into zones, each of which permits and prohibits specific land uses. Zoning also regulates elements like the height, density, and design of buildings in certain areas. Understanding zoning as it relates to commercial property is essential for commercial real estate investors and developers, as failing to abide by zoning regulations can be expensive, time consuming, and potentially disastrous.
Mini perm loans are generally used to finance an income-generating commercial property that has recently been built, but does not yet have the income to qualify for permanent financing. A variety of property types qualify for mini perm loans, including multifamily apartments, retail, office, and industrial properties. Mini perm loans can technically be classified as bridge loans, but they typically offer somewhat lower interest rates and generally have substantially longer terms.
Tenancy in common (TIC) is a type of commercial real estate ownership structure in which more than one party owns a specific property. Tenancy in common can make it easier for commercial real estate borrowers to get financing for a property, but can cause a variety of legal and practical complications if property owners are not careful.
Debt yield, is a measure of risk for commercial mortgage lenders. It takes into account the net operating income of a commercial property to determine how quickly the lender could recoup their funds in the event of default.
The Capitalization rate, or "Cap Rate" is calculated by dividing the net operating income of a property by its market value. This is the key tool appraisers use to determine the value of a commercial property and is the key metric behind the income capitalization approach to valuation.