Glossary

of

commercial




real

estate

terms

A tax-deferral mechanism allowing real estate investors to sell a property and reinvest the proceeds into similar properties to defer capital gains taxes if IRS rules are followed.

An accredited investor is an individual, trust, or a business entity that is deemed a sophisticated investor based on certain financial and professional criteria.

A property converted to a different use to meet current demand. Examples could include an office building converted to residential space or an industrial space converted to a retail space.

A loan with an interest rate that adjusts with the market over time. With an ARM loan, the initial interest rate is fixed for a period of time (floating over an index like SOFR). After that, the interest rate applied to the outstanding balance is reset periodically, at yearly or even monthly intervals. If the interest rate increases, your payments increase, and vice versa.

Defined by HUD as housing where the occupant pays 30% or less of their gross income on housing and utilities.

An organization that supports the investment in affordable housing by providing resources, guidance, and collaboration opportunities for investors, with the goal of addressing the affordable housing crisis and promoting community development.

Preserving affordable properties that are at or nearing the end of their 15 year compliance period, preventing them from being redeveloped into market-rate properties. W&D Affordable Preservation does this by acquiring these assets and either extending existing income and/or rent restrictions or putting new restrictions in place.

A lender licensed or authorized to originate and/or service loans for Fannie Mae, Freddie Mac, and FHA. Walker & Dunlop is an agency lender.

Continuous repayment schedule of loan principal over a period of time until the loan is repaid.

An unbiased professional opinion of the value of a property conducted by a licensed appraiser, based on factors such as geographic location, economic fluctuations, demographics, market demand, and maintenance.

The Appraisal Institute is a global professional association of real estate appraisers, with over 16,000 professionals in almost 50 countries throughout the world. Its mission is to empower valuation professionals through community, credentialing, education, body of knowledge, and ethical standards.

A written document prepared by an appraiser that details the appraisal process, methodology, and the final value estimate.

W&D’s independent third-party valuation and advisory team that provides up-front deal sizing support, market intelligence, appraisals, financial reporting, and custom data-driven technology solutions for internal and external clients.

The total market value of investments that an advisor, investment management firm, real estate developer, fund, or other entity that manages invested capital handles on behalf of investor customers.

State-licensed residences and facilities for seniors and people with disabilities who need assistance with daily tasks and access to medical care. These facilities typically offer care that’s less extensive than that of a nursing home. These often include memory-care facilities.

The company’s valuation and financial position at a particular time, including assets, liabilities, and equity.

A large, lump-sum payment due at the end of a loan term, typically used in commercial real estate loans with short-term durations and lower regular payments. It covers the remaining principal balance not paid during the loan term.

1/100th of 1%, used in reference to interest rates. e.g., 100 bps = 1% and 50 bps = 1⁄2 %.

This housing is specifically for renters earning below 60 percent of AMI (Area Median Income) and qualify for subsidy programs such as LIHTC and Housing Choice vouchers. All Big A affordable properties have some form of Land Use Restriction Agreement (LURA) attached to them, requiring rents to be restricted to set affordable levels.

The occupancy or revenue level at which a property's income equals its operating expenses and debt service, resulting in neither profit nor loss.

A temporary or short-term loan that provides financing during the transition to longer term, lower-rate, or more permanent financing. Borrowers often use bridge loans when acquiring or repositioning any asset class.

An unofficial assessment of a property’s value by an expert, like a commercial real estate broker, which is often used in estimates before an official appraisal.

A subset of the single-family rental (SFR) market. These properties, purpose-built to be rental homes, are typically lower in density than traditional multifamily properties, and may have differing maintenance and property management considerations.

A property development custom-built for a tenant’s specific requirements, often with a long-term lease in place.

A professional organization representing commercial real estate owners, managers, and service providers, offering industry standards, education, advocacy, and networking opportunities to improve the performance and sustainability of buildings.

A decrease in capitalization rates, often reflecting increased property values, favorable market conditions, and strong investor demand.

A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets are the sources of financing for commercial real estate transactions, including banks, insurance companies, and commercial mortgage- backed securities (CMBS) conduits, investors, and the bond market.

For Capital Markets execution, W&D acts as the advisor vs. the lender role for GSE execution.

The ratio used to estimate the value of an income-producing property by dividing the net operating income (NOI) by the property’s purchase price or current market value. The cap rate is the yield at which an investor is willing to buy a CRE asset. If a multifamily property has a NOI of $100K and an investor requires a 5% return, then the value of the property is $2M.

The share of investment profits earned by investment managers, which is subject to certain performance hurdles (e.g., investors earning at least a 7% IRR before the manager earns carried interest).

A cash-out refinance replaces an existing loan with a bigger one, allowing a borrower  to convert some or all of a property’s equity into cash.

Designation by the CCIM Institute that an individual is a recognized expert in commercial and investment real estate.

An appraisal license classification that qualifies an individual to appraise all types of real property. This license is issued on a state by state basis.

The chief or deputy chief underwriter who supervises underwriting staff.

Class A properties are newer with high-quality amenities and finishes. They also tend to be desirably located with lifestyle or branding associated with the buildings. Class B properties tend to be older than Class A (though some older locations can maintain a Class A designation). Class B buildings have adequate or good construction and amenities but are not considered luxury spaces and have fewer amenities/less desirability than the Class A designation. Class C buildings are older buildings that are not as well located or amenitized.

The final step of a real estate transaction. Closing is when the transaction is complete, whether it be a sale with property transfer or just a refinance with new loan documents recorded.

Fixed-income investment products (bonds) backed by mortgages on commercial properties. A CMBS conduit loan is a commercial real estate loan packaged with a pool of other commercial real estate loans for sale to investors in the secondary market. CMBS allows lenders to free up capital for additional loans.

The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. Member firms include balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers and rating agencies, among others.

Requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods. CRA is important because banks have requirements to invest in communities where they hold deposits. If W&D has an investment in those areas, it could give an investor CRA credit.

Recognition given to banks and financial institutions under the Community Reinvestment Act (CRA) for activities that support the credit needs of low- and moderate-income communities. CRA credit can be earned through activities such as lending for affordable housing, investing in community development projects, or providing financial services to underserved areas. It is used to evaluate an institution's compliance with the CRA during regulatory assessments.

A property that is similar to the subject property in terms of location, size, condition, and other relevant characteristics, used for comparison in the valuation process. Also known as “comps”, these can be sales comps of recently sold properties, operating comps for individual income and expense line items, assessment/tax comps, or rent comps.

A privately owned individual housing unit within a complex of other units.

A loan backed by the federal government – Fannie Mae, Freddie Mac, or FHA. There are no governmental subsidies. The loan doesn’t qualify as Affordable by the definition of the Agencies.

A valuation method that estimates the value of a property by considering the cost of replacing it, taking into account depreciation and obsolescence.

The combined cost of equity and debt financing required to fund a real estate project.

A property class focused on facilities that house and operate servers hosting data and web applications, storage devices, switches, routers, and fiber optic transmission equipment with controlled HVAC and cooling systems.

A key financial metric in commercial real estate that assesses a property's ability to generate enough income to cover its debt obligations. It is calculated as:

DCR = Net Operating Income (NOI) ÷ Total Debt Service

A DCR greater than 1.0 indicates that the property generates more income than needed to cover debt payments, while a DCR below 1.0 suggests insufficient income.

Provides the capital that WDIP uses to originate a loan.

The relationship of the existing cash flow of the property to the cost of the debt. If $125 of cash flow is coming from the property and the mortgage cost is $100, then the DSCR is 1.25x.

A reserve fund established by borrowers in commercial real estate to ensure sufficient funds are available to cover debt service payments (principal and interest) in case of cash flow shortfalls or unexpected expenses. It acts as a financial safety net for lenders and investors.