Glossary of commercial 
real estate terms

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.