Investment Trends Survey

Definition of Terms

Basis Point (bp)

1/100th of a percentage point (0.01%).

Development yield

Face rate divided by total construction costs, including entrepreneurial profit, hard/soft costs and land.

Gross Rent to Sales Ratio

Also referred to as GROC (gross rent to occupancy cost), gross rent comprises base rent, C.A.M., taxes, HVAC, promotion, advertising, etc. divided by gross annual sales.

Ground Lease

A lease that grants the right to use and occupy land. Improvements made by the ground lessee typically revert to the ground lessor.

Internal Rate of Return (IRR)

The annualized yield rate or rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership. The IRR is the rate of discount that makes the net present value of the investment equal to zero. The IRR discounts all returns from the investment, including returns from its reversion, to equal the original capital outlay.

Lag (turnover) Vacancy

A method of calculating vacancy allowance that is estimated or considered as part of the potential income estimate when using discounted cash flow (DCF) analysis. As units or suites turn over and are available for re-leasing, the periodic vacancy time frame (vacancy window) to re-lease the space is considered.

Leasehold Interest

The interest held by the lessee (the tenant or renter) through a lease transferring the rights of use and occupancy for a stated term under certain conditions. The leasehold interest can be created through the leasing of the underlying land or a space lease.


One who holds property title and conveys the right to use and occupy the property under a lease agreement; the leased fee owner or landlord.


One who has the right to use or occupy a property under a lease agreement; the leaseholder or tenant.

Market Rent

The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations; the lessee and lessor each acting prudently and knowledgeably, and assuming consummation of a lease contract as of a specified date and the passing of the leasehold from lessor to lessee under conditions whereby:

  1. Lessee and lessor are typically motivated.
  2. Both parties are well informed or well advised, and acting in what they consider their best interests.
  3. A reasonable time is allowed for exposure in the open market.
  4. The rent payment is made in terms of cash in Canadian dollars, and is expressed as an amount per time period consistent with the payment schedule of the lease contract.
  5. The rental amount represents the normal consideration for the property leased unaffected by special fees or concessions granted by anyone associated with the transaction.

Economic Rent

Represents from landlord's or lessor's perspective the amount of rent that should be received to provide a reasonable return on the landlord's capital investment. This typically translates into a rental amount or payment necessary to attract all factors of production to justify new construction. It is presumed to be the rent required by a developer to fully recover the cost of a new development based upon the presumed investment horizon.

The reference to "Face" refers to the inclusion within the rental rate of the landlord's tenant inducements and commissions' payable.

Net Effective Rent

Net rental rate adjusted for lease concessions.

Net Lease

A net lease under which the lessee assumes all expenses of operating a property, including both fixed and variable expenses and any common area maintenance that might apply, but the landlord is responsible for structural repairs.

Net Operating Income (NOI)

The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income, but before mortgage debt service and book depreciation are deducted; may be calculated before or after deducting replacement reserves.

Overall Capitalization Rate

An income rate for a total real property interest that reflects the relationship between a single year's net operating income expectancy and the total property price or value; used to convert net operating income into an indication of overall property value.

Tenant Retention Ratio

Percentage probability of a propertyís rentable area that is anticipated to be released by the existing tenants at lease rollover.

Marketing Time (aka Marketing Period)

Reasonable marketing time is an estimate of the amount of time it might take to sell an interest in real property at its estimated market value during the period immediately after the effective date of the appraisal; the anticipated time required to expose the property to a pool of prospective purchasers and to allow appropriate time for negotiation, the exercise of due diligence, and the consummation of a sale at a price supportable by concurrent market conditions. Marketing time differs from exposure time, which is always presumed to precede the effective date of the appraisal.

Replacement Cost

The estimated cost to construct, at current prices as of the effective appraisal date, a building with utility equivalent to the building being appraised, using modern materials and current standards, design, and layout.

Terminal Capitalization Rate

The rate used to convert income, e.g., NOI, cash flow, into an indication of the anticipated value of the subject real property at the end of an actual or anticipated holding period. The terminal capitalization rate is used to estimate the resale value of the property. Also called reversionary capitalization rate or going-out capitalization rate. See also going-in capitalization rate.

Third Party Management Fee

An expense item representing an armís length contract for the sum paid or the value of management service for a stand alone real estate asset; a variable operating expense, usually expressed as a percentage of effective gross income (without regards to multiple or portfolio management). The expense disregards portfolio or multiple property discounts.

Vacancy and Credit Allowance

An allowance for reductions in gross potential income attributable to projected vacancy (physical or economic) and potential collection loss considerations. Vacancy is an expected loss in income as a result of periodic vacant space attributable to unrented space and tenant turnover. Credit loss considers non-payment of rent. Vacancy and collection loss is usually estimated on a property-specific basis as part of the reconstructed operating statement in the income capitalization approach and applied, as a percentage, to potential gross income or as a percentage of rentable area of the property.