Helpful Terms for Understanding Commercial Real Estate

Joint Venture - A joint venture is an agreement between two parties/businesses to develop property. In terms of commercial real estate, these two parties work hand-in-hand to develop commercial property. Often times in these relationships, you'll see land owners and actual developers working together. These types of agreements are handled by legal professionals to ensure all parties are aware of their involvement in the project.

Tenant Representation - This involves representing commercial tenants, such as a smoothie shop, cell phone store, or salon in a retail plaza. The stores aforementioned are tenants who lease space within the property, which is owned by the landlord. Often times developers are brought on to develop these retail/shopping plaza properties.

Disposition - The sale of property, including commercial, residential, and industrial. This is typically handled by an agent or broker.

Acquisition - The purchase of property, including commercial, residential, and industrial. This is typically handled by a real estate investor or developer who is looking to grow wealth by investing in property.

Property Development - This encompasses an aspect of commercial that includes assembling a team of construction, real estate, land use, architectural, and legal professionals. Together, this team analyzes and determines the use and design of the project, along with carrying out the construction process, and then either selling the property or managing it. This type of development is the most profitable but can also be risky because it is so dependent on the public sector.

Speculative Development - This involves the purchase of vacant land prior to development. This purchase is made with the intention of developing land and is based on the land's potential. This can be seen often with gated communities and subdivisions, where large amounts of land are purchased to build homes.

Break-Even Point - The amount of money earned in a particular investment to cover recurring expenditure, in which gross income is equal to the amount of normal operating expenses. At this point, a commercial real estate investment is not deemed a loss but is not yet profitable.

Capital Expenditures - The costs associated with property improvements that cannot be written off as operating expenses in tax purposes. This includes fixing the roof, repairing the pavement in the parking lot, etc. These are considered depreciating assets and can be depreciated over the holding period.



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