Key Commercial Real Estate Terms

CAP Rate

Capitalization rate, commonly known as cap rate, is a rate that helps in evaluating a real estate investment. Cap rate = Net operating income / Current market value (Sales price) of the asset. Description: Capitalization rate shows the potential rate of return on the real estate investment.

GRM (gross rent multiplier)

Gross Rent Multiplier is the ratio of the sale or purchase price of a real estate deal to its annual rental income before deducting operating costs such as vacancy, utilities, taxes, insurance, etc.

Effective Gross Income (EGRM)

Effective Gross Income is the total rent, plus any additional income less any vacancy.

IRR  Internal Rate of Return

Internal rate of return (IRR) is the internal rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. Internal rate of return is used to evaluate the attractiveness of a project or investment.

Net Income

Net income (NI) is a building’s total earnings (or profit); net income is calculated by taking rents and subtracting the costs of doing operating expenses, including, taxes and insurance. Net Income does not include debt service, or capital expenditures.

Debt Service

Debt service is the total amount of mortgage payment annually.

Cash Flow

The amount of cash which the building receives after all expenses including debt service and capital improvements.

Commercial Property for Apartments

Appraisers and lenders consider large (>4 unit) apartment buildings to be commercial investment property since they are bought and sold strictly for their ability to produce income and not as a potential personal residence for the owner/investor. Single-family homes, condos, co-ops are all residential.


A method of equalizing the monthly mortgage payment over the life of the loan by adjusting the proportion of principal to interest over time. At first, the interest payment is high and the principal payment is low.

Vacancy Rate

The vacancy rate is the percentage of all available units in a rental property, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is the percentage of units in a rental property that are occupied.

NNN (triple net)

A triple net (NNN) lease is defined as a lease structure where the tenant is responsible for paying their proportionate share of all operating expenses associated with a property. The triple net or NNN lease is considered a “turnkey” investment since the landlord is not responsible for paying any operating expenses.

Gross lease

A gross lease is a type of commercial lease where the landlord pays for the building’s property taxes, insurance and maintenance. A gross lease can be modified to meet the needs of a particular building’s tenants. For example, a gross lease may require the tenant to pay the utility bills.


Common Area Maintenance charges, or CAM for short, are one of the net charges billed to tenants in a commercial triple net (NNN) lease, and are paid by tenants to the landlord of a commercial property.