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GLOSSARY OF 1031 EXCHANGE TERMS

1031 Exchange

A method of deferring capital gains taxes on the sale or disposition of an asset held for business or investment purposes by exchanging the asset or proceeds in like-kind property to be held for business or investment purposes, as defined in IRC Section 1031.

1033 Exchange

A method of deferring capital gains taxes on property that is lost involuntary to condemnation, theft or casualty, and a gain is realized from the insurance or condemnation proceeds. Although similar in scope to a 1031 exchange, the steps to transacting a 1033 exchange vary significantly.

45-Day Identification Period

An exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of the relinquished property to identify a potential replacement property or properties.

180-Day Exchange Period

An exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale of their relinquished property to complete the acquisition of the replacement property or properties.

95% Rule

If the taxpayer exceeds the three-property rule and does not fall within the 200 percent rule, the exchange is valid if the taxpayer receives at least 95 percent of the fair market value of all the property identified.

200% Rule

The taxpayer may identify an unlimited number of properties as long as the aggregate fair market value does not exceed 200 percent of the fair market value of the relinquished property.

Three Property Rule

The taxpayer may identify up to three potential replacements to select from. The taxpayer may acquire one or all of them.

Absolute Triple Net Lease

This is the most extreme form of NNN Lease. Under an Absolute Triple Net Lease, the tenant is responsible for all of the expenses and repairs relating to the building including roof and structure and, in the case of casualty or condemnation, may be obligated to rebuild a property or continue to make unabated rental payments regardless of insurance or condemnation proceeds.

Absorption

This is the rate at which rentable space is leased within a market or submarket over a period of time. Gross absorption measures total square feet leased without regard for vacated space, while net absorption accounts for vacated space. The rates are typically expressed by specific property type and asset class.

Accommodator

An independent person, company or entity that through a written agreement facilitates the transfer of proceeds from the exchanger to the buyer of a relinquished property and from the exchanger to the seller of the replacement property to effect a tax deferred exchange. Contact us to provide a reputable accommodator.

Accredited Investor

An accredited investor has special status under financial regulations defined in Rule 501 of Regulation D and as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year. An individual must have earned income above the thresholds either alone or with a spouse over the last two years. A person is also considered an accredited investor if he has a net worth exceeding $1 million (excluding primary residence), either individually or jointly with his spouse. The SEC also considers a person to be an accredited investor if he is a general partner, executive officer, director or a related combination thereof for the issuer of unregistered securities. An entity is an accredited investor if it is a private business development company or an organization with assets exceeding $5 million. Also, if an entity consists of equity owners who are accredited investors, the entity itself is an accredited investor.

Actual Receipt

Actual receipt is physical possession of, exchange proceeds or other property by an exchanger completing a tax-deferred like-kind exchange. Any receipt of the exchange proceeds during the exchange period will disqualify the entire tax-deferred exchange transaction.

Adjusted Basis

The original purchase price of an asset plus acquisition costs plus capital improvements less the cumulative depreciation deductions claimed during ownership less previously deferred capital gains.

Alternative Investment

An investment in asset classes other than the three traditional stocks, bonds and cash. Most alternative investments are held by accredited investors because of their complex nature and can include hedge funds, real estate, private equity and commodities as well as other non-traditional assets such as art, antiques or wine.

Amortization

Refers to paying off debt with a fixed repayment schedule in regular installments. Monthly mortgage payments are often comprised of interest at the beginning of the term, with the principal increasing with each subsequent payment.

Anchor Tenant

It is usually the largest tenant in a shopping center or retail development and acts as the primary draw to a commercial property, for example, a grocery store.

Appraisal

The estimate of a property’s fair market value provided by an authorized professional. Appraisals can be used for taxation purposes or to determine a possible selling price.

Appreciation

Appreciation is the increase in value of an asset over time, resulting from factors such as increased demand, weakening supply or inflation.

Assessed Value

Assessed values are determined by government assessors, and act as the basis for property taxes.

Asset Class

This is a group of similar investments in the market and, therefore, subject to the same regulations. The three main asset classes are equities, bonds and cash equivalents. When it comes to real estate, examples of asset classes would include, multifamily (apartments), retail, industrial, office, senior care, student housing, etc.

Bankruptcy Remote

A separate legal entity whose bankruptcy or insolvency would have a de minimus economic impact on the other entities within the group. This term is used when discussing a special purpose entity.

Basis

An asset’s basis is the original purchase price or cost of investment property plus any out-of-pocket expenses or closing costs related to the acquisition of the property.

Base Rent

The minimum monthly rent due pursuant to a lease.

Basis Point

Basis points are used as a convenient unit of measurement in contexts where percentage differences of less than 1% are discussed. The most common example is interest rates, where differences in interest rates of less than 1% per year are usually meaningful to talk about.

Beneficial Interest

A beneficial interest is the right to receive benefit from assets held by another party.

Beneficiary

A person who is eligible to receive distributions from a trust, will or life insurance policy.

Boot

This refers to an unlike or non-qualifying property such as securities, cash, notes, partnership interests, etc. As an example, if an investor created $1,000,000 of net proceeds for the sale of their relinquished property and only reinvested $900,000, the $100,000 of received proceeds would be considered boot and subject to capital gains tax.

Build-to-Suit Exchange

An exchange where some of the proceeds of the sale of the relinquished property are used to cause improvements to be placed on the land constituting the replacement property so that the taxpayer can complete the trade where both the value of the land and of the improvements will count for the amount the taxpayer traded for.

Broker Dealer

A person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction

Capital Expenditures (CapEx)

Funds used to acquire or upgrade assets that cannot be expensed as a current operating expense.

Capital Gain

An increase in the value of a capital asset that gives it a higher worth than the basis of the asset.

Capital Gains Tax

Tax payable on capital gains realized from the sale of a capital asset.

Capital Reserves

Funds designated for long term capital investment projects or future capital expenditures.

Capitalization Rate (Cap Rate)

The initial rate of return an investment property is expected to generate.

Cash Flow

The net amount of cash moving in and out of a business during a specified period of time. In commercial real estate, it is typically determined as net operating income minus capital expenditures, replacement reserves and debt service payments.

Cash Reserves

When cash and cash equivalents are held to cover items such as the time between receipt of rent and the due date of services or anticipated operating distributions to investors.

Cash Sweep

The use of a borrower’s excess free cash flow to pay down a loan’s principal or build a reserve for the benefit of the lender and used often when a borrower’s cash flow is uncertain or risky.

Cash-On-Cash Return

Ratio of annual before-tax cash flow from an investment to the total amount of cash invested.

Class A

Class A buildings are well-located in the market and represent the highest quality assets/buildings in their market with low vacancy rates. These are typically newer properties built within the last 10 years with many amenities that attract high income earning tenants. The properties typically demand the highest rent with little or no deferred maintenance issues.

Class B

One step down from Class A these assets/buildings and are generally older, tend to have more budget minded tenants that are not willing to spend for a property that offers best of class amenities. Rental income is typically lower than Class A, and there may be some deferred maintenance issues. However, these buildings are well-maintained, and many investors see these as “value-add” investment opportunities because the properties can be upgraded to Class B+ or Class A through renovations and improvements to common areas and rentable units. Investors are generally able to acquire these properties at a higher CAP Rate (ie. Lower price) than a comparable Class A property.

Class C

Class C properties are typically more than 20 years old and located in less than desirable locations with deferred maintenance issues and generally in need of renovation. As a result, Class C buildings tend to have the lowest rental rates in a market with other Class A or Class B properties. Some Class C properties need significant repositioning to get to steady cash flows for investors.

Closing Costs

Expenses on top of a property’s price buyers and sellers incur to complete a real estate transaction including fees for origination, attorney, appraisal, title, surveys and taxes.

Collateral

An asset a borrower promises to a lender in the event of default.

Commercial Mortgage-Backed Securities (CMBS)

A first-mortgage secured by commercial real estate bundled together with other mortgages. The pool is then sold as a series of bonds that have been tranched according to risk.

Common Area

Areas, such as lobbies, parking lots and corridors, that are available for use by all tenants.

Common Area Maintenance (CAM) Charges

The contribution or fee paid collectively by individual tenants for the maintenance and upkeep of the non-exclusive areas of the premises.

Compound Interest

Compound interest is interest on interest and way for to generate earnings on its earnings.

Concessions

A benefit given by a buyer, seller, landlord or tenant to help facilitate a real estate transaction.

Concurrent Exchange

A method of executing a tax deferred exchange where the sale of the relinquished property and the acquisition of the replacement property close or transfer simultaneously.

Condemnation

The seizure of property by a public authority for a public purpose.

Constructive Receipt

For tax purposes, a constructive receipt is used to determine when a cash-basis taxpayer has received gross income. A taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid.

Cooperation Clause

A provision in a purchase and sale agreement that states either the buyer or seller intends to conduct a 1031 Exchange and reserves the right to assign its interest in the purchase and sale agreement to a Qualified Intermediary.

Credit Tenant

A tenant rated as investment grade by one of the three major credit agencies Fitch, Moody’s or Standard and Poor’s.

Credit Tenant Lease

A method of financing real estate where the landlord borrows money to purchase the property and pledges the rent to be received from the tenant as security.

Debt Service

Cash required for a particular time period to cover the repayment of interest and principal on a debt.

Debt Service Coverage Ratio (DSCR)

A measure of the cash flow available to pay current debt obligations.

Deed of Trust

A deed of trust, like a mortgage, is a security instrument used to finance real estate. A deed of trust transfers legal title in real property to a trustee, which holds it as security for a loan between a borrower and lender.

Deferred Exchange

A 1031 Exchange conducted where replacement property is received up to 180 days after the disposition of the relinquished property.

Deferred Gain

In a tax-deferred exchange, the deferred gain is the amount of gain that escapes current taxation and is deferred until a later date.

Depreciable Basis

This is a property’s acquisition cost, subject to immediate reductions by costs to place in service and other deductions / credits.

Depreciation Deductions

The tax deduction for writing off the cost of wear and tear of property and business-assets over specified number of years.

Designation Period

The period that begins on the date the relinquished property is transferred and ends at midnight on the 45th day thereafter.

Delayed Exchange

A method of executing a Tax Deferred Exchange (1031 Exchange or like-kind exchange) in which the exchanger or taxpayer sells a capital asset and the proceeds from the sale are held by a qualified intermediary for up to 180 days while the exchanger endeavors to acquire a qualified replacement property or properties.

Depreciation

A method of reallocating the cost of a tangible asset over its useful life span.

Depreciation Recapture

The IRS procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset that had previously provided an offset to ordinary income for the taxpayer through depreciation deductions.

Diversification

An investment strategy of allocating proceeds across a variety of assets or products to build a portfolio of investments across unrelated markets, so a downturn in one particular market may not drastically affect the returns of the entire portfolio.

DST Interests

DST Interests represent equity ownership in a large property by multiple investors through an investment structure known as a Delaware Statutory Trust (DST).

DST Sponsor

A DST Sponsor is a person or entity that creates a Delaware Statutory Trust (DST) to hold real property asset(s) and arranges for the issuance of beneficial interests in the DST to investors.

Due Diligence

An investigation or audit of a potential investment to confirm all material facts regarding a transaction. For example, when analyzing a potential property investment, an investor may review the leases to ensure cash flow projections match the contractual terms.

Effective Gross Income (EGI)

Effective Gross Income (EGI) is income generated by a property including base rent and miscellaneous income, less vacancy and collection losses.

Equity

The value of an asset minus the value of liabilities.

Equity Load

A commission paid by an investor on his or her investment in a security.

Escrow Funds

Capital held by a neutral entity in an account for the benefit of the parties of a financial arrangement whereby the funds are distributed only after certain contractual agreements are fulfilled.

Equitable Conversion

Equitable conversion is a doctrine of the law of real property under which a purchaser of real property becomes the equitable owner of title to the property at the time he/she signs a contract binding him/her to purchase the land at a later date. The seller retains legal title of the property prior to the date of conveyance of the property by deed upon the purchaser’s full and final payment due.

Escrow

A contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties

Escrow Agent

A person or entity having a fiduciary responsibility to all parties of an escrow agreement that holds property in custody until the terms of a contract are fulfilled.

Exchange Accommodation Titleholder

A special purpose, limited-liability company used to own the legal title to property being parked as part of a reverse exchange.

Exchange Account

The account established by the taxpayer with a qualified intermediary to hold Exchange Funds and other amounts delivered by the taxpayer to a qualified intermediary.

Exchange Agreement

An agreement made between and Exchanger and a Qualified Intermediary detailing each party’s roles and responsibilities during a like-kind exchange and keep in accordance with appropriate regulations.

Exchange Funds

Proceeds received by the taxpayer from the transfer of the relinquished property in accordance to the property contract.

Exchanger

Person conducting a 1031 Tax Deferred Exchange transferring a relinquished property and receiving a replacement property.

Exclusive Agency Listing

Agreement between a seller and a real estate agent where the seller can sell the property on his or her own without paying a commission to agent.

Exit Strategy

A planned approach to liquidating one’s position in an asset, investment, or venture in hopes of minimizing loss or maximizing gain.

Expected Return

The amount an investor anticipates receiving on an investment.

Fee Simple Ownership

The most absolute type of ownership of land where the owner has complete rights over the property, and may possess, use, and dispose of the land as he or she desires.

Fixed Operating Expenses

The actual costs associated with operating a property that do not vary in the short term nor change with a property’s occupancy rate, for example, property insurance.

Form 1099

Distributed by IRS, Form 1099 is used to report types of income other than wages, salaries and tips and primarily used to report payments to independent contractors, income from rental properties and income from interest and dividends.

Form 8824

A form to report the completion of a 1031 like-kind exchange to the IRS.

Fractional Ownership

A common ownership structure that requires significant pooling of capital allowing costs and profits of an investment to be split amongst the owners.

Ground Lease

A ground lease is lease of the land only.

Going-in Cap Rate

The cap rate based on the ratio of the first year of net operating income to the property purchase price.

Grantor

The person or entity making the grant.

Gross Lease

A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.

Gross Rent Multiplier (GRM)

A valuation method which is the ratio of a property’s price to its gross revenue.

Held for Investment

Properties held for investment can be any property or asset acquired and held for rental or leasing activities or for capital appreciation and do not need to produce income or cash flow.

Holding Period

The real or expected period of time which an investment is attributable to a particular investor.

Independent Trustee

A trustee who is not related to the beneficiary of the trust and does not stand to inherit any property under the trust and is required under a Delaware Statutory Trust (DST) property holding structure.

Infill Location

A real estate development site that exists within a mostly built out market.

Inflation

A sustained increase in the general price level of goods and services over a period of time.

Improvement Exchange

An exchange where some of the proceeds of the sale of the relinquished property will be used to cause improvements to be added to the improvements already on the replacement property so the taxpayer can complete the trade where both the value of the land and of the enhanced improvements will count for the amount the taxpayer traded.

Intermediary

A person acting to facilitate an exchange under section 1031 and the regulations.

Institutional-Grade Property

This type of property typically refers to a property of sufficient size and stature to merit attention from large investors.

Interest Expense Deduction

A borrowing expense a taxpayer can claim to reduce taxable income.

Interest Rate Risk

The risk that an investment’s value will change due to a change in the level of interest rates.

Internal Rate Of Return (IRR) 

The discount rate at which the net present value of all cash flows (both positive and negative) from a project or investment equal zero.

Investment Grade

Investment grade refers to tenants whose long-term corporate debt rating is considered investment grade by Standard & Poor’s, Moody’s, and/ or Fitch. An investment grade is a rating that indicates that a corporate bond has a relatively lower risk of default than an corporate bond with a speculative grade.

Lease Coverage Ratio

In a Delaware Statutory Trust the lease coverage ratio is calculated by dividing the property’s NOI by the sum of the debt service payments and the master tenant’s stated lease payment to the DST.

Lease Termination Fee

A payment made by the tenant to the landlord to legally end a lease early and not be held liable for the remaining time.

Leasehold Interest

Claim or right to enjoy the exclusive possession and use of an asset or property for a stated period.

Like-Kind

Real property held for investment or the productive use in a trade or business to be exchanged on a tax-deferred basis for other real property. Like kind is real property. An investor can exchange from a single family residence to industrial, land or multifamily. Commercial office can be exchanged to multifamily. Single family to DST, etc. As long as it is real property it is like kind.

Like-Kind Exchange

Internal Revenue Code Section 1031 states “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment.”

Limited Liability Company (LLC)

A business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Liquidity

The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.

Load Factor

The multiplier to a tenant’s useable space that accounts for the tenant’s proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc

Loan-to-Cost Ratio (LTC)

The loan to cost ratio is the ratio of the loan balance to the total cost of the project the loan is financing.

Loan-To-Value (LTV)

LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage.

Master Lease

The primary lease that controls other sub-leases.

Master Tenant

Tenant entered into a direct lease with the property owner who may be subsequently sub-leasing all or a portion of the property to other tenants.

Mezzanine Financing

Mezzanine financing is typically secured by a pledge of the equity interests in the legal entity (usually a limited liability company or partnership) that owns the underlying property.

Modified Accelerated Cost Recovery System (MACRS)

The current method of accelerated asset depreciation, MACRS divides assets into classes to dictate the number of years which an asset’s cost will be recovered.

National Tenant

A tenant with locations throughout the US most frequently used in the context of retail properties with a household name.

Net Cash Flow

Net cash flow is net operating income (NOI) less debt service payments, tenant improvements, leasing commissions and capital expenditures.

Net Income

This is equal to total revenue minus total expenses.

Non-Recourse Loan

A debt secured by collateral, typically real property, for which the borrower is not personally liable.

Non-traded REITs

Non-Traded REITs are a type of security that invests in real estate properties and mortgages, but is not listed on an exchange and is not publicly traded.

Offering Memorandum

A legal document provided to prospective investors when selling securities in a business.

Operating Expenses

The day-to-day costs associated with operating a property including utilities, repairs, management, property taxes and insurance.

Opportunity Zone

Opportunity Zones, added by the Tax Cuts and Jobs act in December 2017, are designed to stimulate economic development by providing tax benefits to investors. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. To be qualified locality, Opportunity Zones are nominated by the state and certified by the Secretary of the U.S. Treasury.

Ordinary Income

Income from wages, commissions, salaries and interest, taxed at the highest or ordinary income rates.

Origination Fee

The fee charged by a lender to processing a loan application.

Partial 1031 Exchange

To the extent less than 100% of the proceeds of a relinquished property are reinvested, the difference will result in mortgage boot and/or cash boot. The boot is subject to depreciation recapture and capital gains tax while the amount reinvested is on a tax deferred basis.

Pass-Through Entity

A business structure used to reduce the effects of double taxation, as Pass-through entities don’t pay income taxes at the corporate level; income is allocated among the owners, so taxes are levied at each owner’s level.

Passive Income

is money earned with minimal activity through a variety of ventures which require little daily effort or upkeep on the individual’s part.

PITI

The components of a mortgage payment – principal, interest, tax and insurance.

Positive Leverage

When a business or individual borrows funds and then invests the funds at an interest rate higher than the rate at which they were borrowed.

Potential Rental Income

The total amount of income for a rental property if 100 percent leased.

Pre-Tax Cash Flow

The amount an investment produces after collecting all revenue items and paying operating expenses and debt service.

Preferred Equity

Describe any class of securities (stock, limited liability units, limited partnership interests) with a higher priority for distributions of a company’s cash flow or profits than common equity.

Preferred Return

This is a priority return, often in the 5 to 10% range, paid to investors prior to profit sharing.

Principal

An amount borrowed or the balance owed on a loan, excluding interest or the money used to pay down the balance

Private Equity Real Estate Funds

An asset class consisting of equity and debt investments in property and usually involve active management from private equity entities.

Private Placement

An offering of securities not registered with the SEC and which are sold through a private offering to a small number of chosen investors.

Pro Forma

Forward-looking cash flow projection based on a set of assumptions.

Private Placement Memorandum (PPM)

A legal document provided to prospective investors when selling securities in a business. It contains relevant disclosures so an investor may make an informed investment decision. The PPM typically describes the company or entity issuing the securities, the terms of the offering, use of proceeds, description and rights of securities offered, risks and procedures for investing. In contrast to a business plan, a PPM is primarily a disclosure document.

Property Condition Report

This report provides an analysis of a building or facility to establish a buyer’s risk due to the physical condition of the facility and includes architectural, structural, mechanical and electrical systems and elements.

Property Tax

An tax applied to real estate based off the value of the land and improvements.

Qualified Escrow Agreement

An IRS safe harbor which may be used in connection with holding exchange funds.

Qualified Exchange Accommodation Agreement

This is a term that applies to reverse exchanges of relinquished or replacement property as well as build-to-suit and property improvement exchanges.

Qualified Intermediary

A person facilitating an exchange under Section 1031 and the regulations.

Qualified Trust Agreement

An IRS safe harbor which may be used in connection with holding exchange funds.

Rate Of Return

The profit or loss on an investment over a specified period of time expressed as proportion of the investment amount.

Real Estate Debt

A debt instrument a borrower is obliged to pay back with a predetermined set of payments.

Real Estate Investment Trust (REIT)

A trust or company that owns, finances, or invests in real estate and/or real estate-related assets. REITs offer investors the ability to invest in a large pool of properties. Similar to a mutual fund a REIT invest in Real Estate. REITs can vary and be traded or non-traded, public or private and diversified in their holdings of asset classes, such as apartments, office, retail, industrial or diversified into multiple asset classes.

Real Property Exchange

A real estate exchange as part of a tax-deferred exchange transaction involving real estate held for trade, business, or investment.

Real Estate Syndication

A method of pooling capital from multiple investors for the common goal of acquiring real estate to allow individuals to invest in properties or projects that are significantly larger than they could afford on their own.

Real Property

Land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing.

Recession-resistant Real Estate

A term used to describe real estate assets that are tied to lifestyle trends, as opposed to economic cycles and less subject to downturns.

Recognized Gain

The taxable portion of realized gains arising from the sale of an asset or assets.

Recourse Loan

A loan that allows the lender to recover against the personal assets of a party and/or owners.

Regulation D Offering

A Securities and Exchange Commission regulation governing private placement exemptions that allows companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.

Relinquished Property

In a tax deferred exchange, this is the property being sold or disposed.

Relinquished Property Buyer

The purchaser of the relinquished property.

Rent Bumps

Periodic adjustments on the rental rates pursuant to a lease, typically stated as a fixed percentage of the rents currently in place.

Rent Roll

A document providing information as to the current revenue from existing leases.

Replacement Property Contract

The contract or other agreement providing for the replacement property seller’s sale to the taxpayer.

Replacement Property Seller

The seller of the replacement property.

Return On Investment (ROI)

The amount of return on an investment relative to the investment’s cost.

Reverse Exchange

A reverse exchange is the purchase of the replacement property prior to closing on the relinquished property.

Right of First Refusal (ROFR)

The contractual right to enter into a transaction of an asset before another party.

Risk Adjusted Returns

This is the measure of a ROI relative to the expected risk of that investment.

Sale-Leaseback

A sale-leaseback is when the seller leases back the same property from the buyer the seller sold it to.

Same Taxpayer Requirement

In a 1031 exchange the IRS requires the same taxpayer who owns and sells the relinquished property be the taxpayer who acquires the replacement property.

Securitization

The practice of pooling various contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling their related cash flows to third party investor securities.

Senior Debt

Senior debt is borrowed money that a company must repay first if it goes out of business.

Signatory Trustee

The individual who will manage the Delaware Statutory Trust (DST).

Simultaneous Exchange

A concurrent exchange where the taxpayer disposes the relinquished property and immediately receives the replacement property.

Single Member LLC Property Holding

IRS rules require the taxpayer who owns the relinquished property be the same taxpayer who owns the replacement property. However, for tax purposes, single member LLCs are disregarded and treated as owned by the single member.

Single Tenant Property

A property fully occupied by a single user.

Special Purpose Entity (SPE)

A legal entity created to fulfill narrow, specific or temporary objectives. SPEs are typically used by companies to isolate the firm from financial risk.

Sponsor

an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership.

Step-Up In Basis

This is when a taxpayer bequeaths an asset to a beneficiary. The beneficiary’s tax basis in the asset is “stepped up” to the fair market value of the asset at the time of the transfer instead of recorded at the original taxpayer’s adjusted basis.

Tax Basis

The beginning basis that serves as a starting point for reductions through depreciation.

Tax Deferred

This is when investment earnings accumulate tax-free until the payment of taxes related to the investment is required by a taxable future event.

Taxpayer

The individual or entity participating in an exchange.

Taxable Income

Calculated as total revenue less total expenses, deductions and exemptions allowed and can include gains on assets held for investment that have been sold during the tax period as well as dividends and interest.

Tenants-In-Common (TIC)

A co-ownership structure of property (real estate) where each owner owns a fractional undivided interest. Ownership amounts can vary, be unequal in size and be transferred. Income does not need to be distributed evenly but divided according to the ownership percentage.

Tenant-In-Common (TIC) Investments

This is a syndicated investment created through a Tenant-In-Common (TIC) structure, where each investor holds a fractional undivided interest in the property (generally limited to no more than 35 co-owners). Because Tenant-In-Common investments are viewed as a form of direct ownership, they are eligible for 1031 Tax Deferred Exchange.

To utilize the TIC structure as a 1031 Exchange investment, each co-tenant must receive his or her pro-rata share of income and expense allocations. This is different from partnership or limited liability company (LLC), which allows for disproportional returns and promoted equity.

Tenant-In-Common (TIC) Properties

Property (real estate) purchased by multiple investors in a Tenant-In-Common structure.

Total Return

The actual rate of return of an investment over a given period and includes income and appreciation.

Vacancy Rate

The percentage of all units or space available in a rental property vacant compared to the supply of units or space.

Value Add Property

Value-add properties have a higher degree of risk, and higher potential returns, than core risk profiles, but less risk and lower potential returns than properties in the opportunistic category.

Variable Operating Expenses

The actual costs associated with operating a property that vary in relation to a property’s occupancy rate or volume of some activity. Utilities are an example of a variable operating cost.

Yield

The return on an investment or profit.

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