Glossary of Commercial Real Estate Terms

A Phase I environmental survey is a visual survey, owner interview, search of  governmental records and databases and a review of the historical uses of both the subject property and surrounding properties, all designed to disclose to a prospective purchaser some of the potential environmental risks associated with a building or land purchase.  Typically provided by specialized environmental consultants, most Phase I environmental surveys are conducted according to standards set forth by the American Society for Testing and Materials (ASTM).  Because a Phase I environmental survey is a visual survey, underground problems will not necessarily be detected unless there is some surface expression of the issue or underground tanks or if leaks have been recorded in a governmental database.  Phase I environmental surveys are often required by banks before they will grant a mortgage on commercial properties.  Banks want reasonable evidence that there are no environmental liabilities associated with the property before they grant a mortgage. A Phase I also provides a certain peace of mind to a buyer, since the environmental consultant is providing a professional opinion regarding the environmental condition of the property.  Note that Phase I survey does not automatically include testing for asbestos, radon, lead paint, wetlands, endangered species or compliance with any environmental regulations.  However, these additional testing services can be requested with additional fees charged by the environmental consultant.

A Phase II environmental survey goes further than a Phase I Environmental Survey and typically includes sampling of subsurface soils and/or ground waters, requiring the use of underground drilling or subsurface probes.  Typically provided by specialized environmental consultants, most Phase II environmental surveys are conducted according to standards set forth by the American Society for Testing and Materials (ASTM).  Phase II surveys may be required by banks or recommended in situations where a Phase I Environmental Survey provides evidence or suspicion of potential underground contamination.  An environmental consultant will design a program for sampling a site.   Note that remediation of any detected contaminates is not included as part of the scope of a Phase II Environmental Survey.

The initial set of drawings and renderings that completely describe and show construction detail. Amount of rentable area a Tenant pays for depends on the method of measurement used by the Landlord in the building. The rentable area consists of the amount of square feet usable for office space plus an allocated portion of the floor’s common area and, depending on the method of measurement used, an allocated portion of common areas in the building (for example, main entrance to building).

A financial estimate of the gross and net income and expenses that are expected to be incurred in a new (or renovated) office building (or any real estate investment venture).

The ratio between a Tenant’s occupancy of rentable square footage in a building to the entire building’s rentable area. For example, a Tenant that occupies 10,000 rentable square feet in a 100,000 square foot building would have a pro rata share of 10.00%.

1) The billing to Tenants of their pro rata share of increases in operating expenses; 2) Also refers to a provision in a lease that allows a Landlord to recover possession of a Tenant’s premises, usually by termination or cancellation of a Tenant’s lease under certain conditions.

Includes the usable area, plus a pro rata portion of a building’s common areas, excluding vertical penetrations of the floor, such as elevators, stairs, mechanical risers, etc.

1) Ownership Costs – Costs to the owner to own a building, service existing debt and receive a return on equity; 2) Operating Expenses – Those expenses necessary for the day-to-day operation of a building; 3) Amortization of Tenant Improvements and Allowances – The return to the Landlord over the term of a lease of those costs included in a building’s interior construction work for Tenants.

The cost charged per rentable square foot on an annual or monthly basis for a leased area.

A concession offered by a Landlord as an inducement to Tenants to lease office space. It provides for a reduction of monthly rent due by omitting a required payment for a specific number of months. This offers the Tenant the benefit of occupying without paying and also serves to lower the net effective rental rate over the lease term. Rent abatement may or may not include abatement of operating expense pass-throughs and any applicable expense or base rent escalators.

A number expressed in terms of square feet, specified in the lease document as the amount of space the Tenant has leased, and for which the Tenant shall be assessed rent. The amount agreed to in the prime base. A sublease can only extend the same benefits and levels of service and building operations found in the prime lease. A sublease cannot commit a Landlord to any more than was promised to the Tenant (lessee) in the prime lease. See also Usable Square Feet.

Is the amount of square footage that a Tenant in an office building pays rent upon.  Often abbreviated as “RSF,” the Rentable Square Footage is the Usable Square Footage multiplied by the building Common Area Factor or Load Factor (typically 12% – 18%).