Commercial Real Estate Property Management Glossary of Terms

Commercial Real Estate Property Management Glossary of Terms

Managing commercial real estate properties can be a complex undertaking, and property managers must be well-versed in a wide range of industry-specific terminology in order to navigate the field effectively. In this article, we’ll provide a comprehensive overview of the key terms and concepts you need to be familiar with in order to succeed in commercial real estate property management.

Understanding Commercial Real Estate Property Management

Commercial real estate property management is a crucial aspect of the real estate industry. It involves overseeing the day-to-day operations of commercial properties such as office buildings, retail spaces, and industrial facilities. Property managers work tirelessly to ensure that properties are well-maintained, tenants are satisfied, and all financial and legal obligations are met.

The Role of Property Managers

Property managers play a pivotal role in the commercial real estate industry. They are responsible for a wide range of tasks, from marketing properties and screening tenants to handling maintenance requests and negotiating lease terms. They act as a liaison between property owners and tenants, ensuring that both parties are aware of their respective responsibilities and obligations.

Property managers also ensure that the properties they manage are in compliance with local and national laws and regulations. They keep up to date with changes in legislation and make sure that the properties they manage are in line with the latest requirements. This includes ensuring that the buildings are up to code, that safety measures are in place, and that all permits and licenses are up to date.

Another key responsibility of property managers is to ensure that the properties they manage are well-maintained. This includes overseeing routine maintenance tasks such as cleaning, landscaping, and repairs. They also coordinate larger renovation projects and ensure that they are completed on time and within budget.

Types of Commercial Real Estate Properties

Commercial real estate properties can come in a variety of forms, each with its own unique characteristics and considerations. Some common types of commercial properties include:

Office Buildings: These are buildings that are primarily used for office space. They can range from small, single-story buildings to large skyscrapers.
Retail Spaces: These are spaces that are used for retail purposes, such as shopping centres and strip malls. They can be standalone buildings or part of a larger complex.
Industrial Facilities: These are buildings that are used for industrial purposes, such as warehouses and factories. They are typically large buildings with high ceilings and large open spaces.
Hotels and Resorts: These are properties that are used for lodging and hospitality purposes, such as hotels, resorts, and motels.
Apartment Buildings: These are buildings that are used for residential purposes, such as apartment complexes and townhouses. They typically have multiple units and are designed to house multiple families.

Each type of commercial property has its own unique set of challenges and considerations. For example, managing a hotel or resort requires a different set of skills and expertise than managing an office building. Property managers must be knowledgeable about the specific needs of each type of property and be able to adapt to changing circumstances.

Overall, commercial real estate property management is a complex and challenging field that requires a wide range of skills and expertise. Property managers play a crucial role in ensuring that commercial properties are well-maintained, tenants are satisfied, and all financial and legal obligations are met.

Key Terms in Commercial Real Estate Property Management

Now that we’ve established a basic understanding of commercial real estate property management, let’s dive into some of the key terms you’re likely to encounter in this field.

Lease Types and Terms

A lease is a contractual agreement between a property owner and a tenant, outlining the terms and conditions of the tenancy. There are several types of leases commonly used in commercial real estate:

1. Triple net lease: A lease in which the tenant is responsible for paying the property’s operating expenses (e.g. taxes, insurance, maintenance).
2. Gross lease: A lease in which the tenant pays a fixed rent amount and the property owner assumes responsibility for operating expenses.
3. Percentage lease: A lease in which a landlord receives a percentage of a tenant’s revenue in addition to rent payment.

Lease terms can vary widely depending on the property type and market conditions. Common lease terms include the length of the lease, rent amount and escalation, and tenant improvement allowances.

It’s important to note that lease agreements can be complex and may require the assistance of legal counsel to ensure that both parties are protected.

Full ist of Terms

Amenities – The features and benefits of a property that create value. Tangible amenities such as swimming pool, gymnasium, and parking facilities enhance the property’s value, while intangible amenities such as proximity to public transport, schools, and shopping centres also play a vital role.

Amortisation – Amortisation refers to the reduction in the value of an intangible asset over a specified period. For instance, a patent or copyright has a defined useful life, and its value decreases over time. However, it is essential to note that the term ‘depreciation’ describes the reduction in value of a tangible asset over time.

Appraisal – An appraisal is an estimate of a property’s value, usually provided by a professional appraiser or real estate agent. It is important to note that an appraisal is different from a formal valuation.

APR (Annual Percentage Rate) – APR is the annual rate of interest charged on a loan or earned on an investment, expressed as a percentage of the total amount borrowed or invested. APR is the actual yearly cost of borrowing or income earned from investing over the term of a loan.

Arrears – Arrears refer to overdue payments on a debt or liability. It occurs when a borrower fails to make regular payments on a mortgage, utility bill, or any other loan. 

Asset management – Asset management involves activities or services designed to maintain and increase the market value of any asset. In real estate, asset management focuses on maximizing property value and ongoing returns from the property, usually in the form of rental income.

BCA (Building Code of Australia) – BCA is a set of written regulations created and maintained by the Australian Building Codes Board (ABCB). It sets minimum standards of health, safety, amenity, and sustainability for the construction industry in Australia. The BCA outlines technical requirements for building design and construction in Australia.

Body corporate – A body corporate is a group formed by the owners of a subdivided piece of land that has flats, apartments, or units. Also known as an owners’ corporation, the group is responsible for maintaining and managing common areas of a building such as stairwells, entrance areas, and car parks.

Capital – Capital refers to financial resources available for use in generating wealth when invested or used to produce goods and services. Capital can be combined with labor to produce returns, while property capital can be rented out to generate income.

Caveat emptor – Caveat emptor is a Latin term meaning ‘let the buyer beware’. In real estate transactions, it is a reminder to buyers to complete their due diligence when purchasing a property.

CGT (Capital Gains Tax) – CGT refers to the tax levied on the capital gains generated when an individual or entity sells an asset such as property, shares, or artwork. Personal property assets such as a family home are exempt from CGT.

CMA (Certified Management Accountant) – CMA is a professional who has skills and expertise in financial accounting and strategic management. They can help individuals and companies make strategic business decisions based on financial information.

Conveyancing – Conveyancing is the process of transferring property ownership from a seller to a buyer. In real estate, conveyancing involves drawing up and executing a written contract that sets out the agreed purchase price, the date of transfer, and the obligations and responsibilities of both parties.

Contingency – Contingency refers to a potentially negative economic event that may or may not happen in the future. Managing risk for any investment, including real estate, includes considering potential contingencies.

Covenant – A covenant is a condition in a real property deed or title that limits or prevents someone from using a property for certain purposes.

CPI (Consumer Price Index) – The CPI is an indicator of the average change over time in the cost of a fixed basket of goods and services purchased by households. In Australia, the Australian Bureau of Statistics releases CPI figures, which can help assess changes in economic inflation and variations in the cost of living.

Depreciation – Depreciation refers to the decrease in value of a tangible asset over time. In the context of real estate, depreciation can also indicate a decline in the value of property assets due to unfavorable market conditions.

Due diligence – Due diligence involves investigating a potential investment or purchase to confirm all relevant facts. When preparing to buy a property, due diligence includes examining the contract of sale, zoning and planning controls, and other relevant factors to assess potential risks.

Easement – An easement refers to the right of one party to use another party’s property for an agreed fee. Easements can affect the value of a property, and consulting with a conveyancer is advisable to understand the effects of an easement on a potential property purchase.

Egress/Ingress – Egress and ingress refer to the legal right to enter and exit a property. In real estate law, egress and ingress usually relate to the use of an easement, such as a shared driveway or private road for access to and from a property.

Encumbrance – An encumbrance is a claim against a property by a party who is not the owner. Mortgages, liens, and easements are examples of encumbrances that can affect real estate assets.

Escrow – Escrow is an arrangement in which a third party holds funds on behalf of the two parties involved in a transaction until all the conditions of the transaction are satisfied. For example, in the sale of a property, the funds to purchase the property may be held in escrow until all the conditions of the sale, such as a building inspection, are met.

Fiduciary – A fiduciary is a person who is legally authorized to hold assets in trust for another person and manage those funds for the beneficiary’s benefit.

Force majeure – A clause included in a contract that relieves one or both parties from their obligations in the event of an unforeseeable or uncontrollable event, such as a natural disaster or war. In real estate, force majeure clauses may be included in purchase contracts to address events that could prevent the completion of a transaction.

Freehold – The full and unrestricted ownership of real property, including both the land and any improvements on it. The owner of a freehold estate can sell, lease or transfer the property as they see fit.

Gentrification – The process of an area transitioning from a low-income, working-class neighbourhood to a higher-income, more affluent area. This can result in increased property values, displacement of long-term residents and changes to the cultural character of the area.

Gross income – The total income earned before any deductions or expenses are taken into account. Gross income can be used in real estate to determine the potential rental income of a property.

Homeowners association (HOA) – A group of property owners in a planned community or complex who are responsible for the upkeep and maintenance of common areas and amenities. HOAs also enforce rules and regulations governing the use and appearance of individual properties within the community.

Investment property – Real estate purchased with the intention of generating income, either through rental income or capital appreciation. Investment properties can include residential, commercial or industrial properties.

Joint tenancy – A type of co-ownership in which each owner has an equal share of the property and the right of survivorship. If one owner dies, their share of the property automatically passes to the surviving owner(s).

Landlord – The owner of a property who leases it to a tenant in exchange for rent. Landlords are responsible for maintaining the property and complying with relevant laws and regulations.

Lease – A legal agreement between a landlord and a tenant that allows the tenant to use the property for a specified period of time in exchange for rent. Leases can be used for both residential and commercial properties.

Liability – The legal responsibility for something, often used in reference to debts or obligations. In real estate, liability can include debts related to mortgages, unpaid taxes or damages caused by a property owner.

Listing – An advertisement or notice that a property is available for sale or lease. Listings can be published in print or online and include details such as the property type, location and price.

Market value – The estimated price that a property would sell for on the open market. Market value can be influenced by factors such as location, condition, and supply and demand.

Mortgage – A loan used to finance the purchase of real estate. Mortgages are secured by the property being purchased and typically have a fixed term, interest rate and monthly payment.

Negative gearing – A strategy used in real estate investing in which the costs of owning a property, including mortgage interest and other expenses, exceed the income generated by the property. The resulting loss can be used to offset taxable income from other sources.

Owner occupier – A person who owns and lives in the property they occupy. Owner-occupiers can include both homeowners and tenants in a leasehold property.

Private treaty – A method of selling a property in which the seller sets a price and negotiates directly with potential buyers. Private treaty sales are common in Australia and other countries.

Real estate agent – A licensed professional who assists buyers and sellers with the purchase, sale or rental of real property. Real estate agents are typically paid a commission based on the sale price of the property.

Stamp duty – A tax levied by state and territory governments in Australia on the transfer of property. Stamp duty rates vary depending on the value of the property and the location.

Strata title – A form of ownership used for multi-unit properties in which each unit owner has a separate title for

Tenants in common – Refers to co-ownership of an undivided interest in a property where each owner has equal possession and use rights. Unlike joint tenancy, each owner can bequeath their interest to beneficiaries through their will. Upon the death of a co-owner, their share does not pass automatically to the remaining owner(s).

Term deposit – A deposit held at a financial institution for a fixed period that can range from a month to several years. The terms of a term deposit stipulate that the funds can only be withdrawn after the term has ended or by providing the required notice period. Typically, longer terms offer higher interest rates, and early withdrawal of funds may incur a penalty.

Torrens Title property – A property where the titleholder owns both the land and the building on it. The Torrens Title document lists all interests and details affecting the property, such as easements, mortgages, covenants, and past changes in ownership.

Valuation – A formal process for determining the value of a property objectively and independently. A qualified valuer with the necessary training and qualifications must provide a formal valuation in most Australian states and territories.

Yield – A measure of the income an investment property is expected to generate in the future. Yield is calculated annually as a percentage of the property’s cost or market value.

Rent and Operating Expenses

Rent is the amount of money paid by a tenant to a property owner for use of the property. Operating expenses, also known as “OPEX,” are the costs associated with operating and maintaining the property, such as taxes, insurance, and utilities.

It’s important for property owners to accurately calculate operating expenses in order to set appropriate rent prices. Additionally, tenants should carefully review lease agreements to ensure that they understand which expenses they are responsible for paying.

Property Valuation and Appraisal

Property valuation is the process of determining the value of a property based on market conditions and other factors. An appraisal is a formal evaluation of a property’s value conducted by a professional appraiser.

Property valuation and appraisal are important for both property owners and potential buyers. Accurately valuing a property can help owners set appropriate asking prices and determine whether or not to sell. For buyers, an appraisal can help ensure that they are paying a fair price for the property.

Tenant Improvements and Build-Outs

Tenant improvements refer to any modifications made to a commercial space to meet the specific needs of the tenant. This can include everything from paint and carpeting to more substantial changes such as adding walls or building out new spaces.

It’s important for tenants to carefully review lease agreements to understand who is responsible for funding and completing tenant improvements. Additionally, property owners should work with tenants to ensure that any improvements are completed in a timely and satisfactory manner.

Overall, commercial real estate property management involves a complex web of agreements, financial calculations, and property maintenance. By understanding key terms and concepts, property owners and tenants can work together to ensure that their interests are protected and their needs are met.

Property Management Responsibilities

Marketing and Leasing

One of the key responsibilities of a property manager is to create effective marketing campaigns to attract potential tenants. This can involve everything from advertising in local media to showcasing the property online and scheduling tours with interested parties.

When it comes to marketing a property, there are many different strategies that can be employed. For example, property managers may choose to focus on the unique features of the property, such as its location or amenities, or they may highlight the benefits of living in the surrounding neighbourhood.

In addition to creating effective marketing campaigns, property managers must also be skilled in the art of leasing. This involves everything from screening potential tenants to negotiating lease agreements and handling move-ins and move-outs.

Maintenance and Repairs

Property managers are responsible for ensuring that all aspects of the property are well-maintained and functioning properly. This includes routine maintenance tasks such as cleaning and landscaping as well as more substantial repairs such as HVAC maintenance and roof repairs.

Effective maintenance and repair strategies are essential for keeping tenants happy and ensuring that the property retains its value over time. Property managers must be skilled in identifying potential maintenance issues before they become major problems and in implementing effective solutions to address them.

One important aspect of maintenance and repair is ensuring that the property is safe and secure for tenants. This may involve installing security systems or implementing safety protocols to prevent accidents and injuries.

Financial Management and Reporting

Property managers must be skilled in financial management, including budgeting, forecasting, and financial reporting. They are responsible for ensuring that rent is collected on time, expenses are tracked and managed effectively, and financial accounts are reconciled regularly.

Effective financial management is essential for ensuring the long-term viability of a property. Property managers must be able to balance the needs of the property with the financial resources available, making strategic decisions to ensure that the property remains profitable over time.

In addition to financial management, property managers must also be skilled in reporting. This involves generating regular reports on the financial performance of the property, as well as providing updates to stakeholders on any significant developments or changes.

Legal and Regulatory Compliance

One of the most important functions of a property manager is to ensure that all legal and regulatory requirements for the property are met. This can include everything from obtaining proper permits and licenses to ensuring compliance with local building codes and safety regulations.

Legal and regulatory compliance is essential for protecting the property and its tenants from legal liability. Property managers must be skilled in navigating complex legal and regulatory frameworks, making strategic decisions to ensure that the property remains in compliance at all times.

In addition to compliance, property managers must also be skilled in risk management. This involves identifying potential risks and implementing strategies to mitigate them, such as implementing safety protocols or obtaining insurance coverage.

Commercial Real Estate Property Management Software

Managing commercial real estate properties can be a daunting task for property managers. With so many tasks to juggle, from lease tracking to maintenance and work order management, it can be challenging to keep everything organized and running smoothly. Fortunately, there are a variety of software solutions available to help property managers streamline their workflows and increase efficiency.

Features and Benefits

Commercial real estate property management software offers a range of features and benefits designed to make the property management process easier and more efficient. Some of the most common features of these software solutions include:

Accounting and Financial Management Tools: These tools help property managers keep track of financial data, including rent payments, expenses, and taxes.
Lease Tracking and Reporting: Property managers can use these tools to track lease agreements, monitor lease expirations, and generate reports on lease activity.
Maintenance and Work Order Management: These tools allow property managers to easily schedule and track maintenance tasks and work orders.
Scheduling and Calendar Functionality: Property managers can use these tools to schedule appointments, set reminders, and manage their calendars.
Document Storage and Sharing: These tools make it easy to store and share important documents, such as lease agreements and maintenance records.

By using commercial real estate property management software, property managers can save time, reduce errors, and improve overall efficiency.

Tips for Successful Commercial Property Management

Building Strong Tenant Relationships

Effective communication and a proactive management approach can help property managers build strong relationships with tenants. It’s important to establish clear expectations and open lines of communication from the outset of the tenant-landlord relationship.

One way to build strong tenant relationships is by hosting regular events and activities for tenants, such as tenant appreciation days or networking events. This can help foster a sense of community within the building and create a positive atmosphere for all tenants.

Another important factor in building strong tenant relationships is being responsive to tenant needs and concerns. Property managers should be available and accessible to tenants and respond promptly to any issues that arise.

Staying Informed on Market Trends

Commercial real estate is a dynamic and ever-changing industry, and staying informed on current market trends is key to success. This can involve everything from monitoring property values and rental rates to keeping up with industry news and best practices.

One way to stay informed on market trends is by attending industry conferences and events. These can provide valuable networking opportunities and insights into the latest trends and developments in commercial real estate.

Another important aspect of staying informed on market trends is keeping up with technological advancements in the industry. Property managers should be familiar with the latest property management software and tools, which can help streamline operations and improve efficiency.

Implementing Sustainable Practices

Increasingly, tenants are looking for commercial spaces that are eco-friendly and sustainable. Property managers can appeal to these tenants and save costs on energy expenses by implementing sustainable practices such as energy-efficient lighting and HVAC systems, smart thermostats, and water-saving fixtures.

In addition to these practices, property managers can also explore renewable energy sources such as solar or wind power. These can not only help reduce energy costs, but also contribute to a more sustainable and environmentally-friendly building.

Implementing sustainable practices can also have a positive impact on tenant retention and satisfaction. Tenants are more likely to stay in a building that aligns with their values and prioritises sustainability.

Navigating the World of Commercial Real Estate Property Management

As you can see, commercial real estate property management involves a wide range of responsibilities and considerations. Whether you’re a seasoned property management professional or just getting started in the field, being well-versed in the key concepts and terminology is essential to success.

By staying up to date on market trends, building strong tenant relationships, and leveraging the latest property management software tools, you can navigate the complex world of commercial real estate property management with confidence.