Glossary

CRE investment glossary

The capital-markets terms sponsors and LPs use every day, from preferred return and catch-up to DPI, DSCR and Form D, in one or two plain sentences each.

Updated October 4, 2026

0–9

1031 exchange: A like-kind exchange under Section 1031 of the Internal Revenue Code that defers gain on the sale of real property held for investment or business use when the proceeds are reinvested in like-kind real property. The replacement property must be identified within 45 days and acquired within 180 days, usually through a qualified intermediary. Partnership and LLC interests do not qualify, which is why exchange buyers use tenancy-in-common or Delaware statutory trust structures. 1031 exchange: full explanation

A

AAR (average annual return): Total profit divided by the number of years held, expressed as a percentage of the capital invested. It is simple to explain but ignores the timing of cash flows and compounding, so it usually overstates performance compared with IRR on long holds.
Accredited investor: An investor who meets an SEC definition in Rule 501(a) of Regulation D. For individuals, the common tests are income above $200,000 ($300,000 with a spouse or spousal equivalent) in each of the last two years with the same expected this year, net worth above $1 million excluding the primary residence, or holding a Series 7, 65 or 82 licence in good standing. Entities qualify through tests such as more than $5 million in assets or all owners being accredited. Accredited investor: full explanation
Acquisition fee: A one-time fee paid to the sponsor at closing for sourcing, underwriting and closing the deal, typically quoted as a percentage of the purchase price. It is disclosed in the offering documents and is usually paid from the capital raised. Acquisition fee: full explanation
American waterfall: A deal-by-deal waterfall in which the GP can earn a promote on each investment as it is realised, before investors have received back all capital across a fund. It is usually paired with a clawback. Some syndicators use the term loosely for any waterfall that pays promote before capital is returned. Read: How real estate waterfalls work
Asset management fee: An ongoing fee paid to the sponsor for overseeing the investment, commonly a percentage of equity raised, revenue or assets. It is separate from property management fees paid to whoever runs the building day to day. Asset management fee: full explanation

B

Blind pool fund: A fund that raises capital before it has identified the properties it will buy. Investors commit to a strategy, a sponsor and investment limits rather than to specific assets, so the sponsor’s track record and the fund’s criteria carry the weight. Blind pool fund: full explanation
Blue sky laws: State securities laws. Rule 506 offerings are exempt from state registration, but most states require a notice filing, usually a copy of the Form D and a fee, after the first sale to a resident of that state. Read: 506(b) vs 506(c)
Bonus depreciation: The special depreciation allowance under Internal Revenue Code §168(k): a first-year deduction of a percentage of the cost of qualified property, generally property with a recovery period of 20 years or less. The 2025 tax law made it a permanent 100% for qualified property acquired after January 19, 2025. Buildings do not qualify; their shorter-lived components can. Bonus depreciation: full explanation
Break-even occupancy: The occupancy a property needs to pay its operating expenses and debt service: (operating expenses + annual debt service) ÷ gross potential income. $520,000 of expenses and $500,000 of debt service on $1,200,000 of potential income break even at 85% occupancy. Break-even occupancy: full explanation

C

Cap rate: Capitalisation rate: net operating income divided by the property’s value or purchase price. A $1 million NOI property bought for $20 million trades at a 5% cap rate. Lower cap rates mean higher prices for the same income. Cap rate: full explanation
Capital account: The running record of each partner’s economic stake: contributions plus allocated income, minus allocated losses and distributions. Partnerships report partners’ capital on Schedule K-1 using the tax basis method. Capital account: full explanation
Capital call: A notice from the GP asking investors to fund part of their commitment, or additional capital where the agreement allows, by a stated due date. The amount, timing and default remedies come from the operating or partnership agreement. Capital call: full explanation
Capital stack: The layers of capital that fund a deal, ranked by priority of repayment: senior debt first, then mezzanine debt and preferred equity, then common equity. Higher layers carry more risk and expect higher returns. Capital stack: full explanation
Carried interest: The share of profits the GP receives beyond its pro rata share of invested capital; in real estate it is usually called the promote. For long-term capital gain treatment, Section 1061 generally requires a holding period of more than three years for carried interest. Carried interest: full explanation
Cash-on-cash return: Annual cash distributed (or pre-tax cash flow) divided by the equity invested. A $100,000 investment that pays $7,000 in a year has a 7% cash-on-cash return for that year. It ignores appreciation and the time value of money. Cash-on-cash return: full explanation
Catch-up: A waterfall tier, after the preferred return, in which the GP receives most or all distributions until it has received its target share of cumulative profits. With a full catch-up, a 20% promote means 20% of all profits, pref included. Read: How real estate waterfalls work
Clawback: An obligation for the GP to return promote it received beyond its agreed share once final results are known, often net of taxes it paid on that promote. Clawbacks are most common with American (deal-by-deal) waterfalls. Clawback: full explanation
Co-GP: A partner who joins the general partner on a deal, usually contributing capital, a balance sheet for loan guarantees, operating expertise or investor relationships in exchange for a share of fees and promote. Arrangements where a co-GP’s main role is raising capital for compensation can raise broker-dealer questions; ask counsel.
Cost segregation: A tax study that splits a building’s cost into 5-, 7- and 15-year property so it is depreciated faster than the 27.5- or 39-year building life. It changes the timing of depreciation, not the total, and the faster deductions can be recaptured on sale. Cost segregation: full explanation

D

Debt yield: Net operating income divided by the loan amount. Unlike DSCR it ignores interest rate and amortisation, so lenders use it as a simple test of how much NOI supports each dollar of debt. Debt yield: full explanation
Delaware statutory trust (DST): A Delaware trust that holds investment real estate for many passive investors. Under IRS Revenue Ruling 2004-86, a DST whose trustee cannot vary the investment is a grantor trust, so investors are treated as owning a share of the real estate and can buy DST interests as replacement property in a 1031 exchange. Delaware statutory trust (DST): full explanation
Depreciation recapture: Tax on the part of a sale gain that comes from depreciation taken while holding the property. For buildings it is unrecaptured section 1250 gain, taxed at up to 25%; depreciated personal property (§1245) is recaptured as ordinary income. Depreciation recapture: full explanation
Disposition fee: A fee paid to the sponsor when the property is sold, typically a percentage of the sale price, disclosed in the offering documents. Disposition fee: full explanation
DPI (distributions to paid-in capital): Cumulative distributions divided by capital paid in. A DPI of 1.0x means investors have received their money back in cash; it measures realised returns only. DPI (distributions to paid-in capital): full explanation
DSCR (debt service coverage ratio): Net operating income divided by annual debt service (principal and interest). Lenders set a minimum, which varies by lender, property type and loan program, both to size a loan and as an ongoing covenant. DSCR (debt service coverage ratio): full explanation

E

Effective gross income (EGI): Gross potential rent minus vacancy, credit loss, concessions and loss to lease, plus other income such as parking and fees. Operating expenses are subtracted from EGI to get NOI. Effective gross income (EGI): full explanation
Equity multiple: Total cash returned to investors divided by total equity invested. $1.8 million back on $1 million in is a 1.8x multiple, whether it took three years or ten. Equity multiple: full explanation
European waterfall: A whole-fund waterfall in which investors receive all contributed capital across the fund, plus the preferred return, before the GP earns any promote. It is more protective of LPs and makes a clawback less likely to be needed. Read: How real estate waterfalls work
Evergreen fund: An open-ended fund with no fixed end date that accepts new capital and offers periodic redemptions, usually at NAV per unit, subject to lock-ups and gates. The opposite of a closed-end fund. Evergreen fund: full explanation

F

Form D: The notice an issuer files electronically with the SEC on EDGAR within 15 calendar days after the first sale in a Regulation D offering. It is amended annually while the offering continues and to correct material mistakes. Form D: full explanation

G

GP (general partner): The party that manages the deal or fund and makes decisions on investors’ behalf, often called the sponsor or manager. In an LLC, the equivalent role is usually the managing member.
GP vs LP: The general partner manages the deal or fund, makes the decisions and generally carries liability for partnership debts. Limited partners supply most of the capital, stay passive and risk only what they invest. GP vs LP: full explanation
Gross rent multiplier (GRM): Price divided by gross annual rent. A $10 million building with $1.2 million of scheduled rent has a GRM of 8.33. It ignores vacancy and operating expenses, so it is a screen for similar properties, not a substitute for a cap rate. Gross rent multiplier (GRM): full explanation

H

Hurdle rate: A return threshold, measured as IRR, equity multiple or another metric, that investors must reach before the next waterfall tier and a higher GP split apply. The preferred return is the first hurdle in most deals. Hurdle rate: full explanation

I

Interest-only period: The part of a loan’s term when the borrower pays interest but no principal. Payments are lower and the balance does not fall; when the period ends, payments rise to principal and interest and DSCR drops. Interest-only period: full explanation
IRR (internal rate of return): The annualised discount rate at which the net present value of all cash flows in and out of an investment equals zero. Because it accounts for timing, a faster return of the same dollars produces a higher IRR. IRR (internal rate of return): full explanation

K

K-1 (Schedule K-1): The tax form a partnership issues to each partner, reporting that partner’s share of income, deductions, credits and capital. Calendar-year partnership returns (Form 1065) are due March 15, and many partnerships extend, so K-1s often arrive after individual returns are due. K-1 (Schedule K-1): full explanation

L

LP (limited partner): A passive investor in a partnership whose liability is generally limited to the capital invested. In an LLC, the equivalent is a non-managing member.
Loan-to-cost (LTC): A loan amount divided by the total cost of a project — purchase price or land, construction or renovation, and closing and soft costs. A $7 million loan on a $10 million project is 70% LTC. Used for construction and value-add loans. Loan-to-cost (LTC): full explanation
Loss to lease: The gap between market rent and the rent tenants pay under their current leases, summed over occupied units. It shows how much rent could rise as leases renew at market; lease rents above market are gain to lease. Loss to lease: full explanation
LTV (loan-to-value): The loan amount divided by the property’s appraised value. A $6.5 million loan on a $10 million property is 65% LTV. Lenders cap LTV to keep an equity cushion below their loan. LTV (loan-to-value): full explanation

M

Mezzanine debt: A loan that sits between the senior mortgage and the equity, usually secured by a pledge of the ownership interests in the property owner rather than the property. It is repaid after the senior loan, so it costs more. Mezzanine debt: full explanation
MOIC (multiple on invested capital): Total value, realised plus unrealised, divided by capital invested. It is often quoted gross at the deal level, whereas TVPI is usually quoted net to LPs. MOIC (multiple on invested capital): full explanation

N

NAV (net asset value): The value of a fund’s or deal’s assets minus its liabilities, often reported per unit or per investor. For real estate it depends on property valuations, which are estimates until a sale. NAV (net asset value): full explanation
NOI (net operating income): Property revenue minus operating expenses, before debt service, capital expenditures, depreciation and income taxes. NOI drives valuation through the cap rate and loan sizing through DSCR and debt yield. NOI (net operating income): full explanation

O

Operating agreement: The governing contract of an LLC: management rights, capital contributions, the distribution waterfall, fees, transfers, reporting and voting. For a limited partnership, the equivalent is the limited partnership agreement (LPA). Operating agreement: full explanation
Opportunity zone fund (QOF): A qualified opportunity fund: a partnership or corporation that holds at least 90% of its assets in property in designated opportunity zones. Investors who invest eligible capital gains within 180 days can defer tax on them, and appreciation on an investment held at least 10 years can be excluded. Opportunity zone fund (QOF): full explanation

P

Pari passu: Latin for "with equal step": investors, classes or loans that rank equally and are paid at the same time in proportion to their claims, with none ahead of another. The opposite is senior and subordinate. Pari passu: full explanation
PPM (private placement memorandum): The disclosure document for a private offering: the business plan, terms, fees, conflicts of interest and risk factors. Regulation D does not require one for accredited-only offerings, but most sponsors use one to manage liability. PPM (private placement memorandum): full explanation
Preferred equity: An equity interest in the property-owning company that ranks behind all debt but ahead of common equity. It usually earns a fixed return, part current pay and part accrued, and is redeemed by a set date. Preferred equity: full explanation
Preferred return: The return investors receive before the GP shares in profits, usually an annual percentage of unreturned capital. It can be simple or compounding and cumulative or non-cumulative. It is a priority of payment, not a guarantee. Preferred return: full explanation
Pro forma: A forward-looking projection of a property’s income, expenses and cash flow under the sponsor’s business plan. Compare it with the T-12, which shows what actually happened. Pro forma: full explanation
Promote: The GP’s share of profits above its pro rata share of capital, earned once investors clear the hurdles in the waterfall. "80/20 after an 8% pref" means a 20% promote on profits above the pref. Promote: full explanation

R

Real estate syndication: A deal in which a sponsor pools equity from several investors to buy and operate one property or a small group of them. The sponsor manages the deal as general partner; investors are passive limited partners or members paid under a waterfall. Their interests are generally securities, so syndications are usually offered under an exemption such as Rule 506(b) or 506(c) of Regulation D. Real estate syndication: full explanation
Regulation A: An exemption that lets issuers raise from the general public after the SEC qualifies an offering statement on Form 1-A: up to $20 million a year under Tier 1 and up to $75 million under Tier 2. Tier 2 preempts state registration but limits how much non-accredited investors can invest in unlisted securities.
Regulation D Rule 506(b): A private-offering exemption with no limit on amount raised that prohibits general solicitation. It allows unlimited accredited investors and up to 35 sophisticated non-accredited investors, who trigger additional disclosure requirements. Read: 506(b) vs 506(c)
Regulation D Rule 506(c): A private-offering exemption that permits general solicitation, provided every purchaser is accredited and the issuer takes reasonable steps to verify their status. Read: 506(b) vs 506(c)
Rent roll: A unit-by-unit list of a property’s tenants and leases: unit, tenant, lease start and end, rent, deposits, concessions and status. In underwriting it is tied to the T-12 to test whether reported income is real. Rent roll: full explanation
Return of capital: A distribution that repays an investor’s contributed capital rather than paying a return on it. It reduces the capital account and, in many waterfalls, the base on which the preferred return accrues. Return of capital: full explanation
RVPI (residual value to paid-in capital): The estimated value of investors’ remaining interest divided by capital paid in. It is the unrealised part of TVPI. RVPI (residual value to paid-in capital): full explanation

S

Side letter: A separate agreement between a fund or deal and one investor that adds to or changes that investor’s terms, such as a fee discount, extra reporting or a most-favoured-nation clause. Side letter: full explanation
Special purpose vehicle (SPV): An entity, usually an LLC or limited partnership, formed to own one property or make one investment, keeping that deal’s assets, debt and investors separate from the sponsor’s other business. Special purpose vehicle (SPV): full explanation
Sponsor: The firm or team that finds the deal, raises the equity, manages the investment and usually controls the GP or managing member. Sponsors typically earn fees and a promote and often co-invest. Sponsor: full explanation
Sponsor co-invest: The equity a sponsor or GP invests in its own deal alongside the LPs, usually on the same terms. A $500,000 sponsor check on a $10 million raise is a 5% co-invest. It is separate from the promote and from fees. Sponsor co-invest: full explanation
Subscription agreement: The contract in which an investor agrees to buy an interest in the offering, states the amount, and makes representations about accreditation, suitability and the investing entity. Its acceptance by the issuer usually marks a sale. Subscription agreement: full explanation
Syndication fees: The fees a sponsor charges a deal — acquisition, asset management, construction management, refinance and disposition — set in the operating agreement and disclosed in the PPM. They are separate from the promote and usually paid whatever the deal’s results. Syndication fees: full explanation

T

T-12 (trailing twelve months): A property’s operating statement for the most recent twelve months, month by month. Underwriters normalise it by removing one-time items and adjusting taxes and insurance to what a new owner will pay. T-12 (trailing twelve months): full explanation
Tax basis capital account: A partner’s capital account figured with tax numbers — contributions plus share of taxable income, minus losses and distributions — and reported in item L of Schedule K-1. It excludes the partner’s share of partnership debt, so it differs from the partner’s outside basis. Tax basis capital account: full explanation
TVPI (total value to paid-in capital): Cumulative distributions plus remaining value, divided by capital paid in. TVPI equals DPI plus RVPI. TVPI (total value to paid-in capital): full explanation

U

Underwriting: The analysis done before committing money to a property: verifying income and expenses from the rent roll and T-12, projecting cash flow, sizing the loan and testing returns under different assumptions. Sponsors, lenders and investors each underwrite a deal for their own decision. Underwriting: full explanation
Unfunded commitment: The part of an investor’s commitment that the GP has not yet called. Commitment equals contributed capital plus unfunded commitment. Unfunded commitment: full explanation

V

Value-add: A strategy of buying a property that earns less than it could and raising its NOI through renovation, leasing or better operations, then refinancing or selling at the higher value. Value-add: full explanation

W

Waterfall: The order and proportions in which a deal distributes cash, typically return of capital, preferred return, an optional GP catch-up, then one or more promote splits. It is defined in the operating or partnership agreement. Read: How real estate waterfalls work
Waterfall hurdle types: The tests a waterfall uses to change the LP/GP split: return of capital, a preferred return, IRR hurdles, equity multiple hurdles and combinations. IRR hurdles are harder on long holds, multiple hurdles on short ones. Waterfall hurdle types: full explanation

Y

Yield on cost: Stabilized net operating income divided by total project cost. A project costing $10 million that stabilizes at $780,000 of NOI yields 7.8% on cost; the gap over the market cap rate is the development spread. Yield on cost: full explanation

Definitions are general information, not legal, tax or investment advice. Your offering documents, counsel and CPA govern your deal.

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