• Accredited Investor
    An accredited investor is a term used by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D. In order to qualify as accredited, an investor must accomplish at least one of the following:
    1. Earn an individual income of more than $200,000 per year, or a joint spousal income of more than $300,000 per year, in each of the last two years, and expect to maintain the same level of income.
    2. Have a net worth exceeding $1 million, either individually or jointly with his or her spouse (excluding a primary residence).
    3. Be a bank, insurance company, registered investment company, business development company, or small business investment company.
    4. Be a general partner, executive officer, director, or a related combination thereof for the issuer of a security being offered.
    5. Be a business in which all the equity owners are accredited investors.
    6. Be an employee benefit plan, a trust, charitable organization, partnership, or company with total assets in excess of $5 million.
    For more information, please see: http://www.sec.gov/answers/accred.htm
  • Alternative Investments
    An investment that is not one of the three traditional asset types (stocks, bonds and cash). Alternative investments include, real estate, private equity, venture capital and hedge funds. Commodities, precious metals, art and classic cars are also categorized as an "Alt" Investment.
  • Appreciation
    The value of the real estate may increase or decrease in value over time. An increase in value is referred to as "appreciation" and a decrease in value is referred to as "depreciation" (sometimes also referred to as "negative appreciation"). There are many reasons why a property may increase or decrease in value, most notably:
    • The change in the market capitalization rate (expected yield for a particular point in time based on the trailing twelve months of NOI)
    • The rate of inflation
    • Sales of comparable properties
    • A change in interest rates
  • AUM (Assets Under Management)
    AUM stands for "Assets Under Management" and is the amount of money that is managed by private real estate fund managers or by CAPFUNDR on behalf of our investor clients.
  • Balloon Payment
    The majority of loan terms on commercial real estate ("CRE"), not including multifamily residential, are 3-10 years with debt service payments based on interest only or interest plus an amortization schedule of 20-30 years. Unlike a 30-year home loan term with a co-terminus 30-year amortization, there is a lump sum (or "balloon") repayment of the outstanding principal balance at the maturity of the CRE loan.
  • Basis Point
    A basis point (bps) is a unit that is equal to 1/100th of 1%, in other words one basis point is equal to 0.01%, similarly a 1% change is equal to a 100 basis point change. In real estate, basis points are often used to measure fees or changes in interest rates which often are less than 1%. Ex. If interest rates increase 50 bps from their current low of 3.25% the new interest rate would be 3.75%.
  • Cap Rate
    Cap Rates, short for Capitalization Rates, measure a propertys yield (return in a one-year, trailing twelve months time frame), typically on the Net Operating Income (NOI), but sometimes on the Cash Flow After Financing (CFAF)/Free Cash Flow (FCF). The formula is NOI divided by the Gross Property Value [NOI ($) / Gross Property Value ($) = Cap Rate (%)].
  • Capital
    Capital is any financial asset, or the value of an asset, and is more durable than money. It is used to create wealth through investments that generate cash flow and/or capital appreciation.
  • Capital Stack
    The composition of the capital structure of a property (i.e., the levels of stratification of the equity and debt "tranches"), which includes, but is not limited to, the first loss equity tranche at the top of the "stack" to the first lien senior loan tranche at the bottom. The stack refers to all of the capital invested in a property and is typically arranged as follows:
    1. Equity (Highest return; Sponsor/Sponsor + Investors)
    2. Preferred Equity (Investors senior to the Equity)
    3. Mezzanine Debt (high-yield Debt)
    4. Senior Mortgage (lowest cost and most senior of the Debt)
  • Capitalization Rate
    See Cap Rate.
  • CFAF
    Cash Flow After Financing. Also referred to as Net Cash Flow (after financing) but before capital expenditures, it is the amount of income after deducting all operating expenses, interest payments and principal.
  • CMBS
    Stands for Commercial Mortgage Backed Securities. Commercial real estate first mortgage debt is generally broken down into two basic categories: (1) loans to be securitized ("CMBS loans") and (2) portfolio loans. Portfolio loans are originated by a lender and held on its balance sheet through maturity. In a CMBS transaction, many single mortgage loans of varying size, property type and location are pooled and transferred to a trust. The trust issues a series of bonds that may vary in yield, duration and payment priority. Nationally recognized rating agencies then assign credit ratings to the various bond classes ranging from investment grade (AAA/Aaa through BBB-/Baa3) to below investment grade (BB+/Ba1 through B-/B3) and an unrated class which is subordinate to the lowest rated bond class. Industry standard structured finance guidelines are used to credit enhance the investment grade (IG) classes. This "over collateralization" of the IG classes is a hallmark of the mortgage backed securities structure.
  • Commercial Real Estate
    Real estate that generates income for the owner is commercial real estate (CRE) is real property thats owned for the purpose of earning income and making money. There are five general types of commercial real estate: office, retail, industrial, hotels (also called hospitality) and multi-family residential (apartment properties). Residential Real Estate (also referred to as housing) encompass 1-4 family properties. Government agencies and bank lenders make the distinction from making "home mortgages" for residential real estate and "CRE mortgages" for commercial real estate.
  • Common Equity
    Also referred to as just "Equity," it is the controlling ownership and first loss tranche in the capital stack of a property.
  • Crowdfunding
    Crowdfunding is financing a product, idea, or venture using small amounts of money raised from the "crowd," or members of the public. Crowdfunding is typically associated with a large number of individual investors or donors. Technically, equity crowdfunding (or crowdfunding to investors) is defined as Title III Regulation Crowdfunding of the JOBS Act which allows non-accredited investors to participate. As of mid-2015, the SEC has defined and disseminated the rules, but has not yet enacted. Crowdfunding started when entrepreneurs or organizations turned to the public to raise funds for projects. Funding would come in the form of donations, though platforms would occasionally offer rewards for different donation levels. Kickstarter, Indiegogo, and Tilt are all examples of donation- and rewards-based crowdfunding platforms. Regulatory changes since the passage of the JOBS Act have allowed equity crowdfunding to emerge as an alternative to donation-based crowdfunding and a way for investors to earn equity in exchange for providing funding for a project. All investment opportunities open for public equity crowdfunding must first be filed with the Securities and Exchange Commission. CAPFUNDR has created a new and better way of investing in commercial real estate, which we call Real Estate Marketplace Investing, and which is also referred to as crowdfunding for accredited investors only using the Regulation D 506(c) private placement exemption (as enabled by Title II of the JOBS Act).  
  • DCF
    A valuation method used to estimate the attractiveness of an investment opportunity. Discounted Cash Flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
  • Debt
    An amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.
  • Debt Yield
    The Debt Yield is defined as the Net Operating Income (NOI) divided by the first mortgage debt (loan) amount. For example, let's say that a commercial property has an NOI of $437,000 per year, and a bank lender has been asked to make a new first mortgage loan in the amount of $6,000,000. The property's Debt Yield calculation would be $537,000 / $6,000,000 = 9.0%.
  • Deed
    A written instrument, which has been signed and delivered, by which one individual, the grantor, conveys title to real property to another individual, the grantee; a conveyance of land, tenements, or hereditaments, from one individual to another.
  • Development
    An aspect of real estate investment that entails new, ground-up construction and the associated pre-development entitlement, design and planning of the project.
  • Discount Rate
    Multiplier that converts anticipated returns from an investment to their present value (i.e., the current market value). It is always less than 1, and depends on the cost of capital (current compound interest rate) and the time interval between the investment date and the date when returns start to flow. An IRR calculated using the Discounted Cash Flow methodology is considered a Discount Rate.
  • Discounted Cash Flow
    See DCF.
  • Distribution
    Payment of cash flow from investments in equity or debt.
  • Down Time
    The amount of time a previously occupied space remains unoccupied.
  • Due Diligence
    The investigative process that persons involved in buying, selling, lending, and managing of real estate routinely need to perform to understand both the physical, legal, regulatory, environmental and economic condition of a property. Due diligence is not underwriting which is the financial and valuation analysis performed to project future income and cash flow with and without leverage to determine potential returns using a Discounted Cash Flow analysis.
  • FCF
    Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. The FCF is typically the Cash Flow After Financing less Capital Expenditures.
  • FIRPTA Tax
    The Foreign Investment in Real Property Tax Act ("FIRPTA") is a United States tax law that imposes income tax on foreign individuals disposing of United States real property interests. The government imposes a levy on the amount of recognized gain at regular rates based on the type of taxpayer. Purchasers of real property interests are required to withhold tax on payment for the property. Withholding may be reduced from the standard 10% to an amount that will cover the tax liability, upon application in advance of sale to the Internal Revenue Service. FIRPTA overrides most non-recognition provisions as well as those remaining tax treaties that provide exemption from tax for such gains.
  • Form 1099
    Form 1099-DIV' is sent to investors by investment fund companies. The form is a record of all taxable capital gains and dividends paid to an investor, including those that have been re-invested in a given taxation year. 'Form 1099-INT' is issued by all payers of interest income to investors at year's end. Form 1099-INT breaks down all types of interest income and related expenses. Payers must issue Form 1099-INTs for any party to whom they paid at least $10 of interest during the year.
  • Free Cash Flow
    Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value.
  • Hard Asset
    A tangible and physical item or object of worth that is owned by an individual or a corporation. In currency transactions, hard assets are synonymous with currencies that the public generally has faith in, such as the U.S. dollar or the euro. A hard asset is the opposite of an intangible item such as goodwill or a patent.
  • Institutional Process
    A process used by investment managers and fiduciaries to institutional investors including, pension funds, ERISA plan sponsors, Taft-Hartley Plans, endowments and non-profits. The process entails a formal investment committee of seasoned investment professionals and a thorough summary of the underwriting and due diligence of a potential investment, where an investment team prepares preliminary and final investment memorandums and meet with the investment committee at the early stages of an investment consideration to seek approval to pursue an investment acquisition. All investments approved at the preliminary stage must go through a final investment committee meeting for approval of the transaction.
  • Internal Rate of Return
    The Internal Rate of Return (IRR) is the discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.
  • IRR
    See Internal Rate of Return.
  • JOBS Act
    The Jumpstart Our Business Startups Act or JOBS Act, is a law intended to encourage funding of United States small businesses and real estate investing by easing various securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. The term "The JOBS Act" is also sometimes used informally to refer to just Titles II and III of the legislation which are the two most important pieces to much of the crowdfunding and startup community. Title II went into effect on September 23, 2013. As of mid-2015, Title III Regulation Crowdfunding, which allows non-accredited investors to participate, is still pending.
  • K-1
    A tax document used to report the incomes, losses and dividends of a business's partners or S corporation's shareholders. Rather than being a financial summary for the entire group, the Schedule K-1 document is prepared for each partner or shareholder individually. For an S Corporation, Form 1120S is filled out, while for a partnership, Form 1065 is submitted.
  • Lien
    The legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan contract. A lien exists, for example, when an individual takes out an automobile loan. The lien holder is the bank that grants the loan, and the lien is released when the loan is paid in full. Another type of lien is a mechanic's lien, which can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the property can be auctioned off to pay the lien holder.
  • Listed or Traded REIT
    On Sept. 14, 1960, President Dwight D. Eisenhower signed legislation that created a new approach to income-producing real estate investment - a manner in which the best attributes of real estate and stock-based investment are combined, including having similar volatility characteristics of non-REIT equities. Listed or (exchange) traded REITs are liquid public securities that trade on an exchange, including the NYSE, NASDAQ and the American Stock Exchange. Over time, investors responded to this new opportunity, and more than five decades after their creation stock exchange-listed U.S. REITs the industry has grown to a $1 trillion equity market capitalization and nearly $2 trillion in real estate assets.
  • Loan-to-Cost Ratio
    A ratio used in commercial real estate (CRE) construction to compare the amount of the loan used to finance a project to the cost to build the project. It is also used for transitional CRE deals where there is significant capital investment above the acquisition cost of the property. If the project cost $200,000 to acquire the property plus an additional $800,000 million to complete and the borrower was asking for $800,000, the loan-to-cost (LTC) ratio would be 80%. The costs included in the $1 million cost figure would be land, construction materials, construction labor, professional fees, permits and so on.
  • Loan-to-Value Ratio
    A lending risk-assessment ratio used by financial institutions and others underwrite and price a mortgage. The LTV is calculated by measuring the size of the loan against the value of the collateral property. A $6 million loan on a property valued at $10 million would carry a 60% LTV. The higher the LTV, the more risky a loan is considered. Therefore, higher LTV loans generally carry a higher interest rate for the borrower. For example, a loan with a 50% LTV might have an interest rate of 4.5%, while a 70% loan on the same property might carry a 5.5% interest rate.
  • LTC
    See Loan-To-Cost Ratio.
  • LTV
    See Loan-To-Value Ratio.
  • Mezzanine Debt
    Refers to secondary financing on a project, similar in purpose to a second mortgage, except that a mezzanine loan is secured by the equity interests of the company that owns the property, as opposed to the real estate. If the company fails to make the payments on the loan, the mezzanine lender can generally foreclose on the equity in a much simpler and expedited time in comparison to the often complex and timely mortgage foreclosure process. Once lender owns the company that owns the property it controls the property.
  • Net Cash Flow
    Also referred to as Cash Flow After Financing and is defined as Net Operating Income less the debt service (interest and principal) payment.
  • NNN
    See triple net lease.
  • Non-Traded REIT
    Also known as NT REITs, a non-traded REIT does not trade on a securities exchange to minimize volatility and to better reflect direct real estate, and because of this it is quite illiquid for long periods of time. Front-end fees can be as much as 15% and another 4-6% annual management fee, much higher than a traded REIT due to its limited secondary market.  
  • Occupancy
    Occupancy is a buildings revenue sourcea tenant will rent an apartment, a retailer leases a commercial space, or a corporation leases a portion of a building for its staff. Technically, occupancy is referred to as a percentage of the total square feet or units leased. Expectations of tenancy or occupancy drive future income expectations for sponsors and landlords, and help investors determine future cash flows. Investors also take into account expected vacancy rates, which may range from 5-15% depending on the type of real estate and market conditions.
  • Payment Dependent Notes
    A Payment Dependent Note is a special, limited obligation of CAPFUNDR sold to investors, the proceeds of which are used to fund corresponding project investments. Payment upon Payment Dependent Notes are wholly dependent upon CAPFUNDR receiving distributions on the corresponding project investment.
  • Preferred Equity
    A measure of equity which only takes into account the preferred stockholders, and disregards the common stockholders. It is equal to shareholders' equity minus common equity.
  • Private Equity Real Estate Funds
    In investment finance, Private Equity Real Estate is an asset class consisting of equity and debt investments in property. Investments typically involve an active management strategy ranging from moderate reposition or releasing of properties to development or extensive redevelopment. Investments are typically made via private equity real estate fund, which pools capital from investors. These funds typically have a ten-year life span consisting of a 2-3 year investment period during which properties are acquired and a holding period during which active asset management will be carried out and the properties will be sold.
  • Proforma
    A financial model often used in real estate to predict future cash flows and total investment returns. A pro-forma attempts to take into account all the variables such as potential gross income, vacancy allowance, expenses, and future interest rates among others, to model what anticipated returns on a project may be. It is always important to remember that a pro-forma is a forward-looking projection or estimation and should not be relied upon as fact or a guarantee of performance. Investors should always verify or conduct their own due diligence for accuracy of assumptions.
  • Qualified Purchaser
    Under Section 2(a)(51) of the Investment Company Act, a "qualified purchaser" means:
    1. any natural person (including any person who holds a joint, community property, or other similar shared ownership interest in an issuer that is excepted under section 3(c)(7) with that person's qualified purchaser spouse) who owns not less than $5,000,000 in investments, as defined by the Commission;
    2. any company that owns not less than $5,000,000 in investments and that is owned directly or indirectly by or for 2 or more natural persons who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of such persons;
    3. any trust that is not covered by clause (ii) and that was not formed for the specific purpose of acquiring the securities offered, as to which the trustee or other person authorized to make decisions with respect to the trust, and each settlor or other person who has contributed assets to the trust, is a person described in clause (i), (ii), or (iv); or
    4. any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments.
    For more information, please see: https://www.sec.gov/about/laws/ica40.pdf
  • Real Property
    Real property is real estate that encompasses land and buildings, including the rights of use and enjoyment that come with the land and its improvements. Land that has no owner, e.g. land in Antarctica or on the moon, is not considered real estate.
  • Redemption
    The action of regaining or gaining possession of something in exchange for payment, or clearing a debt or investment.
  • Reg A+
    Reg A+ of Title IV of the JOBS Act is a type of offering which allows private ventures to raise up to $50 Million from the public.

    Also referred to a "mini-IPO", Reg A+ allows issuers to offer shares to the general public and not just accredited investors. Issuers looking to raise capital via Reg A+ will first need to file with the SEC and get approval before launching a mini-IPO. However, the fees associated with a Reg A+ offering are much lower than a traditional IPO and the ongoing disclosure requirements are much less burdensome, effectively making a Reg A+ offering a mini-IPO.

    The key difference between Reg A+ and Reg D is that issuers conducting a Reg A+ offering are able to accept funds from both accredited and non-accredited investors.

  • Regulation D
    In the United States under the Securities Act of 1933, any offer to sell securities must either be registered with the United States Securities and Exchange Commission (SEC) or meet certain qualifications to exempt them from such registration. Regulation D (or Reg D) contains the rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC.[1] A Regulation D offering is intended to make access to the capital markets possible for small companies that could not otherwise bear the costs of a normal SEC registration. Reg D may also refer to an investment strategy, mostly associated with hedge funds, based upon the same regulation. The regulation is found under Title 17 of the Code of Federal Regulations, part 230, Sections 501 through 508. The legal citation is 17 C.F.R. §230.501 et seq.
  • Regulation D 506(b)
    Rule 506(b) exempts an issuer of securities from registration under the Securities Act for offerings of an unlimited size. To qualify for the exemption, the securities may only be offered and sold to accredited investors and up to 35 non-accredited investors who meet certain sophistication requirements.

    Under Rule 506(b), the issuer may not engage in general solicitation of the offer and must have a reasonable belief that the purchasers are accredited investors or sophisticated, non-accredited investors. Issuers may approach potential investors if there is a pre-existing relationship. Hence, investors must be registered for a minimum of 21-days on CAPFUNDR before being able to view any current 506(b) offerings.

  • Regulation D 506(c)
    Title II of the JOBS Act created Rule 506(c) of SEC Regulation D, which was signed into effect in September 2013. This rule allows private placement issuers to use "general solicitation" (i.e., broadly marketing offerings via the Internet to accredited investors, etc.) to raise money from accredited investors as long as the issuer verifies and confirms all investors are accredited.

    General advertising permitted. Companies may advertise via social media, email, or offline. No substantive, pre-existing relationship with potential investors required.

  • REIT
    A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled after mutual funds,REITs provide investors of all types regular income streams, diversification and long-term capital appreciation.
  • Rent Roll
    A list of tenants showing the lease, rent amount and the expiration date for each tenant.
  • Section 1031 Exchange
    Under Internal Revenue Code Section 1031 of the United States Internal Revenue Code (26 U.S.C. � 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
  • Senior Debt
    Senior debt has greater seniority in the issuer's capital structure than subordinated debt, and has the first lien on the collateral property when the senior debt is a mortgage on real estate.
  • Tenants
    A tenant occupies commercial real estate space: examples include the individuals who rent an apartment, a retailer that leases a commercial space, a corporation that leases some or all of an office or industrial building, or a traveler who rents a hotel room.  
  • Term
    In real estate, the "Term" typically refers to the lifespan of a given asset or liability.

    A loan or an investment typically would a have a term (ex. 5 years), at the end of which the loan or investment would be paid back plus any interest or payments owed.

  • Title
    In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document, such as a deed, that serves as evidence of ownership.
  • Title III Regulation Crowdfunding
    Outlined in the 2012 JOBS Act, and approved by the SEC on October 30, 2015, Title III - Regulation Crowdfunding creates an exemption from registration that enables issuers to crowdfund equity offerings to the general investing public (i.e., non-accredited investors). Title III Regulation Crowdfunding requires issuers raise capital through either a broker-dealer or a registered funding portal. Title III features include:
    • A $1 million offering limit
    • Issuers must disseminate an SEC-filed offering statement to prospective investors
    • No SEC review or clearance required for offering statement
  • Title Insurance
    Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans.
  • Total Return
    DEFINITION of 'Total Return' When measuring performance, the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Typically, [Total Return = Income + Capital Appreciation] for a particular monthly or quarterly period and for the fiscal year.
  • Tranche
    Tranche is actually a French word meaning "slice" or "portion". In the world of real estate investing, it is used to describe the horizontal slices of the capital stack reflecting the different creditor and equity ownership positions and their respective priorities of cash flow and sales proceeds distributions and pay offs.
  • Triple Net Lease
    A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three "Nets") on the property in addition to any normal fees that are expected under the agreement (rent, utilities, etc.).
  • Underwriting
    Underwriting, in the context of making a debt or equity investment in commercial real estate, is the financial and valuation analysis performed to project future income and cash flow with and without leverage to determine potential returns using a Discounted Cash Flow analysis. Underwriting refers to the process used by real estate finance professionals to determine and price the risk of a potential investment.
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