Glossary of Terms: M – P

A demonstrative narrative report of a specific markets economic condition and an assessment of property value performed by a member of the American Institute of Real Estate Appraisers. The property’s value is derived using three (3) separate methods of valuation including replacement cost approach, sales comparison approach and income approach.

The amount charged by an independent company for the day-to-day management of a property. Typically based upon a percentage of the property’s income.

A method of appraising property by analyzing sales prices of similar properties (comparables) recently sold.

A detailed analysis of activities in a market in regard to such influences as location, demand and competition which may or may not affect the value of property. Includes an analysis of a real estate project to determine the most profitable use and the likelihood of the proposed use being a financial success. The study is often used by the promoter or developer to inure would-be investors to participate in the venture and to assist lenders in making their decision whether or not to loan the necessary funds.

The rental income that a property is likely to command in the under current market conditions. Market rent, also referred to as economic rent, may be either higher or lower than what the property is actually renting for under the terms of a lease.

A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

A real estate development that contains two or more different uses all intended to be harmonious and complementary. An example would include a high-rise building with retail shops on the first two floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor.

(1) To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property. (2) The instrument by which real estate is hypothecated as security for the repayment of a loan.

Securities purchased by investors that are secured by mortgages. Such securities are also known as pass-through securities since the debt service paid by the borrower is passed through to the purchaser of the security.

A financial middleman who, in addition to bringing borrower and lender together, makes loans, packages them, and sells the packages to both primary and secondary investors. Usually the mortgage banker continues to service the loan (collect debt service, pay property taxes, handle delinquent accounts, etc.) even after the loan has been packaged and sold. For this management service a small percentage of the balance paid to the investor goes to the mortgage banker. Quite often the loan origination fee or finder’s fee charged the borrower is more than offset by a lower interest rate from a lender not directly accessible to the borrower. As with mortgage brokers, mortgage bankers are regulated by state laws.

The Mortgage Bankers Association of America is the primary trade organization of the mortgage bankers and brokers in the United States. The association provides numerous seminars and publications for its membership and sponsors the designation CMB (Certified Mortgage Banker). The headquarters is: 1125 15th Street, N.W., Washington, D.C. 20005; (202) 861-6500.

A person who brings together borrower and a lender and in return is paid a finder’s fee. This finder’s fee is usually equal to one percent or so of the amount borrowed is normally paid by the borrower. Certain sources of funds, particularly insurance companies, do not always deal directly with the person looking for capital; rather, they work through a mortgage broker. Normally, the mortgage broker is not involved in servicing the loan once it is made and the transaction is closed.

The relationship between annual mortgage loan requirements and the initial mortgage loan principal, expressed as a decimal or percentage, for level-payment mortgage loans. Used for converting debt service into mortgage loan value.

A person authorized to represent a financial institution in a particular geographic area for the purpose of placing loans.

A method by which securities backed by the value of specific real estate mortgages are issued in the financial market for investment purposes. Such securities, because they are mortgage-backed, are more marketable and generally are issued with a lower rate of interest than if no such backing existed.

In a building, the floor space that may be rented to tenants or the area upon which rental payments are based. Generally excludes common areas and space devoted to the heating, cooling, and other equipment of a building.

A lease whereby, in addition to the rent stipulates that the lessee (tenant) pays such expenses as taxes, insurance, and maintenance. The landlord’s rent receipt is thereby “net” of those expenses.

Income from property after all operating expenses and reserves have been deducted, except for income taxes and financing expenses (interest and principal payments).

A use that violates zoning regulations or codes but is allowed to continue because it began before the zoning restriction was enacted.

No personal liability of the Borrower.  Upon default, a Lender may take the property pledged as collateral to satisfy a debt, but have no recourse to other assets of the borrower.

The ratio of the space rented to the total amount of space available for rent. A 50-unit apartment complex in which 40 units are currently rented has an occupancy rate of 80 percent (40 divided by 50).

The on-the-run treasury is the most recently issued treasury in a particular sector. Currently the government issues 2 year, 3 year, 5 year, 10 year, and 30 year treasuries. These are the only maturities where there are on-the-runs. 5 year treasuries, for example, are issued at the end of every month, so every month there is a new on-the-run 5 year. 10 years are issued quarterly in February, May, August, and November. The current on-the-run 10 year is November 2009; in February it will become the February 2010 and the November will then be off-the-run. On-the-run treasuries always trade at lower yields because there is increased demand for them because they are the benchmarks.

Periodic expenses (usually monthly) of operating income-producing property other than debt service and income taxes. Operating expenses are those directly related to the level of occupancy and usage of the building. These can include management fees, maintenance, ground maintenance, utilities, supplies, legal fees, accounting fees, and other such costs. These expenses are subtracted from gross income to equal the net operating income.

A written plan detailing the removal of potentially environmental sensitive materials.

The amount charged by a lender to cover the time and expenses incurred in arranging a loan. This fee covers such expenses as credit checks, and appraisal of the property.  Normally the origination fee is stated as a percentage of the loan amount; for example, one percent.

The percentage of available rooms occupied for a given period. It is computed by dividing the number of paid guest rooms occupied for a period by the number of rooms available for the same period.

A comprehensive report required by most Lenders and produced by an independent company that details the current physical condition of a property. Typically includes specific items that require immediate repair as well as those items that should be replaced over the life of the loan. Basis used to establish the annual Replacement Reserve Escrow for the property.

The amount of income that could be potentially be produced by a real estate property assuming there are no vacancies or collection losses. Does not include miscellaneous or other income.

A document by which one person (called the “principal”) authorizes another person (called the “attorney-in- fact”) to act for him/her in a specific manner in designated transactions.

A written report issued by a title company, preliminary to issuing title insurance, which shows the recorded condition of title of the property in question. See Commitment.

The lowest commercial interest rate charged by banks on short-term loans to their most credit-worthy customers. The prime rate is not the same as the long-term mortgage rate, though it may influence long-term rates. Mortgage rates are generally higher than the prime rate, but exceptions occur at times.

A financial or accounting statement using estimates and assumptions to project income and the performance of real property over a period of time.

A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to amortization of the principal balance. Commonly used with amortizing loans.

Land owned by the government and belonging to the community at large.