Net Operating Income. This is the profit a real estate asset makes BEFORE considering debt service payments. This is a benchmark measure when evaluating the performance of an asset because each investor may get different debt terms and thus debt payments.

Cap Rate

NOI / Purchase price.  By dividing the net operating income by the value of an asset (purchase price) and you get a %. That % is the cap rate. A 5 cap means 5%.  If you pay $1MM for an asset at a 5 cap that asset generates 50k of NOI.


General Partner = sponsor = syndicator.  These all synonymous.  The firm who sources the deal, underwrites the deal, puts together the deal, oversees/manages the deal, secures financing for the deal.


Limited Partner = passive investor, sometimes known as a “silent partner,” will serve solely as an investor in the business, with the funds that they contribute being the extent of their liability.


Preferred Return. This is the return that LPs get first. They get paid this return before the GP get paid any money. An 8 pref means the LP is entitled to an 8% annual yield on their money before the GP gets paid.


Carry = carried interest = the amount of cash above the preferred return a GP is entitled to. This is what the GP works for on the deal.

Catch Up

LP investors are almost always paid first, but at some point along the waterfall the sponsor may ask that it “catch up” to a fuller participation in the project’s profits.  For example, the sponsor may enjoy 20% of the project’s excess distributable cash flow after the investors’ preferred payments have been made, but it may ask also that, once a trigger threshold is reached, it be permitted to “catch up” to those earlier investor payments so that its overall profit share rises to 20% of all profits, not just those following the payment of the preferred return.  For example, after the investors have reached an annualized 12% return, the sponsor might ask that it get additional cash distributions so that it has 20% share of the project’s profits as a whole (i.e., it “catches up” on the preferred returns that were first paid to the investors).

Un-Levered Yield

This is a % return on a deal if it didn't have debt on it. It is the same as cap rate.

Debt Service

This is a term for principal and interest payments on a loan. Most commercial real estate has a loan on it at a certain interest rate. The monthly payment is the debt service.

Cash On Cash (COC)

This is a return, as a %, on the cash you invest. It takes into account debt service payments. If you invest $100k and you get an annual return of $10k after you pay your debt service, the COC would be 10%.


This means to figure out what a deal is worth to you. It involves projecting the cashflow and yield and lease up periods and deciding what you are willing to pay.

Pro Forma

Is a term used in real estate investing that relates to an investment property's projected income potential. It's a forecast of the property's cash flow using its future potential income and expenses to show how a property could perform if certain adjustments were made like raising rents, decreasing vacancies, making capital improvements, and developing or expanding.

Refi (Refinance)

This means you go to a bank after you have owned an asset for a while and get new loans put on it. Sometimes these exceed the value of the previous loans and there is left over cash. This is called a cash-out-refi.

Asset Class

This refers to a type of asset. Examples would be industrial, hospitality, multifamily, retail, etc.

Debt Service Coverage Ratio (DSCR)

Its the relation to NOI to the total debt service obligation with principle and interest. NOI= $70k DS = $35k DSCR = 2 Most banks have a 1.25 DSCR minimum stress test as a way to assess risk.

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