Commercial Real Estate Terms – R


Rating: Grade, assigned by a rating agency, designating the credit quality or creditworthiness of the underlying assets

Rating Agencies:
Independent firms engaged to rate the creditworthiness of securities for the benefit of investors. The major rating agencies are Fitch Ratings, Standard & Poor’s and Moody’s Investors Service.

Raw Land: Unimproved land that remains in its natural state

Raw Space
: Unimproved / Unfinished shell space in a building. See Tenant Fit out

Real Estate Fundamentals:
The factors driving the value of real property (i.e., the supply, demand and pricing for land and/or developed space in a given geographic or economic region or market)

Real Property:
Land, and generally whatever is erected or affixed to the land that would be personal property if not attached

Real Rate of Return: Yield to investors net of an inflationary factor. The formula for calculating the real rate of return is: [(1 + nominal yield) / (1 + inflation rate)] – 1.
Recapture: When the IRS recovers the tax benefit of a deduction or a credit previously taken by a taxpayer, which is often a factor in foreclosure because there is a forgiveness of debt. As used in leases, it is a clause giving the lessor a percentage of profits above a fixed amount of rent; or in a percentage lease, a clause granting the landlord the right to terminate the lease if the tenant fails to realize minimum sales.

The right of a lender, in the event of default by the borrower, to recover against the personal assets of a party who is secondarily liable for the debt

Red Herring: The preliminary prospectus for an initial public offering. Before the registration statement becomes effective, underwriters may use the preliminary prospectus to market the offering. The preliminary prospectus, however, must bear a legend printed in red ink stating that the offering has been filed but is not yet effective.

Regional Diversification:
Definitions for what constitute various regions, for diversification purposes, vary among managers, consultants and plan sponsors. Some boundaries are defined based purely on geography; others have attempted to define boundaries along economic lines.

Registration Statement: Forms filed with the Securities and Exchange Commission (or the appropriate state regulatory agency) in connection with a proposed offering of new securities or the listing of outstanding securities on a national exchange

Extensive renovation intended to cure obsolescence of a building or project. Rehab may be required vs total demo for various reasons- including zoning, historical status or for tax benefits.

REIT (Real estate investment trust): A business trust or corporation that combines the capital of many investors to acquire or provide financing for real estate. A corporation or trust that qualifies for REIT status generally does not pay corporate income tax to the IRS. Instead, it pays out at least 90 percent of its taxable income in the form of dividends.
See the complete Guide to REITS on

REMIC (Real estate mortgage investment conduit): A product of the Tax Reform Act of 1986, REMICs are designed to hold a pool of mortgages for the exclusive purpose of issuing multiple classes of mortgage-backed securities in a way that avoids a corporate double tax.

Renewal option:
A clause giving a tenant the right to extend the term of a lease

Renewal Probability: Used to estimate leasing-related costs and downtime, it is the average percentage of tenants in a building that are expected to renew at market rental rates upon the expiration of their leases.

Rent: Compensation or fee paid for the occupancy and use of any rental property, land, buildings, equipment, etc.

Rent Commencement Date:
The date on which a tenant begins paying rent. A tenant may be given “free rent” for tenant fit-out or as an incentive to move in and establish themselves.

Rentable/usable Ratio
: A building’s total rentable area divided by its usable area. It represents the tenant’s pro-rata share of the building’s common areas and can determine the square footage upon which the tenant will pay rent. The inverse describes the proportion of space that an occupant can expect to actually use.

Rental Concession: What landlords offer tenants to secure their tenancy. While rental abatement is one form of a concession, there are many others such as increased tenant improvement allowance, signage, below-market rental rates and moving allowances.

Rental Growth Rate:
The expected trend in market rental rates over the period of analysis, expressed as an annual percentage increase

Rent-up Period:
The period following construction of a new building when tenants are actively being sought and the project is approaching its stabilized occupancy

REO (Real estate owned): Real estate owned by a savings institution as a result of default by borrowers and subsequent foreclosure by the institution

Replacement Cost:
The estimated current cost to construct a building with utility equivalent to the building being appraised, using modern materials and current standards, design and layout

Replacement Reserves:
An allowance that provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced during the building’s economic life

Request for Proposal (RFP):
A formal request, issued by a plan sponsor or its consultant, inviting investment managers to submit information on their firms’ investment strategy, historical investment performance, current investment opportunities, investment management fees, other pension fund client relationships, etc. Firms that meet the qualifications are requested to make a formal presentation to the board of trustees and senior staff members. Finalists are chosen at the completion of this process, and contract negotiation begins.

Reserve Account:
An account that a borrower has to fund to protect the lender. Examples include capital expenditure accounts and deferred maintenance accounts.

Resolution Trust Corp. (RTC): The RTC was established by Congress in 1989 to contain, manage and sell failed savings institutions and recover taxpayer funds through the management and sale of the institutions’ assets.

Retail Investor
: When used to describe an investor, retail refers to the nature of the distribution channel and the market for the services – selling interests directly to consumers.

Retention Rate: The percent of trailing 12-month earnings that have been ploughed back into the company. It is calculated as 100 minus the trailing 12-month payout ratio.

Return on Assets:
The income after taxes for the trailing 12 months divided by the average total assets, expressed as a percentage

Return on Equity:
The income available to common stockholders for the trailing 12 months divided by the average common equity, expressed as a percentage

Return on Investments:
The trailing 12-month income after taxes divided by the average total long-term debt, other long-term liabilities and shareholders equity, expressed as a percentage

RevPAR (Revenue per available room): Total room revenue for the period divided by the average number of available rooms in a hospitality facility

Risk Management: A systematic approach to identifying and separating insurable risks from non-insurable risks, and evaluating the availability and costs of purchasing third-party insurance

Risk-Adjusted Rate of Return
: Used to identify investment alternatives that can be expected to deliver a positive premium, after taking into consideration the expected volatility. The risk-adjusted rate of return is defined as the expected rate of return of a given asset, less the expected return for T-bills, divided by the expected standard deviation of the returns for the assets.

Roll-Over Risk: The risk that a tenant’s lease will not be renewed

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