BALLOON PAYMENT: Is a large payment due on a balloon note. Generally a balloon payment is required when regular monthly or quarterly payments have not covered both the increase due and the principal of the loan.
BANKRUPT: The condition when one is found to be unable to repay one’s debts by a court having proper jurisdiction. The bankruptcy may be one of two types: one that is petitioned by the debtor (voluntary) or petitioned by creditors (involuntary).
BANKRUPTCY: Proceedings under federal statutes to relieve a debtor who has been declared bankrupt from insurmountable debt. After addressing certain priorities and exemptions, the bankrupt’s property and other assets are distributed by the court to creditors as full satisfaction for the debt. (See also Chapter 11.)
BASE RENT: A set amount used as a minimum rent in a lease which also employs a percentage or other allocation for additional rent.
BASE YEAR: Is the year upon which a direct expense escalation of rent is based. (See also Escalation Clause.)
BELOW-GRADE: Any facility or part of a facility located underground or below the surface grade.
BREACH OF WARRANTY: The failure of the seller of real property to pass title as either express or implied by law in the conveyance document.
BROKER: A broker is an individual or party (brokerage firm) that arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal.
In general, a broker is an independent agent whose prime responsibility is to bring sellers and buyers together and thus a broker is the third-person facilitator between a buyer and a seller. An example would be a real estate broker who facilitates the sale of a property. Brokers may also furnish market information regarding prices, products, and market conditions. Brokers may represent either the seller or the buyer but not both at the same time. (See Exception: Transaction Broker.)
BUFFER: A strip or parcel of land established as a transition between parcels of land, such as a strip or parcel of land between an industrial and residential area. It may contain natural or planted shrubs, walls or fencing, singly or in combination. It is also known as Buffer Zone or Buffer Strip.
BUILDING CLASSIFICATIONS: Building classifications are used to differentiate buildings and help the reporting of market data in a manner that differentiates between building types. That said, there is no definitive formula for classifying a building, nor is there an international standard for classification, but the general characteristics of each are as follows:
- Class A – These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with superior construction, and possess high quality building infrastructure. They are also well-located, have good access, are professionally managed and attract high quality tenants and rents.
- Class B – These buildings are generally a little older, but still have good quality management and tenants. Quite often, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation, such as facade and common area improvements. These buildings should generally not be functionally obsolete and should be well maintained.
- Class C – These are the lowest classification of office buildings and space. These are older buildings (usually more than 20 years old), they are located in less desirable areas, and are in need of extensive renovations. Architecturally, these buildings are the least desirable and their infrastructure and technology is out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.
(Reminder: One of the most important things to consider about building classifications is that buildings should be viewed in context and relative to other buildings within the sub-market; a Class A building in one market may not be a Class A building in another.)
BUILDING CODE: Is a set of laws, usually enacted by city ordinance or other local jurisdictions, regulating the design, materials, and construction of buildings.
BUILDING STANDARD: Is a list of construction materials and finishes used in building out office space for a tenant that the landlord contributes as part of the basic tenant improvements and within the basic rent structure. Examples of standard building items are: doors, partitions, lights, floor covering, telephone outlets, etc. It may also specify the quantity and quality of the materials to be used and often carries a dollar value. (See also Workletter.)
BUILD OUT: The cost of configuring and finishing new or re-let space in accordance with a tenant’s specifications.
BUILD TO SUIT: A method of leasing property whereby the landlord builds a new building, in accordance with a tenant’s specifications, and leases the entire building to the tenant.
BULLET LOAN: Also known as a Construction Loan. Any of a variety of short-term (generally two to five years) financing, provided by a lender to a developer, to cover the costs of construction and lease-up of a new building; with the expectation that it will be replaced by long-term (or permanent) financing provided by an institutional investor, once most of the risk involved in construction and lease-up has been overcome, resulting in an income-producing property.