If you missed it, check out Part One and Part Two of our essential terms series. Together, they form a solid foundation. Now in Part Three, we advance deeper into metrics, leases, financial models, and strategies that separate savvy investors and tenants from the rest. And for a broader reference, you can always refer to our Real Estate Terms Glossary
1. Internal Rate of Return (IRR)
Definition: The discount rate at which the net present value (NPV) of all cash flows (positive and negative) from a project equals zero.
Why it matters (Central PA): When evaluating acquisitions or development in Harrisburg, IRR helps compare returns across different deals and markets.
2. Cash-on-Cash Return
Definition: The annual pre-tax cash flow divided by the total cash invested.
Why it matters: A useful metric for investors to understand actual annual yield (before debt service and taxes), especially in local deals with moderate leverage.
3. Vacancy Loss / Vacancy Rate
Definition: The percentage of total rentable square feet that is unoccupied at a given time.
Why it matters: In Harrisburg submarkets, vacancy can vary significantly by corridor (downtown, suburbs, townships). This metric helps track health and trends.
4. Debt Yield
Definition: Net operating income (NOI) divided by the loan amount (expressed as a percentage).
Why it matters: Lenders use debt yield as a risk metric. In smaller markets like Central PA, a strong debt yield may help secure better financing terms.
5. Percentage Rent / Overage Rent
Definition: Rent structure where the tenant pays base rent plus a percentage of sales above a threshold.
Why it matters: Often used in retail or small-format models (which you may read about in our “small format retail” discussions). This aligns landlord revenue to tenant success.
6. Base Year / Expense Stop
Definition: A threshold year’s operating expenses (property taxes, insurance, maintenance) that landlord covers; tenant pays overages.
Why it matters: Knowing which base year is used (e.g. 2025 vs 2023) can materially impact tenant costs. BGG’s lease resources often warn tenants about expense escalation risk.
7. Reversion Value
Definition: The anticipated sale price at the end of the holding period (i.e., what you “revert” to when you sell).
Why it matters: In CRE modeling, returns aren’t just from rent — exit value matters, especially with limited appreciation in secondary markets.
8. Gross Absorption / Net Absorption
Definition:
- Gross absorption: total square feet leased or occupied in a period.
- Net absorption: gross absorption minus the square feet vacated (i.e. net growth).
Why it matters: A critical market health indicator. When net absorption in Cumberland, Lower Paxton, or Susquehanna turns positive, local demand is returning.
9. Capital Expenditure (CapEx)
Definition: Funds used to upgrade, repair, or extend a property’s useful life (e.g. roof, HVAC, façade).
Why it matters: Older Harrisburg properties often need more CapEx; underestimating this can erode cash flows.
10. Build-to-Core / Core-Plus / Value-Add / Opportunistic
Definition: Investment risk/return categories (from low risk/low return to high risk/high return).
Why it matters: It helps benchmark your deal — whether it’s a stabilized office in Carlisle or a speculative redevelopment in the city — and match to investor appetite.
11. Load Factor / Loss Factor
Definition: The ratio of usable space to rentable space (rentable > usable due to common areas).
Why it matters: Tenants and owners must understand how much “non-usable” area they’re paying for, particularly in multi-tenant buildings.
12. Turnkey / Turnkey Facility
Definition: A property delivered fully ready for occupancy, with systems, finishes, and approvals in place.
Why it matters: Particularly relevant for industrial or medical users relocating in Central PA who want minimal downtime.
13. Step Rent / Graduated Lease
Definition: Rent that increases in steps over the lease term (e.g. $15/sf for first 2 years, then $17/sf).
Why it matters: Helps tenants and landlords manage escalation. Especially useful in inflationary environments.
14. Triple Net Lease (NNN)
Definition: Lease where the tenant pays base rent + property taxes + insurance + maintenance.
Why it matters: Common in retail and industrial deals. Helps shift operating cost risk to tenants.
15. Modified Gross Lease
Definition: A lease where landlord and tenant split operating costs in some agreed way (not fully triple net, not full gross).
Why it matters: Offers flexibility, often used in office deals in Harrisburg where full NNN may scare certain tenants.
16. Escalation Clause
Definition: Clause that allows rent to increase over time (e.g. tied to CPI or fixed percentage).
Why it matters: Protects landlords from inflation and rising costs. Tenants should negotiate caps or floors.
17. Operating Expense Reconciliations
Definition: Annual review comparing estimated vs actual operating expenses and adjusting tenant charges accordingly.
Why it matters: Allows reconciliation — you don’t overcharge or undercharge. Tenants need to pay attention to true-ups.
18. CAM (Common Area Maintenance) Charges
Definition: Operating costs for shared areas (parking lot, landscaping, lighting) that tenants may share.
Why it matters: One of the big “hidden” costs in leases. You can also find CAM defined in the BGG Glossary and revisit our earlier series: Part One and Part Two.
19. Sales Comparison Approach
Definition: Valuation method comparing a property to recently sold similar properties.
Why it matters: Especially useful in local deals where nearby comps (e.g. in Cumberland) inform pricing.
20. Sale & Leaseback
Definition: Owner sells property and then leases it back from the buyer.
Why it matters: Allows owners to unlock capital while still occupying the space (common for corporate users).
21. Debt Service Coverage Ratio (DSCR)
Definition: Net operating income divided by debt service (principal + interest).
Why it matters: Lenders rely on this metric. A DSCR of 1.25+ is often seen as healthy in secondary markets.
22. Rentable Square Feet (RSF) vs Usable Square Feet (USF)
Definition:
- Usable SF: the area exclusive to the tenant.
- Rentable SF: includes a share of common areas (with load factor).
Why it matters: Ensures clarity about what a tenant is really paying for. Misunderstanding can lead to sticker-shock.
23. Escrow Holdback
Definition: Portion of funds withheld until certain conditions are met (e.g. final inspections, tenant finish).
Why it matters: In deals with build-outs or deferred work, holdbacks protect both parties.
24. Operating Margin (Operating Expense Ratio)
Definition: Operating expenses divided by effective gross income.
Why it matters: Indicates efficiency: lower ratios mean more profit relative to income. In aging buildings, margin can shrink quickly.
25. Planned Unit Development (PUD)
Definition: A zoning/development concept combining residential, commercial, and open space in one unit under common ownership or association.
Why it matters: In township growth areas around Harrisburg (Cumberland, Lower Paxton), PUDs are becoming attractive for mixed-use opportunities.
That’s your next 25 CRE terms to keep in your toolkit. Combined with Part One and Part Two, you now have over 75 terms to inform your deals, leases, and market strategies. If you dive into any of these terms and want to see how they apply to your property or deal in the Harrisburg area, we’re just a call away.
For more definitions, check out our ongoing Real Estate Terms Glossary and revisit our earlier series: Part One and Part Two.