Glossary
Commercial real estate terms
The vocabulary behind a multifamily underwrite, defined plainly.
- Cap rateCapitalization rate
A cap rate is a property’s net operating income divided by its value or price, expressed as a percentage — a measure of unlevered yield.
Cap rate = NOI ÷ value. A 5% cap rate on $1M of NOI implies a $20M value. Lower cap rates imply higher prices (and often lower perceived risk); higher cap rates imply the opposite. Because it depends on how NOI is computed, a cap rate is only comparable when the underlying T-12 is standardized.
- NOINet operating income
Net operating income (NOI) is a property’s operating revenue minus operating expenses, before debt service, capital expenditures, and taxes on income.
NOI is the standard measure of a property’s operating profitability. It excludes financing and capital items so assets can be compared independent of how they’re financed. Cap rate, debt sizing, and valuation all build on NOI, which is why miscategorized expenses distort everything downstream.
- T-12Trailing twelve months · TTM
A T-12 is an operating statement covering the most recent twelve months of a property’s actual income and expenses.
The T-12 is the primary evidence of how a property has actually performed, as opposed to a pro forma projection. Standardizing it onto a consistent chart of accounts is what makes deals comparable.
- Rent roll
A rent roll is a unit-by-unit schedule of a property’s leases, listing unit type, in-place rent, lease dates, and occupancy.
The rent roll establishes current income and occupancy at the unit level. Read alongside the T-12, it lets an underwriter separate in-place performance from the mark-to-market upside.
See also: in-place-rent, mark-to-market-rent
- In-place rent
In-place rent is the rent current tenants actually pay under their existing leases.
In-place rent is the basis for current revenue and NOI. It is compared against market rent to quantify loss-to-lease — the upside an operator can capture as leases roll.
See also: mark-to-market-rent, rent-roll
- Mark-to-market rent
Mark-to-market rent is the market rent a unit would achieve today, used to measure the gap against lower in-place rents.
The mark-to-market gap (loss-to-lease) is the core of a value-add thesis: it estimates the revenue available as below-market leases roll to market, grounded in comparable evidence rather than a flat assumption.
See also: in-place-rent, rent-roll
- DSCRDebt service coverage ratio
DSCR is net operating income divided by annual debt service — how many times the property’s income covers its loan payments.
Lenders size loans to a minimum DSCR (e.g. 1.25×). A DSCR below 1.0 means NOI doesn’t cover debt service. It is one of the binding constraints on how much leverage a deal can carry.
See also: noi
- Offering memorandumOM
An offering memorandum (OM) is the marketing document a broker prepares to sell a property, summarizing the asset, financials, and the seller’s business plan.
The OM is the starting point of most underwrites. It is a sales document, so its figures are verified against the T-12 and rent roll rather than taken at face value.