Learn the words
before you need them.

• GP equity

  Structure

  An ownership position on the general partner side of a deal, rather than the passive investor side.

  The catchAt Capstaq this means a straight ownership percentage, no front-end acquisition fee and no back-end waterfall. GP can carry different obligations elsewhere, so read the documents for the deal in front of you.

• LP equity

  Structure

  The usual passive seat. You contribute money, you have limited say in decisions, and your economics sit behind the sponsor's.

  The catchAn acquisition fee on the way in and a promote on the way out both come out of your side of the deal.

• Joint venture

  Structure

  Two or more parties owning one asset together under a negotiated agreement.

  The catchThe label says nothing about who controls decisions. That lives in the operating agreement, not in the term.

• Sponsor

  Structure

  The party that puts the deal together: finds the property, arranges the money, and answers for the plan.

  The catchThe sponsor and the operator are often different people. Ask which one is actually running the building.

• Operator

  Structure

  The team that runs the asset day to day, from leasing and staffing through to reporting.

  The catchThe pro forma is a spreadsheet. The operator is who has to make it real.

• Syndication

  Structure

  A structure where a sponsor gathers money from several investors to buy or build one property.

  The catchSyndication describes how the money was gathered. It tells you nothing about whether the deal is good.

• Single-asset entity

  Structure

  One legal entity that owns exactly one property, with its own books, debt, and investors.

  The catchIt keeps one building's problems from reaching another building. It does not reduce the risk of the building you are actually in.

• Blind pool

  Structure

  A fund you commit money to before anyone knows which properties it will buy.

  The catchYou are underwriting a manager and a strategy, not a building. The specific assets arrive after your money does.

• Capital stack

  Structure

  The layers of money in a deal, ordered by who gets paid first and who takes losses first.

  The catchKnow exactly which layer you are in. In a good year the ordering barely matters. In a bad year it decides everything.

• Senior debt

  Structure

  The primary loan on the property. First in line to be repaid and first with the right to foreclose.

  The catchThe lender's protection is paid for out of your position. Equity is last in line, always.

• Mezzanine

  Structure

  A layer of financing between the bank loan and the equity. More expensive than the bank, safer than equity.

  The catchMezzanine lenders can take control of the property if payments are missed, ahead of any equity owner.

• Promote

  Money

  The extra share of profits a sponsor earns once certain return hurdles have been met.

  The catchIt is compensation, not ownership. It dilutes your share of the upside precisely when the deal is working.

• Preferred return

  Money

  A return the investor is intended to receive before the sponsor shares in any profit.

  The catchPreferred means first in line, not promised. If the cash is not there, it is not paid, and unpaid amounts may simply accrue.

• Waterfall

  Money

  The order in which cash from the property gets distributed among the parties.

  The catchIt is a queue, and the sponsor is usually somewhere in front of you. Ask exactly who stands ahead of your dollar before you invest.

• Acquisition fee

  Money

  A fee the sponsor charges for sourcing and closing the property, paid at closing.

  The catchIt comes out of the money you put in, before a single dollar of it goes to work in the building.

• IRR

  Money

  A return measure that accounts for both how much you invested and when money came back to you.

  The catchIRR rewards speed. A quick, smaller profit can beat a larger, slower one on IRR alone, so never read it without the hold period beside it.

• Equity multiple

  Money

  Total dollars returned divided by total dollars invested.

  The catchIt ignores time completely. Two times your money over three years and over ten years look identical on this measure.

• Cash-on-cash

  Money

  Annual cash distributions divided by the cash you invested.

  The catchIt measures cash flow only. It says nothing about what the property will be worth when it sells.

• NOI

  Money

  Income after operating expenses, before loan payments and income taxes.

  The catchValuations key off this number, so small changes in expense assumptions move the value of the building a lot.

• Cap rate

  Money

  Net operating income divided by the property price. A rough yield used to compare properties.

  The catchIt is a market opinion, not a fixed number. When cap rates rise, values fall even if the building performs exactly to plan.

• DSCR

  Money

  Operating income divided by the loan payment. A measure of how much cushion sits above the debt.

  The catchFall below the ratio the lender requires and the loan can restrict distributions or go into default, even while the building is full.

• Distribution

  Money

  Cash paid out to owners from the property's operations or from a sale or refinancing.

  The catchA distribution is not a dividend and is not guaranteed. It can be reduced, paused, or stopped.

• Capital call

  Money

  A request for additional money from existing owners after the initial investment.

  The catchAsk about this before you invest. Not funding a call can dilute your position and, under some agreements, forfeit part of it.

• Pro forma

  Money

  The sponsor's projection of how the property will perform over the hold.

  The catchIt is a forecast built on assumptions, not a record. Ask which single assumption has to be wrong for the plan to miss.

• Accredited investor

  Legal

  An investor who meets income or net worth tests set by securities regulators, which permits them to buy private offerings.

  The catchThe tests are defined by rule and they change. Confirm the current standard with your own adviser rather than a website.

• Reg D

  Legal

  The SEC rule set most private real estate offerings rely on to raise money without registering publicly.

  The catchUnregistered does not mean unregulated. It means the disclosure burden shifts onto you and your advisers.

• 506(b)

  Legal

  A Reg D path where the sponsor may not advertise and must have a pre-existing relationship with each investor.

  The catchThis is why some opportunities are never visible on any website. The relationship has to exist before the offer does.

• 506(c)

  Legal

  A Reg D path where the sponsor may advertise publicly, provided every investor's accredited status is verified.

  The catchVerification here means documents reviewed by a third party, not a box you tick yourself.

• PPM

  Legal

  The offering document: terms, structure, fees, conflicts of interest, and the full risk section.

  The catchThe risk section is the part worth reading twice. It controls over anything written on a marketing page, including this one.

• Subscription agreement

  Legal

  The contract you sign to invest, carrying your representations and your commitment amount.

  The catchSigning it is the commitment. Every question you have belongs before the signature, not after.

• Operating agreement

  Legal

  The rulebook of the entity that owns the property: who decides what, how cash moves, what happens in a dispute.

  The catchVoting rights, transfer restrictions, and capital call terms all live in here. It is the document that governs a bad year.

• K-1

  Legal

  The annual tax form reporting your share of the entity's income, loss, and deductions.

  The catchK-1s often arrive after the standard filing deadline, so filing an extension is common for private real estate investors.

• Ground-up development

  Risk

  Building a property from nothing on land, rather than buying one that already operates.

  The catchThe riskiest business plan of the set. There is no income until the building opens, and cost and schedule are exposed the entire way.

• Value-add

  Risk

  Buying an existing property and improving it, physically or operationally, to raise income.

  The catchThe plan depends on tenants accepting higher rent later. That is a market call, not a construction call.

• Certificate of occupancy

  Risk

  The municipal sign-off confirming a building is legally fit to be used.

  The catchNo certificate means no tenants and no income, whatever the construction schedule says is finished.

• Pre-leasing

  Risk

  Signing tenants before a building opens or before a renovation completes.

  The catchStrong pre-leasing takes real risk off an opening. Weak pre-leasing this late in the schedule is the earliest warning sign you get.

• Hold period

  Risk

  How long the sponsor expects to own the property before selling it.

  The catchIt is a plan, not a term. Holds get extended, and your money is not liquid while that happens.

• Exit

  Risk

  How the investment ends: a sale, a refinancing, or a transfer of the interest.

  The catchThe exit assumption is usually the single biggest driver of a projected return, and it is set years before it has to be true.

• Illiquidity

  Risk

  You cannot sell your interest whenever you decide to. There is no public market for it.

  The catchThis is a feature of the structure, not a flaw in a particular deal. Commit money you can leave alone for the full hold and longer.

• 1031 exchange

  Tax

  A rule that can defer capital gains tax when proceeds from a sale are reinvested into like-kind real estate.

  The catchThe clock is unforgiving. Generally 45 days to identify replacements and 180 days to close, and the proceeds must run through a qualified intermediary rather than your own account.

• Qualified intermediary

  Tax

  The independent party that holds sale proceeds during a 1031 exchange and handles the paperwork.

  The catchIf the money touches your account, the exchange generally fails. The intermediary has to be engaged before the sale closes.

• Self-directed IRA

  Tax

  A retirement account able to hold private assets, including interests in real estate.

  The catchThe IRA owns the investment, not you. Personal use of the asset or paying its expenses personally can create serious tax consequences.

• UBIT

  Tax

  Tax an otherwise tax-exempt account can owe on certain income, including income produced with borrowed money.

  The catchA leveraged real estate deal held inside an IRA can generate a tax bill inside the account. Ask about it before you fund, not at filing time.

• Depreciation

  Tax

  A yearly paper deduction for wear on the building, which can shelter some of the income it produces.

  The catchIt is deferral, not forgiveness. Depreciation is generally recaptured and taxed when the property is sold.

• Bonus depreciation

  Tax

  A rule allowing a large share of certain deductions to be taken in the first year rather than spread across many.

  The catchThe percentage is set by law and has changed repeatedly. Confirm what applies to your specific tax year.

• Cost segregation

  Tax

  An engineering study that reclassifies parts of a building into shorter depreciation lives so deductions arrive sooner.

  The catchIt moves deductions forward, it does not create new ones, and it increases the amount recaptured at sale.

Still missing a word? The team would rather answer it than have you guess. Ask us directly.