| Glossary of Terms |
| Acre: Measure of land area equal to approximately 43,560 sf (4,840 square yards) |
| Basis Point: Yields on municipal securities are usually quoted in increments of basis points. One basis point is equal to 1/100 of 1 percent. |
| Bond: An interest-bearing promise to pay a specified sum of money-the principal amount due on a specific date. |
| Bundling Projects: There are instances in which, in order to implement a group of projects, some of which are not financially feasible, a public partner may want to package the projects that are weaker financially with those projects that are financially feasible. |
| Capital Markets: Markets for trading of debt and equity securities |
| Cash-on-Cash Return: The rate of return on an equity investment measured by the cash returned to the investor, exclusive of income tax savings. |
| Cash Flow: Cash flow is cash receipts minus cash disbursements from a given operation or asset for a given period of time. |
| Catalytic Projects: In order to jump-start the redevelopment of a specific area, government entities will often identify a project that they believe, if successful, will cause the private development community to proceed with commercial projects they would not have without the implementation of the initial catalytic project. |
| Certificates of Participation (COPs): A method of long-term public financing of public facilities through a lease. Capital is raised from investors by the sale of certificates of participation in the lease of the building to the public partner. The certificates are secured by the public partner's lease rental payments. When the certificates of participation are paid off, title to the public facility is transferred to public partner. |
| Credit Enhancement: Credit enhancements are financial arrangements intended to reduce the risks associated with non-recourse project financing. They can improve credit ratings, reduce interest costs, and improve access to the capital markets. |
| Debt Service: The payments required for interest on and repayment of principal amount of debt. |
| Due Diligence: The investigation undertaken to make sure that a proposed project is financially and economically sound so that the principal and interest will be paid on time. |
| Enhanced-Use Lease (EUL): An EUL is an asset management program in the Department of Veterans Affairs (VA) that can include a variety of different leasing arrangements (e.g., lease/develop/operate). EUL's enable the VA to long-term lease VA-controlled property to a private partner or other public entities for non-VA uses in return for receiving fair consideration that enhances the VA's mission or programs. |
| Equity: The difference between fair market value of the property and the amount still owed on its mortgage. Equity is also known as the cash investment often required to obtain conventional financing. The equity portion of project financing typically ranges from 10 to 40 percent of the total development budget for a project. |
| Exclusive Right to Negotiate (ERN): Once a developer has been selected through one of the alternative developer solicitation methods, the public and private partners may enter into an exclusive negotiation agreement. This agreement defines a period of time during which the public partner will negotiate exclusively with the developer for the purpose of concluding a binding agreement for the leas and development of a certain property. |
| Fee Simple: Absolute and unqualified estate providing the owner with all incidence of ownership, including the unconditional power of disposition. |
| General Obligation Bonds: A bond secured by the pledge of the issuer's full faith, credit and taxing power. |
| Gross Square Feet (GSF): The total square footage of a building, including the walls. |
| Ground Lease: A lease for the use and occupancy of land only, usually for a long period of time, ranging from 30 to 99 years. It is also called a land lease. |
| Highest and Best Use: The most advantageous and profitable land and building use to which the property is adaptable, considering the present and future condition of the local development market and uses authorized by applicable zoning and planning. |
| Interest Rate: The rate of interest that discounts the total expected cash flows from an in |
| Internal Rate of Return (IRR): The rate of interest that discounts the total expected cash flows from an investment to a present value that is exactly equal to the amount of the original equity investment. |
| Investment Risk: Probability that an investment's actual yield will be less than its expected yield. |
| Issuer: A state, political subdivision, agency, or authority that borrows money through the sale of bonds or notes. |
| Lease: A lease is a written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time. |
| Lease Revenue Bonds: A bond secured by a lease agreement and rental payments from a public agency (lessee) to another (lessor). Lease payments are typically made from revenue sources including general fund, enterprise fund, or user fees. The lessor and issuer of the bonds may be a city, county, nonprofit corporation, redevelopment agency, joint powers authority, parking authority, etc. The title reverts to lessee after bonds ar retired. |
| Master Developer: A single developer of a large site usually composed of many parcels, which is responsible over an extended period of time for bringing about the comprehensive, integrated development of the site. |
| Monetize Government-Owned Assets: This is simply another term for converting an underutilized government-owned real estate asset into a source of nontax income. |
| Municipal Bond: A bond issued by a state or local government entity. |
| Noncapital Investment: In lieu of capital investment, the public partner can provide investments, which do not require issuing debt or cash outlays. Examples of noncapital investments include providing land at no cost, issuing additional development rights, and reducing the number of parking stalls required for the project. |
| Nonrecouse Financing: Where the sponsor has no direct legal obligation to repay the debt used to finance the project. Instead, the lender relies on the cash flow generated by the project to cover the debt service payments, since they have no recourse to the assets of the project sponsor. |
| Nontax Income: The two ways that public partners can benefit from the implementation of a public/private development project are nontax income and tax revenue. Forms of nontax income include land lease payments, participation rent payments, holding rent payments, etc. Public partners can also realize substantial tax revenue from the property tax, sales tax, and other applicable taxes on the leasehold improvements. |
| Predevelopment Activities: Predevelopment activities are the hundreds, sometimes thousands, of tasks that must be performed in order to begin construction of a project. |
| ProForma (Cash Flow Analysis): Financial projections including an income statement for a real estate project that shows capital costs, operating income and expenses, and return on investment over a single year or for five or ten years or longer. |
| Ramp-Up Years: these are the early years of a project prior to stabilized income is achieved. during the first five years, the cash flow is often not sufficient to generate a net cash flow, or worse. |
| Referendum: The fight of the electorate to vote on a legislative action of the community, including the adoption or amendment of a redevelopment plan. |
| Rentable Area: The space in a building that is available to lease, exclusive of space that is not leased, such as elevator shafts and so forth. |
| Return on Cost (ROC): An important calculation used by developers to assess the financial feasibility of a project. The calculation is the projected net operating (NOI) divided by the total development budget for the project. |
| Sales Tax: A tax imposed on every retailer for the privilege of selling tangible personal property at retail. The rate of the tax is based on a percentage of the gross retail sales. |
| Sensitivity Analysis: A method of financial analysis that measures the impact on the project's return to changes in the underlying assumptions. |
| Subordinate: To make subject or junior to. |
| Tax Increment Financing Bonds: Bonds that are secured and repaid by increased property tax revenues, associated with an increase in assessed valuation over the frozen base. Also known as tax allocation bonds (TABs) in California. |
| Tax Exempt Bonds: Municipal bonds, the interest of which is exempt from federal income, state income, or state and local personal property taxes. |
| Tax Increment: Property tax revenues allocated to the redevelopment agency, which are generated by the increase in assessed value in the project area after the establishment of the redevelopment project area. |
| Total Development Budget: All hard and soft costs required to finance, design, develop, and construct a building. Hard costs include the costs associated with actually constructing the project, site development, and land costs. Soft costs include costs such as consulting fees, investment-banking fees, interest during construction, etc. |
| Transient Occupancy Tax (Hotel Tax): A form of excise tax designed to raise revenue that is imposed on temporary occupants of property rather than on actual property owners. |
| Underwriter: A dealer firm that purchases municipal bonds from the issuer and then resells them to the public. The underwriter assumes the risk of ownership until bonds are sold. |
| Usable Area: The area of a building that the tenant actually occupies. |
