Commercial Real Estate Glossary

Commercial Real Estate Definitions

This glossary defines 114 commercial real estate terms the way they are used in actual deals: valuation and returns, financing, leases, property types, the transaction process, tax strategy, investment structures, distressed property and data centers. Each definition starts with a one-sentence answer, followed by context or an example, and links to the full guide where one exists.

A–Z Index

Valuation & Returns

How commercial property is priced and how investors measure what a deal earns.

Net Operating Income (NOI)#

Net operating income is a property's annual income after operating expenses but before debt payments, income taxes, depreciation and capital expenditures. NOI is the number almost every commercial valuation starts from. Example: $500,000 of rent and other income minus $180,000 of taxes, insurance, repairs and management leaves $320,000 of NOI.

Capitalization Rate (Cap Rate)#

A cap rate is a property's net operating income divided by its price, expressed as a percentage. It shows the unlevered first-year yield a buyer gets and is the quickest way to compare pricing across deals. Example: $320,000 of NOI on a $4,000,000 purchase is an 8% cap rate. Lower cap rates mean higher prices relative to income, and usually lower perceived risk.

Gross Rent Multiplier (GRM)#

Gross rent multiplier is the purchase price divided by gross annual rent. It ignores expenses, so it is a rough screen used mostly for small multifamily and mixed-use buildings, not a substitute for NOI-based valuation.

Cash-on-Cash Return#

Cash-on-cash return is the annual pre-tax cash flow after debt service divided by the cash the investor put in. Example: $60,000 of cash flow on $750,000 of equity is an 8% cash-on-cash return. It measures current yield on equity, not total return.

Internal Rate of Return (IRR)#

Internal rate of return is the annualized return that accounts for the timing of every cash flow, from the initial investment through annual distributions and the sale. Because it rewards getting money back sooner, IRR is the standard measure for comparing deals with different hold periods.

Equity Multiple#

The equity multiple is total cash returned to investors divided by total equity invested. A 2.0x multiple means every dollar invested came back as two dollars. Unlike IRR, it says nothing about how long that took, so the two are read together.

Yield on Cost#

Yield on cost is the stabilized NOI a project is expected to produce divided by its total cost, including land, construction or renovation, and soft costs. Developers compare it with market cap rates; the gap between the two is the value created.

Price per Square Foot#

Price per square foot is the sale price divided by the building's square footage. It is useful for comparing similar buildings in the same market but misleading across property types or quality levels, which is why income-based measures usually carry more weight.

Replacement Cost#

Replacement cost is what it would cost today to build an equivalent property, including land and construction. When existing buildings trade well below replacement cost, new competing supply is less likely, which supports rents and values. See Warehouse Construction Cost.

Highest and Best Use#

Highest and best use is the legally permitted, physically possible and financially feasible use that produces the highest value for a property. Appraisers test it both as if the land were vacant and as currently improved. See Highest and Best Use of an Obsolete Industrial Site.

Appraisal Approaches (Income, Sales Comparison, Cost)#

Commercial appraisers value property three ways: the income approach (capitalizing or discounting NOI), the sales comparison approach (adjusting recent comparable sales) and the cost approach (replacement cost less depreciation, plus land). For income-producing property the income approach usually carries the most weight.

Broker Opinion of Value (BOV)#

A broker opinion of value is a broker's written estimate of what a property would sell for, based on comparable sales, current income and market conditions. It is not an appraisal, but owners use it to decide whether and how to sell.

Pro Forma#

A pro forma is a projected financial statement showing expected income, expenses and cash flow for a property, usually over a five- to ten-year hold. Buyers should compare a seller's pro forma against actual historical operating statements.

Underwriting#

Underwriting is the process of analyzing a property's income, expenses, physical condition, market and risks to decide what it is worth and how much to pay or lend. See How Institutional Buyers Evaluate Commercial Real Estate.

Stabilized Property#

A stabilized property is one operating at market-level occupancy and rent, typically after lease-up or renovation is complete. Lenders and buyers price stabilized assets differently from properties that are still in transition.

Core, Core-Plus, Value-Add and Opportunistic#

These four labels describe risk and return profiles. Core is stabilized, well-leased property with low leverage and modest returns. Core-plus adds light improvement potential. Value-add involves renovation, re-leasing or repositioning. Opportunistic covers development, heavy distress and other high-risk, high-return strategies.

Financing & Debt

The loan terms, ratios and capital layers that shape what a buyer can pay.

Loan-to-Value (LTV)#

Loan-to-value is the loan amount divided by the property's appraised value. A $3,000,000 loan on a $5,000,000 property is 60% LTV. Commercial lenders commonly cap LTV between 55% and 75% depending on property type and lender.

Loan-to-Cost (LTC)#

Loan-to-cost is the loan amount divided by the total project cost, including purchase price, construction or renovation, and soft costs. Construction and bridge lenders size loans on LTC because the finished value does not exist yet.

Debt Service Coverage Ratio (DSCR)#

Debt service coverage ratio is a property's NOI divided by its annual loan payments. A DSCR of 1.25x means the property earns 25% more than it needs to pay the debt. Many commercial lenders require roughly 1.20x to 1.35x, and DSCR often limits loan size more than LTV does.

Debt Yield#

Debt yield is NOI divided by the loan amount. It tells a lender how quickly it would recover its money from property income if it took the building back, independent of interest rates or amortization. Many lenders look for a debt yield of roughly 8% to 10% or higher.

Amortization#

Amortization is the gradual repayment of loan principal through scheduled payments. Commercial loans often amortize over 20 to 30 years but mature sooner, leaving a balance due at maturity.

Balloon Payment#

A balloon payment is the large remaining loan balance due at maturity when a loan's term is shorter than its amortization schedule. Owners usually refinance or sell to pay it, which creates refinancing risk if rates or values have moved against them.

Recourse vs. Non-Recourse Debt#

With recourse debt, the borrower or guarantor is personally liable if the property's sale does not cover the loan. With non-recourse debt, the lender's remedy is generally limited to the property itself, subject to carve-outs.

Bad-Boy Carve-Outs#

Bad-boy carve-outs are exceptions in a non-recourse loan that make the borrower or guarantor personally liable for specific acts such as fraud, misapplying rents, unauthorized transfers or voluntary bankruptcy.

Prepayment Penalty, Yield Maintenance and Defeasance#

These are the costs of paying off a commercial loan early. A prepayment penalty may be a set percentage that steps down over time. Yield maintenance compensates the lender for interest it loses. Defeasance, common with CMBS loans, replaces the property as collateral with a portfolio of government securities that covers the remaining payments.

CMBS (Commercial Mortgage-Backed Securities)#

CMBS loans are commercial mortgages pooled together and sold to bond investors. They often offer non-recourse terms and fixed rates but are administered by servicers rather than a relationship lender, which makes modifications and workouts harder.

Bridge Loan#

A bridge loan is short-term financing, typically one to three years, used to buy or reposition a property until it qualifies for permanent financing or is sold. Bridge loans carry higher rates and more flexibility than permanent loans.

Mezzanine Debt#

Mezzanine debt is financing that sits behind the senior mortgage and is usually secured by a pledge of the ownership interests in the borrowing entity rather than by the property. It fills the gap between the senior loan and equity at a higher interest rate.

Preferred Equity#

Preferred equity is an investment that is paid back, with a set return, before common equity but after all debt. It works like mezzanine debt economically but is structured as ownership rather than a loan.

Capital Stack#

The capital stack is the layered structure of money used to fund a property, from senior debt at the bottom (lowest risk, first paid) through mezzanine debt and preferred equity to common equity at the top (highest risk, last paid, highest upside).

SBA 504 and 7(a) Loans#

SBA 504 and 7(a) loans are U.S. Small Business Administration programs that help owner-operated businesses buy or build the real estate they occupy, often with a lower down payment than conventional commercial loans. Owner-occupancy rules apply.

Leases & Income

Lease structures decide who pays which costs and how secure the income is.

Triple Net Lease (NNN)#

A triple net lease is a lease in which the tenant pays base rent plus its share of property taxes, insurance and maintenance. NNN leases give owners predictable income because most operating cost increases pass through to the tenant. See The 2026 Owner's Guide: Retail Real Estate.

Absolute Net Lease#

An absolute net lease is a triple net lease in which the tenant also bears roof, structure and other capital repair responsibilities, leaving the landlord with almost no obligations. It is common with single-tenant credit properties.

Gross Lease and Modified Gross Lease#

In a gross lease, the tenant pays one rent and the landlord pays operating expenses. A modified gross lease splits costs, often with the tenant paying utilities or increases in expenses over a base year. Gross structures are common in office and multi-tenant flex space.

CAM (Common Area Maintenance)#

CAM charges are tenants' shares of the cost to operate and maintain shared areas such as parking lots, landscaping, lighting and common hallways. CAM is billed on top of base rent and reconciled against actual costs each year.

Rent Escalations#

Rent escalations are scheduled increases in base rent, either fixed (for example 3% a year) or tied to an index such as CPI. Escalations protect an owner's income against inflation over a long lease.

Tenant Improvement Allowance (TI)#

A tenant improvement allowance is money a landlord provides, usually per square foot, to build out or customize a tenant's space. Larger TI packages often come with longer lease terms or higher rent.

Free Rent and Concessions#

Free rent is a period at the start of a lease when the tenant pays no base rent, offered as an incentive to sign. Along with TI allowances, it lowers the effective rent below the face rent quoted in the lease.

Rent Roll#

A rent roll is a list of every tenant with suite, square footage, rent, lease dates, escalations and deposits. It is one of the first documents a buyer or lender asks for and should match the leases and estoppels.

Estoppel Certificate#

An estoppel certificate is a signed statement from a tenant confirming its lease terms, rent, deposit and that no defaults or disputes exist. Buyers and lenders rely on estoppels to confirm what the seller has represented.

SNDA (Subordination, Non-Disturbance and Attornment Agreement)#

An SNDA is an agreement among a tenant, landlord and lender in which the tenant's lease is placed behind the mortgage, the lender agrees not to disturb the tenant if it forecloses, and the tenant agrees to recognize a new owner.

WALT (Weighted Average Lease Term)#

WALT is the average remaining lease term across a property's tenants, weighted by rent or square footage. A longer WALT means more predictable income and generally supports a lower cap rate.

Credit Tenant#

A credit tenant is a tenant with an investment-grade credit rating or comparably strong financials, such as a national retailer or public company. Properties leased to credit tenants are valued largely on the strength of that tenant's promise to pay.

Sale-Leaseback#

A sale-leaseback is a transaction in which a business sells the real estate it occupies to an investor and simultaneously signs a long-term lease to stay. The seller frees up capital tied up in property; the buyer gets a leased asset with a committed tenant.

Ground Lease#

A ground lease is a long-term lease of land only, often 50 to 99 years, in which the tenant builds and owns the improvements during the term. At the end of the lease the improvements typically revert to the landowner.

Percentage Rent#

Percentage rent is additional rent a retail tenant pays based on a share of its sales above a set breakpoint. It lets the landlord share in a strong tenant's success.

Vacancy and Credit Loss#

Vacancy and credit loss is the deduction underwriters make from potential gross income for empty space and tenants who do not pay. Even fully leased properties are usually underwritten with some allowance for it.

Property Types & Building Terms

The vocabulary used to describe what a building is and how it functions.

Class A, B and C Properties#

Property classes are informal quality grades. Class A buildings are newer, well-located and command top rents. Class B buildings are older but functional. Class C buildings are older, need work and rent at the low end of the market. The labels are relative to each market, not fixed standards.

Industrial Real Estate#

Industrial real estate covers warehouses, distribution centers, manufacturing plants, flex buildings, cold storage and outdoor storage yards. See The 2026 Owner's Guide: Warehouse and Industrial.

Industrial Outdoor Storage (IOS)#

Industrial outdoor storage is industrial land with a small building or none, used for truck parking, trailer and container storage, equipment yards and laydown. Value comes from the usable land and the zoning that allows outdoor storage. See The IOS Guide.

Flex Space#

Flex space is a building that combines office with warehouse, light industrial or showroom space, usually with lower clear heights than a distribution building. It suits small businesses that need both.

Clear Height#

Clear height is the usable vertical space inside a warehouse, measured from the floor to the lowest overhead obstruction such as joists, sprinklers or lights. Modern distribution buildings typically offer 32 to 40 feet.

Dock-High and Grade-Level Doors#

Dock-high doors sit at truck-bed height so trailers can be loaded directly. Grade-level (drive-in) doors sit at ground level for vans, forklifts and equipment. The number and ratio of each is a key industrial specification.

Rentable vs. Usable Square Feet (Load Factor)#

Usable square feet is the space a tenant actually occupies. Rentable square feet adds the tenant's share of common areas such as lobbies and restrooms. The ratio between them is the load factor, which is how tenants end up paying rent on more space than they use.

Mixed-Use#

Mixed-use property combines two or more uses, such as ground-floor retail with apartments or offices above. It is common in downtowns and is often financed and valued by component.

Adaptive Reuse#

Adaptive reuse is converting an existing building to a different use, such as a historic bank to a hotel or an old warehouse to lofts. It can be cheaper and faster than new construction and may qualify for historic tax credits. See Urban Loft Development in Tertiary Markets.

Last-Mile Industrial#

Last-mile industrial is smaller warehouse and logistics space close to population centers, used for the final leg of delivery to customers. Proximity, not size, drives its value.

Deal Process & Due Diligence

The documents and steps between first conversation and closing.

Offering Memorandum (OM)#

An offering memorandum is the marketing package a listing broker prepares for a property, covering the property, tenants, financials, market and pricing guidance. Detailed OMs are often released only after a buyer signs a confidentiality agreement.

Confidentiality Agreement (NDA or CA)#

A confidentiality agreement is a document a prospective buyer signs to receive non-public information about a property, such as rent rolls and operating statements. It is standard before an OM or data room is shared.

Off-Market Deal#

An off-market deal is a property sold without public marketing, usually through a broker's direct relationships with buyers. Sellers trade some price discovery for privacy and certainty. See How Off-Market CRE Deals Actually Work.

Letter of Intent (LOI)#

A letter of intent is a short document setting out the main terms of a proposed purchase or lease, such as price, deposit, due diligence period and closing date, before the full contract is drafted. Most LOIs are non-binding except for clauses like confidentiality and exclusivity.

Purchase and Sale Agreement (PSA)#

A purchase and sale agreement is the binding contract between buyer and seller covering price, deposits, due diligence, title, representations, closing conditions and remedies.

Earnest Money#

Earnest money is the deposit a buyer puts down when signing the PSA, held in escrow. It usually becomes non-refundable, or goes hard, once the due diligence period ends.

Due Diligence Period#

The due diligence period is the window after signing a contract when the buyer inspects the property, reviews leases and financials, orders environmental and survey work, and can usually walk away with its deposit. See CRE Due Diligence Red Flags.

Phase I Environmental Site Assessment (ESA)#

A Phase I ESA is a records review, site visit and interviews to identify recognized environmental conditions, without sampling soil or groundwater. Lenders almost always require one, and it helps buyers qualify for liability protections under federal law.

Phase II Environmental Site Assessment#

A Phase II ESA is the follow-up to a Phase I that tests soil, groundwater, soil vapor or building materials to confirm whether contamination is present and how far it extends.

ALTA Survey#

An ALTA survey is a detailed land survey prepared to national standards that shows boundaries, easements, encroachments, improvements and access. Title insurers and lenders typically require one on commercial deals.

Title Commitment and Title Insurance#

A title commitment is the title company's report of who owns the property and what liens, easements and restrictions affect it, along with the requirements to issue a policy. Title insurance then protects the buyer or lender against covered defects in ownership.

Zoning and Entitlements#

Zoning is the local law that controls how land can be used and what can be built. Entitlements are the approvals, such as rezonings, variances, site plans and permits, that give a property the legal right to a specific project. Entitled land is generally worth more because the approval risk is gone.

Exclusive Listing Agreement#

An exclusive listing agreement is the contract that hires a broker to market a property for a set period and defines the commission. An exclusive right-to-sell agreement pays the broker even if the owner finds the buyer.

Cooperating Broker (Co-Broker)#

A cooperating broker is a broker who represents the buyer and shares the commission with the listing broker. Commission splits are set by the listing agreement and any cooperation agreement.

Tax Strategy

Tax rules often shape commercial real estate returns as much as rent does. This is general education, not tax advice.

Depreciation#

Depreciation is the annual tax deduction for wear on a building and its components. Under current U.S. rules, commercial buildings are generally depreciated over 39 years and residential rental property over 27.5 years. Land is not depreciable.

Cost Segregation#

Cost segregation is an engineering study that separates a building's components into shorter-lived categories, such as 5-, 7- and 15-year property, so more depreciation can be taken sooner. See The 2026 Cost Segregation Guide.

Bonus Depreciation#

Bonus depreciation lets owners deduct a large share of qualifying shorter-lived property in the first year. The 2025 federal tax law restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, which makes cost segregation studies more valuable.

Depreciation Recapture#

Depreciation recapture is the tax due on the depreciation deductions an owner took when the property is sold for more than its depreciated value. For real property, the recaptured portion is generally taxed at a maximum federal rate of 25%.

1031 Exchange#

A 1031 exchange is a sale of investment or business real estate in which the proceeds are reinvested in like-kind real estate to defer capital gains and depreciation recapture taxes. The replacement property must be identified within 45 days and acquired within 180 days of the sale. See 1031 Exchange.

Qualified Intermediary (QI)#

A qualified intermediary is the independent party that holds the sale proceeds during a 1031 exchange. If the seller takes control of the money, the exchange fails.

Boot#

Boot is any cash or non-like-kind value a taxpayer receives in a 1031 exchange, including debt relief that is not replaced. Boot is taxable even when the rest of the exchange is deferred.

Delaware Statutory Trust (DST)#

A Delaware Statutory Trust is a structure that lets multiple investors own fractional interests in institutional property and qualifies as replacement property for a 1031 exchange. DST investors are passive and have no control over management or sale timing.

Opportunity Zone#

An Opportunity Zone is a designated low-income census tract where investors can defer and reduce capital gains by reinvesting them through a Qualified Opportunity Fund, and pay no tax on the fund's own appreciation if they hold for at least 10 years. The 2025 federal tax law made the program permanent with new zone designations on a rolling basis. See Opportunity Zones.

Qualified Opportunity Fund (QOF)#

A Qualified Opportunity Fund is a corporation or partnership organized to invest in Opportunity Zone property. Investors must reinvest eligible capital gains into a QOF, generally within 180 days, to get the tax benefits.

Passive Activity Loss Rules#

Passive activity loss rules generally limit investors from using rental real estate losses, including depreciation, to offset wages or active business income. Unused passive losses carry forward and can be released when the property is sold.

Real Estate Professional Status (REPS)#

Real estate professional status is a tax classification for people who spend more than half their working time, and more than 750 hours a year, in real estate trades or businesses in which they materially participate. Qualifying taxpayers can treat rental losses as non-passive.

REIT (Real Estate Investment Trust)#

A REIT is a company that owns or finances income-producing real estate and must distribute at least 90% of its taxable income to shareholders. Public REITs trade like stocks and offer liquid real estate exposure. See How to Build Passive Income With REITs.

Ownership & Investment Structures

How investors partner, share returns and divide control.

Joint Venture (JV)#

A joint venture is a partnership between two or more parties to own or develop a specific property, typically combining one party's capital with another's deal, operating or development expertise.

Equity Participation#

Equity participation means taking an ownership stake in a deal rather than only earning a fee or interest. A broker or partner with equity participation is paid alongside the owner when the property performs, which aligns incentives.

General Partner (GP) and Limited Partner (LP)#

In a real estate partnership, the general partner or sponsor finds, manages and executes the deal and controls decisions. Limited partners contribute most of the capital, have limited liability and have little or no control.

Syndication#

A syndication is a deal in which a sponsor pools money from multiple investors to buy a property it will manage. Most syndications are private securities offerings, limited to accredited investors.

Preferred Return (Pref)#

A preferred return is the minimum annual return, often 6% to 8%, that limited partners receive before the sponsor shares in profits. It is a priority of payment, not a guarantee.

Distribution Waterfall and Promote#

A distribution waterfall is the order in which a deal's cash flow and sale profits are split among investors and the sponsor. The promote, or carried interest, is the sponsor's disproportionate share of profits after investors hit set return hurdles.

Capital Call#

A capital call is a sponsor's request for investors to contribute additional money, either money they committed earlier or new money to cover shortfalls. Unexpected capital calls are a warning sign in a struggling deal.

Accredited Investor#

An accredited investor is a person or entity that meets SEC income, net worth or professional tests and can invest in most private real estate offerings. For individuals the common tests are $200,000 of income ($300,000 jointly) in each of the last two years, or $1 million of net worth excluding a primary residence.

Family Office#

A family office is a private firm that manages the investments and affairs of a wealthy family. Family offices are significant direct buyers of commercial real estate and often prefer long holds and tax-efficient structures. See Family Office 1031 Exchange.

Tenancy in Common (TIC)#

Tenancy in common is co-ownership in which each owner holds an undivided fractional interest in the whole property. TIC interests can qualify for 1031 exchanges, but major decisions typically require all owners to agree.

Distressed & Special Situations

Terms that come up when loans, owners or properties are in trouble.

REO (Real Estate Owned)#

REO is property a lender owns after taking it back through foreclosure or a deed in lieu. Lenders want REO sold, so these assets can trade at a discount. See Commercial REO Brokers in Tennessee.

OREO (Other Real Estate Owned)#

OREO is the bank regulatory term for real estate a bank holds after a borrower default, reported separately from its loans. Regulators expect banks to dispose of OREO within set holding periods. See Special Assets and OREO Disposition.

Special Assets and Special Servicer#

Special assets is the bank department that handles troubled loans and repossessed property. In CMBS loans, a special servicer takes over a loan from the master servicer once it defaults or is at risk of default.

Loan Workout#

A loan workout is a negotiated change to a troubled loan, such as an extension, rate change, paydown or restructuring, agreed between lender and borrower to avoid foreclosure. See Commercial Loan Workout Guide.

Extend and Pretend#

Extend and pretend is the informal term for lenders extending loans that cannot refinance at current values or rates, postponing losses in the hope that the market recovers.

Note Sale#

A note sale is a lender selling a loan, usually a non-performing one, to another investor at a discount. The buyer steps into the lender's position and can work out, foreclose on or sell the loan. See The Distressed CRE Debt Playbook.

Deed in Lieu of Foreclosure#

A deed in lieu of foreclosure is a borrower voluntarily transferring the property to the lender to satisfy the debt, avoiding the cost and time of a foreclosure.

Foreclosure#

Foreclosure is the legal process a lender uses to take a property after a borrower defaults. In Tennessee, most commercial foreclosures are non-judicial trustee sales under a deed of trust. See Foreclosed Commercial Property Guide.

Receivership#

A receivership is a court appointing a neutral receiver to take control of, operate and sometimes sell a property while a dispute or foreclosure is pending, usually to protect its value and income.

Brownfield#

A brownfield is a property whose reuse is complicated by the presence or potential presence of contamination, often a former industrial, manufacturing or fuel site. Many brownfields can be redeveloped with state voluntary cleanup programs and the right buyer. See Brownfields.

Environmental Risk Transfer#

Environmental risk transfer is the use of contracts, insurance and specialized buyers or remediation partners to shift some of a contaminated property's environmental obligations away from the seller and reduce its exposure. See Environmental Risk Transfer.

Data Centers & Powered Land

The language of a market where electric power, not acreage, sets value.

Megawatt (MW) and Critical IT Load#

A megawatt is one million watts. Data center capacity is measured in megawatts of critical IT load, the power available to the computing equipment, rather than in square feet. See How Much Power Does a Data Center Need?.

Powered Land and Powered Shell#

Powered land is a site with secured or readily deliverable electrical capacity for a large user. A powered shell adds a building with the power infrastructure in place, ready for the tenant's equipment. See Powered Land for Data Centers.

PUE (Power Usage Effectiveness)#

PUE is a data center's total facility power divided by the power used by its IT equipment. A PUE of 1.0 would mean every watt goes to computing; modern efficient facilities typically run around 1.1 to 1.4.

Interconnection Queue#

An interconnection queue is the line of projects waiting for utility or grid operator studies and approvals to connect new load or generation. Multi-year waits make queue position a key part of a site's value.

Substation#

A substation transforms high-voltage transmission power down to usable levels and is the point where a site connects to the grid. Available capacity at a nearby substation is one of the most valuable features a data center site can have.

Behind-the-Meter Power#

Behind-the-meter power is electricity generated on site, on the customer's side of the utility meter, using natural gas turbines, fuel cells, solar or similar sources. It can let a facility come online without waiting for a grid connection.

Hyperscaler#

A hyperscaler is one of the largest cloud and technology companies that build and lease very large data center campuses. Hyperscale projects commonly need hundreds of megawatts and large, expandable sites.

Colocation#

Colocation is a data center model in which a provider leases space, power and cooling to multiple tenants who install their own servers. It contrasts with single-user facilities built for one company.

Will-Serve Letter#

A will-serve letter is a utility's written statement that it can provide a stated amount of power, water or sewer service to a site, often subject to conditions and timing. For data center sites, a credible power will-serve letter is one of the strongest proofs of value. See Data Center Land Requirements.

Common Questions About CRE Terms

Related Guides

• How Is Commercial Real Estate Valued?
• What Is Small Bay Industrial?
• What Is My Land Worth to a Data Center?
• Commercial Property Operations: Cut Costs and Raise NOI
• The Ultimate Tennessee Commercial Real Estate FAQ
• Commercial Real Estate Investing
• Passive Real Estate Investing for Beginners
• How Institutional Buyers Evaluate Commercial Real Estate
• 1031 Exchange
• Opportunity Zones
• Cost Segregation Guide
• The Distressed CRE Debt Playbook
• Data Center Development FAQ
• Industrial Outdoor Storage FAQ

Educational information only — not legal, tax, lending or investment advice. Tax rules are summarized as of October 17, 2026 and change; confirm specifics with your CPA or attorney.

Carson Jones

Founder · Passive Investments · eXp Commercial

Carson Jones is the host of Carson's Corner: Commercial Real Estate, author of The Red Flag Playbook, a licensed commercial real estate advisor and business broker, and the founder of Passive Investments. With 18 years of experience as an entrepreneur and 12 years specializing in passive investing, Carson works with high-net-worth individuals, family offices, business owners, and sophisticated investors as a broker and principal.

Carson holds a BBA in Finance from Baylor University and his Tennessee commercial real estate license (#382989). He actively pursues acquisition and equity opportunities across the United States through a nationwide network of qualified buyers, family offices, institutional investors, and top-tier developers.