Commercial due diligence glossary
87 terms you will meet in property condition reports, Phase I ESAs, lender requirements and leases, each defined in one sentence and checked against its primary source.
2
- 2010 ADA Standards for Accessible Design
- The 2010 ADA Standards for Accessible Design are the enforceable accessibility standards that set minimum scoping and technical requirements for new construction and alterations covered by ADA Titles II and III.
4
- 480Y/277V Electrical Service
- A 480Y/277V service is a three-phase, four-wire wye system with 480 volts between phases and 277 volts from any phase to neutral, common in larger commercial and industrial buildings.
A
- ADA Title III
- ADA Title III is the part of the Americans with Disabilities Act that requires public accommodations and commercial facilities, such as stores, offices and restaurants, to be accessible to people with disabilities.
- All Appropriate Inquiries (AAI)
- All appropriate inquiries is the process of evaluating a property's environmental conditions and assessing potential liability for contamination, under the EPA rule at 40 CFR Part 312.
- Aluminum Branch Wiring
- Aluminum branch wiring is aluminum conductor wiring used in branch circuits, mostly in buildings from the 1960s and early 1970s, that can overheat at connections to receptacles, switches and appliances.
- Americans with Disabilities Act (ADA)
- The Americans with Disabilities Act is a federal civil rights law that prohibits discrimination against people with disabilities in everyday activities, including access to businesses and public spaces.
- Asbestos-Containing Material (ACM)
- Asbestos-containing material is any building product that contains asbestos, a mineral fiber that occurs naturally in rock and soil and was used for insulation and fire resistance.
- ASTM E2018
- ASTM E2018 is the Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process, which gives a framework for evaluating commercial real estate and writing a property condition report.
B
- Backflow Preventer
- A backflow preventer is an assembly or device that stops contaminated water from flowing backward into the drinking water supply through a cross-connection.
- Bona Fide Prospective Purchaser (BFPP)
- A bona fide prospective purchaser is a buyer who meets statutory criteria under CERCLA, including all appropriate inquiries, to acquire contaminated property while limiting Superfund liability as a landowner.
- Brownfield
- A brownfield is a property whose expansion, redevelopment or reuse may be complicated by the presence or potential presence of a hazardous substance, pollutant or contaminant.
- Building Envelope
- The building envelope is the outer elements of a building, above and below ground, that divide the exterior from the interior environment, including exterior walls, windows, doors, roofs and subfloors.
C
- Capital Needs Assessment (CNA)
- A capital needs assessment is a physical inspection and cost forecast of a multifamily property's repair and replacement needs, submitted through HUD's CNA e-Tool for HUD-related transactions.
- CCPIA Commercial Standards of Practice (ComSOP)
- The CCPIA International Standards of Practice for Inspecting Commercial Properties, called ComSOP, define best practices and a reasonable approach for inspecting commercial properties through observation, research and reporting.
- CERCLA
- CERCLA, the Comprehensive Environmental Response, Compensation, and Liability Act, commonly called Superfund, gives the federal government authority to respond to releases or threatened releases of hazardous substances.
- Commercial Building Inspection (CBI)
- A commercial building inspection is a visual, non-intrusive examination of an existing commercial property, with research and a written report on observed conditions, performed to the CCPIA Commercial Standards of Practice.
- Commercial Mortgage-Backed Securities (CMBS)
- Commercial mortgage-backed securities are bonds backed by pools of loans secured by commercial properties, with investors receiving payments from the borrowers' loan payments.
- Commercial Real Estate Due Diligence
- Commercial real estate due diligence is the investigation a buyer, lender or owner performs on a property's physical, environmental, legal and financial condition before committing to a transaction.
- Common Area Maintenance (CAM)
- Common area maintenance refers to charges for maintaining shared areas of a commercial property, such as parking lots, landscaping, lobbies and exterior lighting, often passed to tenants under a net lease.
- Controlled Recognized Environmental Condition (CREC)
- A controlled recognized environmental condition is a recognized environmental condition addressed to the satisfaction of regulators, with contamination left in place subject to required controls such as activity and use limitations.
- Cost to Cure
- Cost to cure is an itemized list of deficiencies found in a building inspection with an estimated cost to repair or replace each one, used for negotiation and capital planning.
D
- Data Gap
- A data gap is a lack of, or inability to obtain, information required by the all appropriate inquiries standards despite good faith efforts by the environmental professional to gather it.
- De Minimis Condition
- A de minimis condition is an environmental condition that generally does not present a threat to human health or the environment and would not normally be the subject of an enforcement action.
- Defensible Space
- Defensible space is a buffer between a building and the grass, trees, shrubs, other buildings or wildland that surround it, managed to slow the spread of fire.
- Deferred Maintenance
- Deferred maintenance is physical deficiencies that could have been remedied with routine maintenance or similar action, but were left undone.
- Due Diligence Period
- The due diligence period is the window after a purchase agreement is signed in which a buyer inspects the property and reviews records, and usually may renegotiate or terminate if problems appear.
E
- Effective Age
- Effective age is an opinion representing the difference between a system's expected useful life and its remaining useful life, which may be more or less than its actual age.
- Environmental Cleanup Lien
- An environmental cleanup lien is a recorded legal claim against a property to secure the cost of environmental cleanup, which the buyer or lender searches for as part of all appropriate inquiries.
- Environmental Professional (EP)
- An environmental professional is a person with the education, training and experience to exercise professional judgment about conditions indicating releases or threatened releases of hazardous substances at a property.
- Expected Useful Life (EUL)
- Expected useful life is the average number of years a building system or component is estimated to function without material repair when installed new and properly maintained.
- Exterior Insulation and Finish System (EIFS)
- EIFS is a non-load-bearing exterior wall cladding made of insulation board attached to the substrate, a reinforced base coat and a textured finish coat, sometimes called synthetic stucco.
F
- Fair Housing Act (FHA)
- The Fair Housing Act is a federal law that prohibits discrimination in housing, including discrimination based on disability, and sets accessibility requirements for certain multifamily housing built after 1991.
- Fannie Mae Property Condition Assessment
- A Fannie Mae property condition assessment is a physical evaluation of a multifamily property, prepared under the Fannie Mae Multifamily Guide, that identifies conditions affecting resident safety and marketability and sets repair and reserve needs.
- Federal Pacific Electric Panel (FPE)
- A Federal Pacific Electric panel is an electrical panel with Stab-Lok circuit breakers that inspectors flag because of reported safety hazards, including breakers that may not trip as intended.
- Fire Door
- A fire door is a door assembly, with its frame and hardware, that is rated to resist fire and limit the spread of smoke or flames through an opening in a rated wall.
- Freddie Mac Property Condition Report
- A Freddie Mac property condition report is the engineering-style assessment of a multifamily property that a Seller/Servicer submits to support repair and reserve requirements under the Freddie Mac Multifamily Guide.
G
- Gross Lease
- A gross lease is a commercial lease in which the tenant pays a set rent and the landlord covers maintenance, taxes and other property expenses within that rent.
H
- Historical Recognized Environmental Condition (HREC)
- A historical recognized environmental condition is a past release addressed to the satisfaction of regulators that meets unrestricted use criteria, so the property carries no controls.
- HUD Section 221(d)(4)
- HUD Section 221(d)(4) is an FHA mortgage insurance program for the new construction or substantial rehabilitation of multifamily rental or cooperative housing with five or more units.
- HUD Section 223(f)
- HUD Section 223(f) is an FHA mortgage insurance program for the purchase or refinancing of existing multifamily housing that has at least five units and was completed or substantially rehabilitated at least three years earlier.
- Hydrofluorocarbon (HFC)
- Hydrofluorocarbons are synthetic refrigerants and other chemicals with high global warming potential that EPA is phasing down and restricting in specific uses under the AIM Act.
I
- Immediate Repairs
- Immediate repairs are corrections to physical deficiencies that need prompt action because of an imminent life-safety issue, likely system failure or cost escalation, or recorded building or fire code violations.
- Infrared Thermography
- Infrared thermography uses an infrared camera to show surface temperature differences, which inspectors use to find missing insulation and other thermal anomalies that may indicate moisture or air leakage.
- International Wildland-Urban Interface Code (IWUIC)
- The International Wildland-Urban Interface Code is a model code from the International Code Council that sets requirements for land use and the built environment in designated wildland-urban interface areas.
K
- Knob-and-Tube Wiring
- Knob-and-tube wiring is an early electrical system, used from the 1800s to about the 1930s, with wires run through ceramic knobs and tubes and no ground conductor.
L
- Lead-Based Paint (LBP)
- Lead-based paint is paint containing lead, a toxic metal that harms health when inhaled or swallowed, commonly found in buildings constructed before 1978.
- Long-Term Costs
- Long-term costs are opinions of cost for the anticipated replacement of building systems and components over an evaluation period set by the user.
- Low-Income Housing Tax Credit (LIHTC)
- The Low-Income Housing Tax Credit is a federal program that gives state and local agencies tax credits to issue for the acquisition, rehabilitation or new construction of rental housing for lower-income households.
M
- Material Physical Deficiency
- A material physical deficiency is an easily visible defect or deferred maintenance in a significant building system or component that a property condition assessment is designed to find and report.
- Means of Egress
- A means of egress is a continuous, unobstructed path from any point in a building to a public way, made up of the exit access, the exit and the exit discharge.
- Mold
- Mold is a fungus that grows indoors where moisture is present, spreading by spores and growing on building materials such as drywall, wood and ceiling tiles.
- Multifamily Accelerated Processing (MAP)
- Multifamily Accelerated Processing is HUD's process for FHA multifamily mortgage insurance in which approved lenders prepare and submit loan applications for HUD review.
N
- Net Lease
- A net lease is a commercial lease in which the tenant pays base rent plus some or all of the property's operating and maintenance expenses, such as taxes, insurance, utilities and common-area maintenance.
- NFPA 101 Life Safety Code (NFPA 101)
- NFPA 101, the Life Safety Code, sets minimum requirements for building design, construction, operation and maintenance to protect occupants from fire and similar emergencies.
- NFPA 25
- NFPA 25 is the standard for the inspection, testing and maintenance of water-based fire protection systems such as sprinklers, standpipes, fire pumps and water storage tanks.
- NFPA 80
- NFPA 80 is the standard for fire doors and other opening protectives, covering the installation and maintenance of assemblies that protect openings in walls, floors and ceilings against the spread of fire and smoke.
- NNN Lease (NNN)
- An NNN lease, or triple net lease, is a commercial lease in which the tenant pays rent plus property taxes, insurance and maintenance expenses for the property.
O
- Opinion of Probable Cost (OPC)
- An opinion of probable cost is a preliminary, order-of-magnitude budget estimate of the cost to remedy a physical deficiency, based on professional judgment rather than a contractor bid.
P
- Phase I Environmental Site Assessment
- A Phase I Environmental Site Assessment is a records review, site visit and interview process, performed under ASTM E1527-21, that identifies recognized environmental conditions at commercial real estate without sampling soil or water.
- Phase II Environmental Site Assessment
- A Phase II Environmental Site Assessment is an investigation, often with soil, groundwater or vapor sampling, that evaluates whether substances are present at a property, following ASTM E1903.
- Ponding Water
- Ponding water is water that remains on a roof surface for 48 hours or longer after rainfall, often because of low spots, poor drainage or deflection of the roof structure.
- Property Condition Assessment (PCA)
- A property condition assessment is a baseline evaluation of a commercial property's primary improvements, built on a walk-through survey, document review and interviews, that identifies material physical deficiencies and opinions of cost to remedy them.
- Property Condition Report (PCR)
- A property condition report is the written work product of a property condition assessment, documenting the findings and opinions developed from the walk-through survey, document review, interviews and opinions of cost for suggested remedies.
R
- R-410A Refrigerant
- R-410A is a hydrofluorocarbon refrigerant blend widely used in air conditioning and heat pump equipment, now being restricted in new equipment under EPA rules that limit high global warming potential refrigerants.
- Radon
- Radon is a naturally occurring radioactive gas that can enter buildings from soil and is the leading cause of lung cancer among non-smokers, according to EPA estimates.
- Readily Achievable Barrier Removal
- Readily achievable barrier removal is the ADA Title III duty to remove barriers in existing facilities when doing so is easily accomplishable and can be carried out without much difficulty or expense.
- Recognized Environmental Condition (REC)
- A recognized environmental condition is the presence, likely presence, or material threat of a future release of hazardous substances or petroleum products at a property due to a release to the environment.
- Remaining Useful Life (RUL)
- Remaining useful life is a subjective opinion of the number of years an item, component or system can function as intended before it needs replacement.
- Rental Assistance Demonstration (RAD)
- The Rental Assistance Demonstration is a HUD program that converts certain public housing and other assisted properties to long-term rental assistance contracts to preserve and improve affordable housing.
- Repair Reserve
- A repair reserve is money a borrower deposits at closing to pay for specific property repairs required by the lender, such as those listed in Freddie Mac's Letter of Commitment.
- Replacement Reserves
- Replacement reserves are funds a borrower sets aside, usually through regular deposits to a lender-held account, to pay for future replacement of building components.
- Representative Observations
- Representative observations are a sampling approach in which a consultant surveys a reasonable number of repetitive systems, components and areas to describe the condition of similar items across a property.
- Rooftop Unit (RTU)
- A rooftop unit is a packaged heating and cooling unit installed on a roof or outdoors that supplies conditioned air through ductwork to the spaces below.
- RSMeans
- RSMeans is a construction cost database published by Gordian that estimators use to price labor, materials and equipment for building and repair work.
S
- Section 504
- Section 504 of the Rehabilitation Act prohibits discrimination on the basis of disability in programs and activities that receive federal financial assistance, including HUD-assisted housing.
- Sewer Lateral
- A sewer lateral is the private pipe that connects a building's plumbing to the public sewer system, usually owned and maintained by the property owner.
- Short-Term Repairs
- Short-term repairs are remedies for physical deficiencies that do not require immediate attention but should be done on a priority basis, according to ASTM E2018 short-term costs.
- Single-Ply Roof Membrane
- A single-ply roof membrane is a factory-made sheet roofing layer, either thermoplastic such as TPO or thermoset such as EPDM, installed on low-slope commercial roofs.
T
- Third-Party Servicing Inspection
- A third-party servicing inspection is a physical review of a financed property by an independent inspector for a loan servicer, to document condition, maintenance and required repairs.
- Tilt-Up Construction
- Tilt-up construction is a building method in which large concrete wall panels are cast on site, then lifted into position with a crane to form the building walls.
U
- Underground Storage Tank (UST)
- An underground storage tank system is a tank and connected underground piping with at least 10 percent of its combined volume underground, regulated federally when it stores petroleum or certain hazardous substances.
- Uniform Federal Accessibility Standards (UFAS)
- The Uniform Federal Accessibility Standards are federal design standards for accessibility under the Architectural Barriers Act, also referenced for housing programs that receive federal financial assistance.
- USDA Section 515 Rural Rental Housing
- USDA Section 515 is a Rural Development program of direct loans that finances affordable multifamily rental housing for low-income, elderly or disabled residents in rural areas.
- User Questionnaire
- A user questionnaire is an optional ASTM E1527-21 form that helps the buyer or lender give the environmental professional information that may be material to identifying recognized environmental conditions.
V
- Vapor Encroachment Condition (VEC)
- A vapor encroachment condition is the presence or likely presence of chemical vapors in the subsurface of a property from contaminated soil or groundwater, identified through screening under ASTM E2600.
W
- Walk-Through Survey
- A walk-through survey is the set of nonintrusive observations of readily accessible, observable property improvements that a field observer makes during a property condition assessment or inspection.
- Wildland-Urban Interface (WUI)
- The wildland-urban interface is the line, area or zone where structures and other human development meet or mix with undeveloped wildland or vegetative fuels.
Standards and reports
Environmental
Building systems
Financing and lending
Costs and capital planning
Accessibility and life safety
Leases and transactions
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