GLOSSARY OF TERMS
Capitalization Rate — Ratio between the net operating income of a property and its sales value
Discount Rate — The interest rate used in discounted cash flow analysis to determine the present
value of future cash flows
Density Bonus - A ordinance mechanism allowing a developer to build a greater number of units
than the existing underlying zoning dictates in exchange for the creation of additional affordable
units
Equity — Initial out-of-pocket investment on the part of developer that is required to obtain
financing
Effective Gross Income — Gross income minus the vacancy collection loss
Fee in-Lieu — Payment made to City to account for fractional affordable unit not built.
Internal Rate of Return - Annualized rate of return sought by a developer based on the project
discounted cashflow
Net Operating Income -— Net income after deducting operating expenses from potential gross
income
Net Present Value — Net value of the initial investment and cashflows generated from a project,
discounted back to the current year
Operating Expenses — Expenses related to operating the building such as maintenance, salaries,
and repairs
Other Income — Income generated from the property aside from rent, this income is parking
revenues for leased spaces
Potential Gross Income — Potential income generated from rental income or sale of a property.
Calculated by multiplying the number of units and rent for each unit
Residual Land Value - The price a developer pays for a piece of land. Generally, involves
calculating the income expectations for the developed land, subtract all expenses associated with
this development, and the remainder is the land residual
Vacancy and Collection Loss — Percent of rent that is uncollectable
Value Gap - Difference in value between a market rate unit and affordable unit
