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GLOSSARY OF TERMS L – Q
Like-Kind
To qualify as like-kind property in a 1031 exchange, the property must, by its nature, be real estate and generally not personal property. All real estate can be exchanged for real estate and qualifies as like-kind. Raw land for improved property is like-kind and vice versa.
Liquidity
An investment in a TIC private placement is an illiquid investment. There is currently no active market to resell a TIC interest. A TIC investment in real estate is similar to a sole ownership interest in real estate, the owner of the TIC interest has the right to sell their interest at any time subject to the terms outlined in the TIC ownership agreement of the private placement memorandum.
Market Indicators
Statistical measures of construction and real estate activity, including issued permits, indices of building costs, deeds recorded and homes for sale.
Master Lease
A primary lease that controls subsequent leases and which may cover more property than subsequent leases.
Negative Leverage
The use of debt financing, which reduces the percentage return to equity because the rate of interest on the debt is higher than the free and clear rate of return on equity.
Net Operating Income
The sum derived after deductions from gross potential income for vacancy and expenses.
PPM
A document referred to as a "Private Placement Memorandum" is prepared by the Sponsor that is offering the investment to qualified individuals. A PPM discloses the facts of the property, terms of the investment offering, and potential risks associated with an investor's participation in the investment.
Positive Leverage
The use of debt financing that increases the percentage return to equity because the rate of interest on the debt is lower than the free and clear rate of return on equity.
Pre-Marketing
The wrongful process of reserving indications of interest from investors for a TIC investment offering before the final PPM has been prepared by the Sponsor and a selling agreement is in place with the Broker Dealer.
Qualified Intermediary (QI)
The entity that facilitates the exchange for the Exchanger. The term "facilitator" or "accommodator" is also commonly used, although the Treasury Regulations specify the term "Qualified Intermediary."
