A mortgage over a property in favour of a lender, registered on the property title at the Land Registry, which ranks ahead of all other registered security. The lender is known as the 'First Charge' or 'Senior' Lender.

A mortgage over a property in favour of a lender, registered on the property title at the Land Registry, which ranks behind a First Charge. The lender is known as the 'Second Charge', 'Junior' or 'Mezzanine' Lender. The ranking and relationship between First and Second Charge Lenders is dealt within a document known as an Intercreditor Deed or Deed of Priority.

The Arrangement Fee is a fee payable by a Sponsor to an intermediary (such as Falco Capital) for arranging a third-party capital investment into the Sponsor's project or business (e.g. a loan or equity investment). This fee is usually a percentage of the capital raised.

Build to Rent ('BTR') refers to purpose-built housing designed for private rental as opposed to private sale. Schemes are typically built on a large scale (usually in excess of 50 units) and tend to be managed by a single owner or operator. Schemes are predominantly apartments, but the UK is now seeing increasing numbers of traditional housing stock developments. Whilst standard rental stock usually operates on short term leases, it is not uncommon for BTR schemes to offer longer tenancies.

A Collateral Warranty extends the obligations contained in a contract to a party who is not a party to that contract. Typically used in construction to extend the contractual obligations of the building contractor and design professionals (architect etc) from the developer to a third party such as a lender, tenant or purchaser.

The Commission de Surveillance du Secteur Financier ('CSSF') is a public institution which supervises the professionals and products of the Luxembourg financial sector. It is the main Luxembourg financial markets regulator.

The main Contractor is responsible for the construction of a building using a combination of an in-house team and third-party specialist sub-contractors. The Contractor's obligations are set out in a building contract with the Sponsor (called the 'employer' for this purpose). The industry standard is to use a 'JCT' form of contract (often with amendments). The main Contractor (and its sub-contractors) may be obliged to provide Collateral Warranties.

The Coupon is the annual interest rate paid on a loan/investment expressed as a percentage of the face/nominal value.

Financial Covenants are commitments or agreements entered into by a borrower in a loan agreement that are financial in nature. An example is that the loan amount cannot exceed 60% of the market value of the property as valued by an independent valuer (see Red Book Valuation).

A Custodian is a specialised counterpart/agent responsible for the safekeeping of investors' assets in order to minimise the risk of misuse, theft and/or loss. Typically used in an investment fund to add a further layer of protection for investors.

A Debenture is a document that enables a lender to secure the repayment of a loan against the borrower's assets, even in the event of a Default. The Debenture can grant both fixed and floating charges - the former usually over tangible assets such as property which cannot be sold without the lender's consent, while the latter 'floats' over assets such as shares and intellectual property allowing them to be bought and sold unless there is a Default in which case the charge over them then becomes fixed.

A Default is the failure to make required interest or principal repayments on a loan or other debt instrument, a failure to repay on time, or a breach of another term of the loan agreement such as a financial covenant.

A document by which a person/entity becomes a party to an existing agreement.

See Intercreditor Deed.

In real estate development, Development Costs refer to the total construction costs and Professional Fees required to complete the relevant development. Finance costs are typically excluded unless stated otherwise.

A Development Loan is a short- to medium-term loan to assist with land purchase and Development Costs associated with a real estate development. Development Loans are typically drawn down on a monthly basis in line with the expenditure on site albeit they can also be drawn to fund costs already incurred. Costs are typically verified to the lender by an independent specialist known as a Project Monitoring Surveyor.

An Emergency Loan Note is a Loan Note that is issued to help fund unforeseen costs e.g. an increase in Development Costs. The terms and conditions will broadly replicate those of the initial Loan Notes but may incur a different interest/Coupon rate.

A fee payable by a Sponsor to an intermediary (such as Falco Capital) when a third-party capital investment into the Sponsor's project or business is repaid. This fee is usually a percentage of the capital raised.

Falco Real Estate Finance Fund ('FREFF') is an open-ended investor fund, domiciled in Luxembourg within a SICAV-SIF and supervised by the Luxembourg regulatory authority, the CSSF.

The forecast value of a real estate development under construction, once it has been completed. The value will be based on a number of assumptions which are specified (e.g. is the completed property assumed to be vacant or tenanted).

The Gross (Investment) Yield is calculated as the annual gross income of an investment (before costs, operating expenses and tax) divided by its price.

An Intercreditor Deed is a legal document agreed between multiple lenders/creditors that sets out the ranking of their loans (in terms of repayment and security) and any mutual obligations.

The Internal Rate of Return is the annualised effective compound return rate that sets the net present value of an investment's cash flows (positive and negative and including the initial investment) to zero. In more simple terms, it can be seen as the annualised return on an investment. It is used to facilitate comparison of returns between investments with different cashflow profiles.

The Joint Contracts Tribunal ('JCT') contract is an industry-standard form of construction contract used in the UK. They are usually made between the Sponsor and the contractor and set out all the relevant terms and conditions, the obligations of all parties and the costs, specifications and construction period of the project.

A Junior Lender is any lender who advances debt that ranks behind another lender in terms of repayment priority and ranking of other interests. A loan issued by a Junior Lender is usually known as a Junior or Mezzanine Loan.

A Loan Note is a financial instrument which evidences a debt between a borrower and lender. A Loan Note sets out the terms and conditions relating to the debt. In its simplest form, it sets out the interest/Coupon rate and expected repayment date.

Loan to Value is a ratio that divides the outstanding amount of a loan by the market value of the asset (against which the loan is secured). It is most commonly used in real estate where the loan is divided by the value of the property/land. Where the property is under construction, Loan to Gross Development Value is used. Valuations are typically by a specialist third-party valuer appointed by the lender.

Loan to Gross Development Value is a ratio that calculates the ratio of the outstanding amount of a loan to the Gross Development Value of the property.

In lending, the amount by which the rate on a loan exceeds the lender's benchmark funding rate. It represents the lender's profit margin.

Another term for a Junior or Second Charge Loan. See also Junior Lender and Second Charge.

A fee payable to a party to cover that party's ongoing administration costs of managing a loan/investment.

The Net Initial Yield ('NIY') is calculated as the net income of an investment (after costs and operating expenses but before tax) divided by the purchase price of the investment (including assumed acquisition taxes and costs). It is usually expressed as a percentage.

The Net (Investment) Yield is calculated as the annual net income of an investment (after costs and operating expenses but before tax) divided by its price.

All of a company's share capital that is owned by its shareholders, which is neither preferred nor deferred. It entitles the holders to vote at company meetings, appoint directors, receive dividends and so on.

Practical Completion is the contractual term used in a building contract to signify that the development is complete and thus can be handed over to the owner for occupation. It is usually certified by a qualified professional acting on behalf of the developer.

Professional Fees refer to the fees payable to various industry professionals related to the design and construction of a project, typically known as the design team, e.g. architects, engineers, quantity surveyors etc. The term is also used to refer to the legal and other fees payable at various points in a deal (e.g. purchase, sale, letting, etc).

The Promote is a performance fee payable by the investors in a deal to an intermediary, e.g. Falco Capital, for sourcing, arranging and managing the investment on their behalf. It is typically calculated as a percentage of the total return of the investment (before tax) above an agreed annual hurdle rate, e.g. 25% of the total project return above an annual hurdle rate of 8%. If the investor return falls at or below the hurdle, no Promote is payable.

The Project Monitoring Surveyor ('PMS') is a qualified professional (typically a quantity surveyor) appointed by a third party to a real estate project to monitor and protect its interest. If appointed by a lender, the role of the PMS is to write an initial evaluation report, monitor the progress and expenditure of the project in line with the agreed business plan and approve the drawdown of funds to meet budgeted project costs.

Purpose-built student accommodation ('PBSA') is single-purpose accommodation specifically built for higher education students. It can be built by the higher education provider (e.g. University) or by private developers.

A formal valuation of a real estate asset by a Registered Valuer who is a member of the Royal Institute of Chartered Surveyors ('RICS'). The Red Book is the Institute's formal guide as to the rules and best practices that the valuer should adhere to in undertaking the valuation.

Return on Investment/Equity measures the total return on a project as a percentage of the amount invested. A profit of £500 on an investment of £1,000 has an ROI of 50%. The ratio is not time-based and should also be considered alongside an annualised measure of return, such as an IRR.

A trust is established to hold security on behalf of the beneficiaries of that security, e.g. a mortgage held on behalf of the mortgagees. The trustee is known as the Security Trustee and will typically be paid an annual Security Trustee Fee.

A Senior Loan is a debt that takes first priority of repayment. In a real estate context, it is likely to be secured by a mortgage/charge over the property, which is known as a First Charge. A Senior Loan is likely to charge a lower interest rate to reflect the lower risk of it not being repaid.

A Shareholder's Agreement is a contractual agreement entered into by all shareholders in a company. It regulates, amongst other things, the relationship between the shareholders, the management of the company, the appointment and conduct of directors, the ownership of shares and the protection of differing groups of shareholders.

A loan provided to a company by investors who are also shareholders in the company.

A Société d'Investissement à Capital Variable, or SICAV fund, is a publicly traded open-end investment fund structure offered in Europe. SICAV funds are similar to open-end mutual funds in the U.S. Shares in the fund are bought and sold based on the fund's current net asset value (NAV).

The Sterling Overnight Interbank Average Rate ('SONIA') is the effective overnight interest rate for unsecured transactions in the British sterling market. It has widely been adopted in place of LIBOR as a base rate for many floating commercial loans.

The Sponsor is an individual or company that owns (or co-owns with investors) and manages the property/development/company on behalf of all other interested parties. In development scenarios, they are often referred to as the 'Developer' or 'Borrower'.

Like the Deed of Priority, a Subordination Deed governs the relationship between two creditors. Whilst the former gives certain rights to the Junior Lender(s), a Subordination Deed removes the majority of these and imposes various obligations on the subordinated party, in particular in an enforcement situation by the unsubordinated creditor.

The payment Waterfall is a pre-determined flow of funds that prioritises distributions from a company/vehicle/project. It is usually governed by a Deed of Priority (in a lending situation) or a Shareholder Agreement (between different classes of shareholders).

The ratio of annual income to the value of an investment, expressed as a percentage.

• BTR: Build to Rent
• CSSF: Commission de Surveillance du Secteur Financier
• FREFF: Falco Real Estate Finance Fund
• IRR: Internal Rate of Return
• JCT: Joint Contracts Tribunal
• LTGDV: Loan to Gross Development Value
• LTV: Loan to Value
• NIY: Net Initial Yield
• PBSA: Purpose-Built Student Accommodation
• PMS: Project Monitoring Surveyor
• RICS: Royal Institute of Chartered Surveyors
• ROE: Return on Equity
• ROI: Return on Investment
• SDLT: Stamp Duty Land Tax
• SONIA: Sterling Overnight Interbank Average Rate