Buzz Words du jour

Our industry, like many others, loves buzzwords.

Often, a lot can be read into these buzzwords besides just their intended meaning. Probably the buzzword that best exemplifies a word or phrase that has meeting way beyond that which was intended is the phrase "burn rate."

For those of you with short memories this phrase came to prominence during the dot com boom and referred to the rate at which unprofitable "new economy" (another buzzword rife with unintended meaning) companies were burning through their capital.

Unbelievably, at the time this was not necessarily meant to be a bad thing but just another metric to be considered in valuing a business. However, in retrospect and with the value of hindsight, it is clear that this buzzword signified the mania of an era.

Similarly the term "capital stack" (sorry, but it makes me think of pancakes) is a recent real estate industry buzzword that has similar significance. It refers to the many layers of equity and debt and hybrids of each that are created as part of the "financial engineering" (another great buzzword) to allow developers and property entrepreneurs to acquire huge amounts of real estate with little or none of their own money.

What this innocuous term really signifies is a transaction that is so overly leveraged that the capital stack is in danger of collapsing. This buzzword pretty much sums up the last five years of our industry.