Add-On Factor

AAA

DEFINITION of 'Add-On Factor'

The number of usable square feet divided by the number of rentable square feet in a commercial real estate lease. The result of this calculation will be 1 if the two numbers are identical, but it is usually slightly lower than 1 because some square footage in a building will be partly or totally non-unusable. Non-usable square footage includes space shared with other tenants (such as lobbies, hallways, stairwells, elevators and restrooms) or occupied by structural components (such as support poles and interior walls). In a poorly designed building, the usable area may be considerably less than the rentable area.

INVESTOPEDIA EXPLAINS 'Add-On Factor'

In commercial real estate, the lease cost is calculated based on rentable area, which includes areas that are not usable. This means that for the same amount of usable space, a building with a lower add-on factor will cost the tenant less than a building with a higher add-on factor. The add-on factor is important because the tenant pays for this unusable space in his lease. He pays for a fraction of shared common areas and he pays for all of the space he rents that is occupied by structural components. Potential tenants can thus use the add-on factor to help them compare leases and determine which lease offers the best value.

RELATED TERMS
  1. Modified Gross Lease

    A type of real estate rental agreement where the tenant pays ...
  2. Property Management

    The administration of residential, commercial and/or industrial ...
  3. Commercial Investment

    An investment in a for-profit enterprise involved in the buying ...
  4. Shell Lease

    A commercial lease in which a tenant rents a property with an ...
  5. Gross Lease

    A type of commercial lease where the landlord pays for the building's ...
  6. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
Related Articles
  1. How A Bad Roommate Can Ruin Your Credit ...
    Personal Finance

    How A Bad Roommate Can Ruin Your Credit ...

  2. A Guide To Real Estate Derivatives
    Bonds & Fixed Income

    A Guide To Real Estate Derivatives

  3. Real Estate Speculation In College Towns
    Personal Finance

    Real Estate Speculation In College Towns

  4. 7 Steps To A Hot Commercial Real Estate ...
    Home & Auto

    7 Steps To A Hot Commercial Real Estate ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center