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. Real Estate Investment Trust - ...

    A security that sells like a stock on the major exchanges and ...
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. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center