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Commercial Mortgage Terms Glossary

Glossary (click letters)

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ADS
See annual debt service.

Absorption
The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.

Accumulated cost recovery
Total cost recovery deductions taken throughout the holding period of a property.

Active income
Income from salary, wages, tips, commissions, and activities in which the taxpayer
materially participates. Also see passive income.

Add value
Fourth stage of four-stage transaction management process pertaining to a transaction
manager’s planning, effort, and continual contact with key decision-makers, investors, and
users, as well as contact with ancillary professionals. This ongoing process allows for
feedback, establishes a network for problem solving, provides a means to offer additional
services to the client, and enhances the transaction manager’s preparedness for the next
assignment.

Add-on factor
The ratio of rentable to useable square feet. Also known as the load factor and the
rentable-to-useable ratio. Also see efficiency percentage. Formula:
Add-on factor =Rentable square feet / Useable square feet

Adjusted basis
The original cost basis of a property plus capital improvements, less total accumulated cost
recovery deductions, and partial sales taken during the holding period.

Agglomeration economies
Cost reductions or savings that come about from efficiency gains associated with the
concentration or clustering of firms/producers or economic activities and the formation of a
localized production network.

Amortization
The repayment of loan principal through equal payments over a designated period of time
consisting of both principal and interest.

Annual debt service (ADS)
The total amount of principal and interest to be paid each year to satisfy the obligations of a
loan contract.

Annual percentage rate (APR)
The true annual interest rate payable for a loan in one year taking account of all charges
made to the borrower, including compound interest, discount points, commitment fees,
mortgage insurance premiums. It also takes into account the time at which the principal is
repaid (especially when payments of principal are made in installments throughout the year,

Annual percentage rate (APR) continued
but interest is charged at the beginning of the year), but not the actual expenses incurred
by the lender in making the loan and recharged to the borrower. (Encyclopedia of Real
Estate Terms 2nd Edition, Damien Abbott)

Annuity
Regular fixed payments or receipts over a designated period of time.

Appreciation
An investment’s increase in value.

Appreciation potential
The possibility or probability that a real estate investment will increase in value during the
holding period.

Assessed value
The value of real property established by the tax assessor for the purpose of levying real
estate taxes.

Average annual effective rate
The average annual effective rent divided by the square footage.

Average annual effective rent
The tenant’s total effective rent divided by the lease term.

Averaging method
A simple technique used to forecast next period's/year's vacancy rate by averaging previous
years' vacancy rates; especially effective where vacancy rates have remained relatively flat
or show little variability over time.