Most commonly found in the commercial real estate industry, Common Area Maintenance (also known as CAM) is a section of the lease that clearly outlines what a tenant’s pro rata, or proportional, share of the operating expenses of the building will be. It details how the tenant and the landlord will share the costs associated with maintaining the common areas of a space, such as utilities, management fees, repairs and maintenance, landscaping, management fees, and more.
And while this sounds pretty black and white, at times, it can actually be a bit grey and blurry. For instance, the tenant may not be privy to the going market rate for common costs that are being handed from the tenant to the landlord. Similarly, the landlord may not know the current value of the property, at any given time. So, what happens when something unexpected warrants an increase in costs? Do you know that your CAM charges are accurate and fair? How can you be certain?
Tenant CAM Audits
This is where a CAM audit comes into play. A CAM audit takes into account every aspect of a tenant’s invoice, down to whether their pro rata share has been correctly calculated and whether other stipulations, such as caps, floors and base amounts, are being properly incorporated. But why, exactly, is this type of audit important?
Simply put, a CAM audit may uncover errors that are otherwise easy to miss — errors that, once remediated, may result in substantial savings to a tenant. What’s more, working with a firm that is skilled in CAM audits will ensure successful negotiations between tenants and landlords, making sure that any refunds owed are processed properly and efficiently.
But, what about on the other side? In other words, how does a landlord stand to benefit from this type of review? Let’s explore further.
Landlord CAM Reconciliation
Common Area Maintenance reviews are also beneficial for the landlord — not just the tenant. For instance, did you know that if Common Area Maintenance is not properly billed to your tenants, that the actual value of your property can be negatively impacted? Landlords and building owners can benefit from a CAM reconciliation, in which the CAM provisions of a commercial lease are meticulously reviewed, in order to closely analyze all of the applicable expenses and making sure that the maximum legitimate expenses are being passed through to your tenants, as well as calculated tenants’ CAM reimbursements, when applicable.
By partnering with the right CRE lease administration firm, landlords can maximize their reimbursement revenue, while also being unburdened of the headaches commonly associated with calculating Common Area Maintenance and invoicing tenants.
Let’s dig deeper into a couple of items to remember that can help lead to a more profitable CAM reconciliation:
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Don’t forget the interest.
Many commercial leases allow for landlords to amortize capital expenditures over a set period of time, usually the lifespan of the lease. And, what’s more, these expenditures often include an interest charge, which landlords often forget to add and collect — leaving money on the table.
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Gross up any relevant calculations.
Another area where many landlords are walking away from money is grossing up calculations. Some commercial leases allow for landlords to gross up certain expenses, based on the occupancy rate of their property. Keep in mind, though, that only certain expenses can be grossed up, as they are directly proportional to the building’s occupancy rate.
For instance, the cost of some CAM services, such as electricity, water, and janitorial services are directly related to how many tenants and employees are in the building. Others, such as landscaping services, are flat fees that do not fluctuate based on tenants’ use. In order to maximize their ROI, landlords should use these CAM audits and reconciliations to closely analyze the CAM categories they can gross up — and then charge their tenants accordingly.
Conclusion
Your commercial real estate holdings should be an asset — not a liability. It’s no secret that managing commercial real estate operations is a complex and delicate procedure. With so many professionals involved at every level, along with multiple collaboration points and detailed legal documents and procedures, it’s easy to see how it can turn into a logistics and communication nightmare. Properly controlling all of these individual elements requires a seamless, automated approach — and this is where we come in.
What is Quarem?
At Quarem, our philosophy is simple: we are obsessed with utilizing technology to improve your real estate processes. Our technology is meticulously built to incorporate and strategically organize all of your data, documents, and activities associated with your commercial real estate portfolio. Once this is organized, you will be able to take complete control of the details, while simultaneously simplifying your daily processes and gaining a smart perspective that drives strategic decision making.
We are all about communication, service, and accessibility. In other words, we want to help you gain control of your real estate holdings. And when you need us, we answer the phone. Connect with us today to get started.
They say computers are going to take all of our jobs one day. Actually, it may have already happened, as Forbes claims that “technology has already taken over 90% of the jobs humans used to do.” This isn’t a bad thing, however. It just means that humans have more time to focus on the important stuff.
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