Strip Mall - Commercial Property Management

15 Replies

My company manages apartments and 1 retail location for over 10 years.  The retail location is just a fixed rent payment with no reimbursements.

I'm looking to manage a small strip mall that has NNN leases. From what I heard for this property, the tenants pay an estimated amount of taxes, insurance and exterior maintenance every month. At the end of the year, they settle up (clear the balances). I heard this is typical with NNN leases.

Does anyone know of any software that can generate statements to provide to my future retail NNN tenants (for the reimbursement arrangement I described)? The amount of taxes and insurance will go up when we take it over. How about any books that highlight the differences in managing commercial property and generate bills etc- any suggestions?

Hello Rick, I doubt anyone has the right software nor would I advise you using it for such a matter. You should always consult your lawyer before meddling with contracts. Then, let your accountant look at it to make sure you can get the most amount of money in any deal. Even if someone in the BP community gave you all the software to make a triple net lease, you'll still should have a lawyer look it over for your protection.

Rick,

This is what you called a CAM Reconciliation. You would need an in-house accountant to do that. CPA/outside accounts do not do this for you.

Thanks Simmon and Brandon.   Using an accountant would be nice but expensive.

Does anyone in this forum use software for CAM, insurance and tax statements.  If so, which one?  Any books you would recommend for someone familiar with residential, but not commercial rentals would be helpful.

Your time is appreciated. 

Do not just assume the tenants reimburse everything to landlord. Some leases can be absolute NNN ,some can be gross, and some a hybrid where NNN but CAM caps on certain items.

This is why when one of my clients I represent as a commercial buyers broker wants to buy a retail center we comb through the leases. 

Is this a current owner or fixing to be a new owner? There are specific property management leases for retail that companies usually use.

Since you are newer to retail management you should analyze WHAT TYPE of tenant mix is in the center.

Typically easiest to hardest to manage and keep performing:

Best: All national tenants with corporate guaranteed leases and absolute NNN with CAM

Better: 1 or 2 national tenants and some regional with a few mom and pop.

Good: No national tenants with some regional and mom and pop

Average: All mom and pop local tenants 

The higher touch tenants take much more skill to keep performing and they generally want to have a stronger relationship with management than big corp. tenants. Mom and pop often have just the one location or maybe a few at best so are hyper focused on those few units doing well and the center putting them in the best light and position for success.

When I look at a center I look at when roof was last redone and parking lot was last re-coated and striped. Even if tenants reimburse NNN for the expense it is very hard to get the money with a long term repayment plan added to CAM.

Typical management fee depends on the size of the center and gross rent numbers. I have seen it range from 3% to 5% before.

Joel- that is a very good point to see when the roof was last replaced, and parking last striped.

A gross lease sounds the easiest and simplest to me.  It would be nice though if the tenant were to pay for their own water and electric assuming they are metered separately.

If someone manages an absolute NNN lease space, do you generate a statement to the tenant every month? How do you come up with the numbers?

Originally posted by @Joel Owens :

Do not just assume the tenants reimburse everything to landlord. Some leases can be absolute NNN ,some can be gross, and some a hybrid where NNN but CAM caps on certain items.

This is why when one of my clients I represent as a commercial buyers broker wants to buy a retail center we comb through the leases. 

Is this a current owner or fixing to be a new owner? There are specific property management leases for retail that companies usually use.

...

Typical management fee depends on the size of the center and gross rent numbers. I have seen it range from 3% to 5% before.

 oh boy, just wait until you see the leases that we do. Max annual increases of 4% CAM for one tenant, max CAM of 5% for another. Then in-house has to figure what the Owner is responsible for. If they're smart, we catch this prior to signing big leases, but not always possible so it becomes a huge headache for accounting

Rick - there's no software to do this. I do this CAM reconciliation every year for my employers. It requires reading the leases and amendments. It requires the calculations.

Rick as mentioned generally before each new year the tenants are given an ESTIMATE of what tenant CAM amounts will be.

This estimate forms the the total cam per sq ft above the base rent they are paying.

There are all kinds of CAM gotcha's for an owner in the leases. One is for instance that the first year of the lease the tenant will only pay XX amount for property taxes. We have to get a credit from the seller prior to closing so we are not stuck with it. Usually the following year thereafter the tenant has to pay the full tax amount. Tenants try to put stops and ceilings on CAM the first year in business to limit expenses while they get established in a location. It's a battle between the landlord and the tenants on a lease.

The CAM estimate is then divided into 12 months of payments on top of tenant base rent. At the end of the year the CAM is reconciled for what the estimate payment was and actually what the bills were. If there is a difference owed to tenant landlord pays or has general language they rollover credit to next year. If tenant owes they have to pay the difference. Sometimes there is language that the tenant if landlord estimate was over 10% of actual CAM then landlord pays a penalty. They do not want landlord overcharging CAM estimate all year and keeping that money interest free to then give back as credit to tenant.

Another one leases generally have language that tenant only pays pro-rata cam portion for the space they occupy. So if strip center is 6 tenants and 2 go out the landlord usually would eat the extra cam costs to maintain those spaces and areas until re-rented.

People think retail is easy. It can be passive and great to own but I tell clients we MUST conduct thorough due diligence upfront  and any bad stuff we find seek credits etc. from the seller if possible. Sometimes developers agree to anything to  build a site and other times they used a general practice attorney instead of a specific commercial retail attorney to negotiate the leases.

I focus on the transaction side as a principal broker of my firm and also I syndicate deals as a sponsor and have my own investments. I have ZERO interest in managing other owners properties. Takes up a lot of time to do properly and pays next to nothing.

If you have gross rents on a small center for instance of 200,000 at let's say 4% management fee that is only 8,000 to look over the property for the whole year. If that property manager leased up a space in there where it's a 5 year lease at 50,000 a year that is 250,000 X say a 4% leasing commission = 10,000

So with one lease they make more than managing the center for a whole year.

Now let's take transacting.

Say NOI is 150,000 at a 7 cap value.

7.14 cap rate at about a 2,100,000 value X .03 commission = 63,000

If you work for a commercial brokerage they likely take half of that but if you are an owner and principal like me then you get the whole thing as I own the company. Of course there are business expenses to deduct and staff that is taken off of that amount.

If you syndicate as well then there are generally commission fees on buy and sell, ongoing cash flow as the sponsor, asset management fees, and also back end promote of the equity upside.

So going smallest to generally largest for return on time.

If you do not have experience managing a strip mall it might be a good idea to partner with someone close to the asset to learn the ropes. It is not a great idea to take an owners money without the training and experience to manage the asset. The other owners know each other and if the owner has to take the property and give to another management company because of a bunch of problems your reputation and company name can be sunk for future business.

@Joel Owens hit all of the nails on their head with his very comprehensive post.  Having managed commercial property for 13 years, I also agree that you absolutely must know what you're doing especially with regard to accounting practices.  The national retailers can be a nightmare to deal with in general and most are very demanding with regard to financial reporting and the need for thorough (AKA ad nauseum) explanations.  We had an entire department dedicated to billing, apart from AP/AR, and I very clearly remember the horror stories of them having to spend hours upon hours defending their reconciliations to a lot of the tenants.  The people in the billing department had been doing the job for ten years or more so they were very experienced.  You need to make sure you really have a full grasp of it all before agreeing to take over management.

Circling back to your question about software, we used Yardi, which I believe is the industry leader and is probably the best software for you to invest in if you plan to grow your commercial business.  It was quite a bit of a lengthy learning curve but worth it.  Best of luck to you!

Thanks for the responses.  It is very helpful.  

CAM sounds like a big head ache.   Reconciliation sounds even worse.

I can take another look at Yardi  as we considered switching to it before, but our needs have changed since we started using Quickbooks for accounting (Buildium for the tenant side).    How does Yardi help with figuring CAM or reconciling them?

@Rick T. - Yardi has sqft or percentage to calculate the amount in a specific expense. This must be set correctly in order for it to work.

My previous job, I had to do CAM recs for 14-15 shopping centers with each at least 20 tenants. A lot of them are Nationals so I had to deal with the Corporate's Accounting department. Yes, I did ALL of them. I didn't have the luxury of having assistants. I also had to enter all the Lease Admin info in Yardi.

If Yardi is too expensive, there are ways to go about doing the reconciliations. 

This sounds like tons of work- looking forward to plenty of fun 

Originally posted by :

My previous job, I had to do CAM recs for 14-15 shopping centers with each at least 20 tenants. A lot of them are Nationals so I had to deal with the Corporate's Accounting department. Yes, I did ALL of them. I didn't have the luxury of having assistants. I also had to enter all the Lease Admin info in Yardi.

My property manager uses Yardi. I've never used it myself. They also do a good lease abstract with all the pertinent details to make administration more streamlined. 

I have always managed all of my own properties (NNN, STNL, office, MF, residential, warehouse, medical etc). As far as software for CAM, I use Excel to create the year end statement. You asked about monthly statements, I have never had a lease that required monthly's. True, each lease is different and as Joel mentioned, there are often amendments to consider, handwritten notes that are part of the lease etc. Big ticket items like roof are often amortized over 20+ years so you have to keep a running count of those costs. It is time consuming but I can get the reconciliation done in one weekend/year. I am a full time investor so I like not having a property manager. Every tenant has my cell phone number and I think each correspondence is an opportunity to impress your tenants. Not saying this philosophy works for everyone but I have found it builds loyalty.

@Rick T. Do you have an in-house accounting to do this? Doing it yourself will just create more mess. Your controller should be able to handle this. 

BTW, don't confuse with a controller/accountant and CPA. They both do different things. CPA won't touch your CAM recs or Bank recs. 

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