CAMs from a commercial property manager perspective

7 Replies

Hi BP I wanted to get your opinion on what is included in Common Area Maintenance fees (CAMs). I know that most if not all fees for the maintenance and care of the property are included. However one thing I am wondering is if you have a tenant (I am speaking from the commercial side of real estate) and have a NNN lease. In your CAMs charges, do you include the fee for a management company or manager? I am looking at developing a few industrial properties and want to be able to base my underwriting correctly if I should include the property management fee in the CAMs once the property is up an running.  Looking to pick the brain of any commercial property managers or management companies. Thank you!

@Jonathan Orr Depends on the lease. We have tenants that reimburse for everything and others that don't. Many try and put a cap on increases.  Older leases are likely to allow management expense, newer ones with smarter/tougher tenants are trying to take it out.

What are you trying to accomplish? If your goal is to make the property less management intensive, than you look at it one way.

If your goal is to make the numbers work, it really doesn't matter, a tenant will pay what they can all in. Many of our leases we do now are gross leases, take out the headache form cam billing. Tenant just pay a higher base rent. Its the same number end of day, just different structures.

@Ariel Jeidel

I appreciate your comments. It is funny out here in California. A majority of tenants (retail and/or industrial commercial) are so use to NNN that if you mention anything else it is almost a turn off. I guess that is partially due to the fact if the tenant is paying for their own utilities they can write the expenses off when it comes to taxes. However it is good to know that with CAMs you can expense what I, a property owner, would be paying to have the property managed (or at least a portion from what you are saying). Thank you for the help.

To follow along what Ariel said everything is driven by the lease. In our CAM we also included the accrual of expenses such as sealing and striping, painting the buildings, and roof replacement. This helped us store up to make those large replacements without having to take a huge hit. But, everything was written into the lease. I am also in California so most larger tenants are definitely used to NNN and also Percentage! Which if you are in a nice enough area always try to go for percentage rent as an owner but at the same time make sure you are not putting to much stress on the tenants. It is a fun little dance negotiating leases. Oh! And I almost forgot we always tried to put in management fees into CAM. Base rent should be used against the note and all other expenses should be covered by the tenant in NNN leases.

In response to a gross lease it is not the same as a NNN. If building is brand new then close but having gross leases on older buildings can eat a property owner alive. The owner is paying for all of that with a gross lease. New building hardly any expenses so you might net more than NNN but older building it usually swings the other way.

You can try to convert gross to NNN but most tenants would fight on that especially with an older building.

Whether tenants are required to pay for all expenses or not trying to charge them for roof,parking lot,etc. all at once is rarely possible with mom and pop to regional tenants. Instead what usually happens is the owner pays for it upfront and then collects what they can over time until paid off.

That is if as already mentioned an owner did not already account for it with so much reserves per sq ft while owning to properly maintain the asset to a high standard.

When buying a retail center the first question I ask is about roof and parking lot because they tend to be the most expensive costs. For the roof you get core samples as some owners just like to throw another layer on top but the substructure is falling apart and the whole roof needs replacing. Also I have seen where the seller put on too many layers on the commercial roof and insurance companies would not write a policy because of it.

We ask sellers for a credit at closing in reserve to pay for the cost of replacements for HVAC,roof,parking lot etc. You have to make sure lender will not try to reduce proceeds to the loan amount instead of you having the credit for replacements.

The reducing the loan amount might be saving you 20 bucks a month so means nothing versus the 50k credit from the seller.

Most mom and pop tenants live hand to mouth and if you shock them with a big expense that raises overall cam above base rent by a few dollars a foot it can send them into a tailspin. Even if they can handle it they might start looking for another place to rent at a cheaper cost. Even though NNN has tenants paying CAM the owner has to try to keep overall cam as low as possible so that the businesses can more easily pay annual rental increases and thrive.

Originally posted by @Kim Meredith Hampton :

Jonathan,

Simple answer is no! But you can include taxes and insurance into this expense

Actually, the simple answer is yes. 

Here is a copy of a STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE – NET...  I don't know what version this is but it covers some of the basics. 

(a) “Common Area Operating Expenses” are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following:

(i) The operation, repair and maintenance, in neat, clean, good order and condition of the following:

(aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems.

(bb) Exterior signs and any tenant directories.

(cc) Any fire detection and/or sprinkler systems.

(ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.

(iii) Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections.

(iv) Reserves set aside for maintenance and repair of Common Areas.

(v) Real Property Taxes (as defined in Paragraph 10).

(vi) The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8.

(vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.

(viii) The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/144th of the cost of such Capital Expenditure in any given month.

(ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.