What does "CAM" Mean in
Commercial Real Estate?
Commercial Real Estate?
There's a lot of lingo in commercial real estate: Triple net, cap rate, and CAM are all terms that are thrown about like they're common English. You've probably come across the word CAM before, whether you're seeking to lease or invest in commercial buildings.
What you need to know is as follows:
What Is Maintenance of Common Areas?
Common area upkeep is an extra rent charge that covers any costs associated with the property's day-to-day operations. It is not designed to be a profit center for your landlord as an extra rent charge, and it is one of the three "nets" in triple net (NNN).
What Exactly Is a Common Area?
A "common area" is any location that is shared by two or more tenants, implying that no one renter has exclusive access to that space. But, surely, someone has to be in charge of keeping that area clean?
Taking Care of the Common Area
Instead of renters fighting over who is accountable for maintaining the common spaces, the landlord and/or property management firm are in charge. They are in charge of collecting the payments from tenants and overseeing the space's administration.
These costs are often specified in detail in your business lease, so there is little to no uncertainty about where the landlord's responsibilities ends and the tenant's begins.
There is no such thing as a conventional set of expenditures. So, whether you're a renter or a landlord, it's critical to check with an attorney to verify that the lease adequately covers all you anticipate to see.
What Does CAM Entail?
Unfortunately, there are no "standards" for commercial leases, as there are for many other elements of business. The management needs will differ from one building to the next, based on the following factors:
- Type of Property
- Count of Tenants
- The Layout of the Property
- Creating Age
- Climate in the Region
- Property Type
Prior to signing a lease, landlords and renters will discuss these fees. As a result, although the prices may vary from lease to lease, they are often fixed in stone. After all, window cleaning is window washing, and landscaping is landscaping. However, as we'll see later in the essay, it is feasible to set a limit on how much these costs may change from year to year.
There are two types of CAM
Controllable and uncontrolled expenditures – very clever terms, I know – may be divided into two groups when it comes to common area upkeep.
Expenditures that the landlord has control over, such as housekeeping supplies or parking lot upkeep, are examples of controllable expenses.
Uncontrollable expenditures, on the other hand, are factors that are beyond the landlord's control, such as property taxes and building insurance.
Typical Fees You'll Discover
The following are some of the services that are often invoiced to tenants:
- Management and Administration
- Marketing and Advertising
- Building Maintenance in General
- Maintenance of the Parking Lot
- Window Cleaning
Keep in mind that this list isn't exhaustive, as each resort has its own unique set of amenities.
What Is CAM and How Is It Calculated?
CAM is usually computed on a yearly basis and invoiced to renters together with rent on a monthly basis. Property managers and owners will base these statistics on the previous year's real costs for their yearly budget since it is typically simply an estimate of the actual expenses.
How Are Tenants Billed?
The overall common space maintenance budget is then proportionately shared among the building's tenants depending on square footage.
The pro rata share of a tenant is computed by dividing their square footage by the building's total leasable space. Landlords will charge a lower monthly rent to make this extra rent burden simpler to handle for renters.
Reconciliation on an Annual Basis
The costs will be reconciled at the end of each year by the building's property management or owner. They compare the budgeted expenditures to the actual costs to calculate the year's real spending.
If the expenditures turn out to be less than what was forecasted at the start of the year, the renter will be granted a refund for the money they overpaid. If the cost of CAM turns out to be more than expected, the renters will be liable for the difference.
Best Budgeting Practices
In my experience, it's best to overestimate the amount of money you'll spend over the course of the year.
Instead of having to charge renters to cover the real expenditures at the end of the year, the landlord will be able to repay them for their overpayment. Much less difficult for tenants to deal with.
Navigating the Variables
With so many variations of CAM its important to understand how each expense is structured. Pillar Real Estate Advisors recommends sitting with your commercial real estate agent and going over the estimated expenses as provided by the property owner. This gives you the opportunity to really understand where each of the expenses comes from and how tenants are allocated their share of those expenses. It is also important to understand which of the CAM expenses might be able to be capped regarding yearly increase percentages and which are variables that could fluctuate year to year without a ceiling limit.