Common Area Maintenance (CAM) charges are a standard component of most commercial retail leases. Typical expenses – including landscaping, snow removal, utilities, sanitation, maintenance, repairs, etc. – are added to the base rent as additional rent (much the same as taxes and insurance). These costs are negotiated at the beginning of a lease but can often become a point of contention if both the tenant and landlord don’t communicate openly.
Here are a few things to keep in mind when it’s time to reconcile CAM charges:
- Make sure all charges that could be considered CAM costs are presented to the landlord or owner by the submission deadline for review.
- Determine the amounts per tenant based on their Gross Leasable Area.
- Determine if the charges benefited one tenant or all tenants.
- Have tenants been credited or refunded for over paying CAM estimates?
- Were notices of deadlines for reconciliation clearly provided to tenants?
- Make sure to follow the terms of each lease as they may vary (i.e. Base Year CAM or Cap on CAM rates).
- Landlords should also provide CAM estimates for the current year and give adequate notice to the tenant.
Agreeing to terms and understanding charges as they arise is an easy way to avoid frustration at the end of the year. CAM reconciliation shouldn’t add aggravation to the already tedious budget process as long as the landlord and tenant keep accurate records and an open line of communication.
Fall marks the start of football season, the anticipation of upcoming holidays and, for property managers, the daunting duty of preparing a commercial property budget. While the task can take weeks or months, an annual budget is essential to organizing a property’s value and performance. What’s more, the process helps discover trends in expenses which help realistically predict future performance of the property.
Use these steps as a guide to creating a thorough commercial property budget:
- Determine the gross potential rental income of the property by adding together all income from rental fees and available spaces.
- Take note of any reimbursements or recoveries associated with the property if tenants are responsible for any operating costs or taxes.
- Account for any loss of income due to vacancy.
- Identify the facility’s operating expenses such as utilities, repairs, maintenance, insurance and other management fees.
- Examine the debt service and cash flow to understand the owner’s return on investment. This is particularly important if a property is for sale because it shows potential investors if the site is worth purchasing.
- Identify and account for all capital expenditures, escrow accounts and reserves. These include one-time expenses and funds set aside for emergency expenses or large maintenance projects in the future.
While creating a budget can be tedious, it’s best to take the time to make sure it’s thorough and accurate. It’s also important to keep detailed reports and records for future use. By doing so, you’ll have an easier time identifying items for future budgets and have a better understanding of when income or expenses need to be adjusted.
McWhirter Realty Partners manages properties throughout the southeast including office, medical office, industrial, retail and self-storage. If you have a real estate investment and are considering a property management company to maximize the return on your investment, contact McWhirter Realty Partners today.
A necessary – albeit laborious – task for anyone who owns commercial property is the creation of an annual property or asset management plan. The budget provides a comprehensive understanding of each category of income and expense for your property and also sets realistic, measurable expectations for the performance of the property. Once created, it serves as a roadmap to avoid lost revenue and help react to unexpected expenditures.
Here are some tips to maintaining your property management budget:
- Complete scheduled maintenance during the month it is included in the budget. If HVAC service is in the budget for April and October, then work with vendors to ensure that service is completed and the invoice is paid during those set months. This not only ensures your building systems are consistently maintained but minimizes variances or shortages in cash flow.
- There will be unexpected expenses. Even the most seasoned property manager can’t prepare for every scenario, but steps can be taken to help cushion the unforeseen expense. Big ticket expenses typically come from major building systems like HVAC, sprinkler systems or water tanks. As a rule of thumb, make sure to be aware of the anticipated life cycle of these systems to help predict repairs or replacements. And it’s a good idea to over budget these areas so an unexpected outlay isn’t such a huge hit.
- Make sure invoices are coded to match the line items in the budget. As time goes by and work increases, it’s easy to forgo double checking where something was originally allocated – especially if the property manager didn’t create the original budget. A simple slip in coding a plumbing repair under ‘routine maintenance’ instead of ‘plumbing repair’ can easily throw the budget off track.
A competent, trustworthy property management company can help ensure a property management budget is thoroughly prepared and properly maintained for your commercial property. If you have a real estate investment in the metro Atlanta area and are considering a property management company to maximize the return on your investment, contact McWhirter Realty Partners today.