Making Common Area Maintenance (CAM) reconciliation go smoothly is not common. This is why this activity is among the least favorite for property owners or managers, but it is an essential part of having a successful commercial real estate leasing business.
The risks of over-calculation and under-calculation are real. With that in mind, here are some tips for accurate, hassle-free CAM reconciliation.
1. Carefully maintain records.
The easiest way to cut down on CAM-related stress is to ensure accurate accounting and records throughout the year. Keep all details in one centralized location – ideally in your QuickBooks Account and/or software for commercial property management.
This includes:
- All property-related expenses that may be reimbursable (utilities, lighting, insurance, taxes, etc.)
- Leases so you can quickly see what is included or excluded
- Previous CAM reconciliations so you can compare to previous years
- Tenant pro-rata share the information for calculating CAM
With careful documentation, you can promptly produce records if anyone demands an audit. STRATAFOLIO has a thoughtfully designed database to store all of your records, track upcoming expiration dates, and even Certificates of Insurance.
2. Plan your budget for CAM carefully.
Assuming you have previous data to go by, carefully plan expenses for the following year. Begin by looking at the expense categories from the previous year and then consider what you believe will happen the following year. Some things you might consider:
- Going out for bids on certain services such as landscaping, window-cleaning, etc so you have the most competitive price.
- Evaluating whether you believe taxes or insurance will increase (or decrease)
- General increases in price on certain things given market conditions
Setting your budget for CAM or operating expenses for the year is done by either looking at the previous year and then evaluating what increases/decreases you might encounter and then applying that accordingly to the budget you are setting for the tenants.
Once that budget is set, share that with the tenants as quickly as possible so they can start adjusting their rent payments accordingly. We recommend that tenants pay in an automated fashion, using ACH, so there is no hiccup in the payment process, plus there is less manual processing on your end.
3. Perform CAM reconciliations every year.
It may not seem like a big deal at the time, but it is critical to complete this activity every year. If you didn’t perform CAM reconciliations for the last year or two, it makes it difficult to evaluate CAM for the next year. Plus, given the increases in costs in nearly every sector, it means that your tenant may experience quite a shock when they receive their reconciliation report.
Poor reconciliation management may also make it difficult to sell the property and create additional scrutiny. Even more importantly, it may decrease the selling price because you are lowering your net operating income because you were not recovering all the expenses you could recover had you set your CAM budget correctly. Buyers will want to see up-to-date finances. Even before you sell the property, your investors and lender also want to see that you are conducting the process in a timely fashion.
One of the most frequent things we hear from our customers is how much time we save them in CAM reconciliation. Our powerful commercial real estate software can complete your CAM reconciliation in just one click.
4. Don’t forget about tenant-specific exclusions and exempt expenses.
If you’ve agreed to exclusions for any of your tenants, make sure they are formally added to the lease and reflected in your CAM charges. During negotiations, it is not uncommon for a tenant and landlord/owner to agree to exclude certain capital expenses such as repaving a parking lot or replacement of a roof. Sometimes the parties will agree to amortize a capital expense over a specified number of years. There are any number of things that can be negotiated for exclusion during CAM reconciliation.
The important this, is that when you neglect to reflect the exclusions during CAM reconciliation, it calls into question the process in general. You may find yourself having to produce multiple years of records to justify previous reconciliations. Plus, it leaves a poor opinion in the mind of the tenant about your operation.
5. Use STRATAFOLIO to complete CAM reconciliation in just 1 click.
STRATAFOLIO enables commercial real estate owners to automate CAM reconciliation and other essential tasks. At a glance, you can view your annual budget, current expenses, and each tenant’s responsibility for those expenses to date.
Using STRATAFOLIO, you can reconcile anytime, anywhere. This will give you an accurate view of your finances throughout the year and eliminate the risk of under or over-calculation at year-end. This online platform makes it easier to organize your records, automate invoicing, and keep track of who owes how much. As a result, you can calculate accurate charges with ease.
If you’d like to learn more about how STRATAFOLIO connects to QuickBooks and helps you manage your finances, operations, and more, contact us today! We’ll be happy to schedule a 1:1 demo and answer any questions you may have about CAM reconciliation.
