Learn about Common Area Maintenance (CAM) management, covering its significance, expense calculations, financial stability practices, and strategies to enhance tenant satisfaction.
As a commercial real estate owner or property manager, you likely encounter common area maintenance, or CAM, frequently. You have probably heard terms like CAM charges, CAM reconciliation, various types of net leases, and more. With so much information, handling CAM processes can feel intimidating, leaving you unsure where to start.
The first step to making sure that CAM goes smoothly all year, every year, is to master CAM budgeting. Below, we’ll break down the budgeting process in simple steps to set you on the path to success.
Common area maintenance (CAM) charges or fees are the expenses that all tenants of a building share to pay for the upkeep of common spaces on the property. Examples include lobbies, parking lots, elevators, and landscaping, though the exact list will vary from building to building and lease to lease.
Tenants usually contribute to CAM expenses based on the amount of space they lease in the building, their pro-rata share. Each year, landlords estimate how much they will incur in CAM fees and spread those charges out monthly for tenants. Then, at the end of the year, they must compare their estimation with how much they actually spent. This is called CAM reconciliation, and it determines if the tenant owes extra to the landlord, or if the landlord must reimburse the tenant.
CAM budgeting is the estimation part of this process. Budgeting involves reviewing budgets and actual expenses from past years, factoring in inflation and market costs, considering renovations and repairs, and even trying to predict unpredictable expenses.
While it’s unlikely that your CAM budget will always be perfect, it’s crucial to strive for precision. Take a look at a few of the major reasons that an accurate budget is important.
Reviewing and planning your expenses each year gives you a clear and detailed understanding of what your property needs. This information allows you to catch cash flow issues, plan better for big expenses like renovation, and create a tighter, more profitable budget each year.
It’s best practice to be open with tenants throughout the CAM process. Having a well-planned budget allows them to see exactly where the money you charge them goes, building trust in the process. Additionally, a more accurate budget will result in fewer bonus charges to your tenants at the end of the year, increasing trust and satisfaction. Landlords who miss CAM reconciliation or calculate it incorrectly may discover that they have not received full payment in the past. This leaves them in the awkward position of invoicing tenants for past CAM expenses or taking a financial loss to avoid passing on unexpected costs.
Budgeting well means that everyone pays their fair share to keep the property in good condition. By avoiding overcharging tenants, or taking on unnecessary costs as the owner, you improve profitability for everyone. This creates additional cash flow that can be put towards business growth.
How do you create a strong CAM budget? The secret is that budgeting isn’t a once-a-year chore. It’s a constant process of tracking financial data and analyzing it to find improvements. This guide takes you through each phase in CAM budgeting.
Analyze your budgets and expenses from previous years. Analysis helps you identify trends for each property and serves as a good starting point for estimations. Be sure to take note of any specific needs for each property (snow removal, renovation, etc.) and to account for any outliers, such as unexpected damage.
must pay for. This clarity helps avoid disputes and makes future planning easier. There are a few different ways to categorize expenses. As an owner or property manager, the most important distinction is reimbursable vs. non-reimbursable expenses.
It’s very important to track reimbursable and non-reimbursable expenses in detail so that you don’t miss anything when it’s time for CAM reconciliation. The most effective way to do this is by having a thorough, organized chart of accounts. This way, you can clearly see all of your expenses and don’t end up overpaying for costs that should be reimbursable.
Another category that appears in some leases is controllable vs. uncontrollable expenses.
Usually, this distinction appears because tenants want to negotiate a cap on controllable expenses. Controllable expense caps can be limiting for landlords, so it’s a good idea to be careful of including controllable and uncontrollable expenses in lease agreements.
Using the data you’ve already collected, it’s time to make an estimate. Take into account market fluctuations such as inflation rates and changes in utility or labor costs to ensure you don’t underestimate. For best results, use a property management software like STRATAFOLIO that can help you track financial data. Having all this information on hand will make calculations for next year much more straightforward.
Once you know your total estimation for the year, it’s time to spread the costs among tenants. You can calculate their pro-rata, or proportional, shares based on what percentage of the building they rent. Remember to check each lease for special circumstances, as some tenants may negotiate for exceptions from some CAM expenses.
At this point, provide each tenant with a detailed breakdown of their CAM charges. Again, transparency is crucial to building strong relationships and preventing disputes at reconciliation time.
When allocating costs, it’s also crucial to be aware of CAM caps. Caps limit the amount of CAM expenses a tenant is responsible for each year, and can be negotiated individually by each tenant, so it’s important to know the terms of each lease. Additionally, it’s a good idea to plan to spend as close as possible to the cap amount each year. This way, you don’t end up taking on extra costs yourself, but can justify where the cap is placed for next year, or even move it higher. If you don’t spend enough, tenants may believe the cap is unnecessarily high and push to lower it.
Throughout the year, use a property management software like STRATAFOLIO to track your actual expenses thoroughly. Having complete information ensures you are prepared for CAM reconciliation and can provide an accurate, detailed explanation of your calculations to tenants. Note any necessary budget adjustments for future years.
At the end of each year, it’s time to perform CAM reconciliations. Some businesses perform reconciliation each month out of fear of missing something. However, this is an unnecessary amount of work if you have successfully budgeted and tracked expenses throughout the year.
However, it’s still important to reconcile in a timely manner. Most leases require reconciliation within about 90 days, though specifics vary. Plan ahead to ensure you can complete CAM reconciliations accurately and on time to avoid tenant disputes. It’s also a good idea to read up on how reconciliation works, as well as property management tools that can help you perform it accurately.
If you’re still feeling overwhelmed by CAM budgeting, you’re not alone. It’s a complex process, but there are specialized tools to help you.
STRATAFOLIO property management software is built specifically for commercial real estate businesses. It tracks all your financial data so you can easily spot issues and make budget adjustments. And when it’s time to reconcile, STRATAFOLIO automations allow you to complete the process in just one click.
To learn more about why STRATAFOLIO could be the commercial property management software for you, schedule a 1:1 demo today.
The exact repairs and maintenance costs are difficult to calculate ahead of time. Common Area Maintenance (CAM) charges are estimated at the beginning of the year and divided into monthly payments for each tenant. Actual CAM charges are calculated at year-end—if the total is more than the tenant paid, the tenant pays the difference. If the total is less, the landlord is responsible for reimbursing the tenant for the difference.
CAM charges cover the cost of maintaining or repairing common areas shared by commercial tenants. This may include:
The CAM reconciliation process starts with identifying the costs associated with your common area maintenance and separating overhead costs from your recovery costs. For example, utility expenses are an overhead expense. While the tenant isn’t responsible for covering the costs directly, the owner/manager should be reimbursed or able to recover those specific expenses from the tenant.
STRATAFOLIO connects to QuickBooks to map your expenses and see how each reimbursable expense tracks against every tenant’s actual expenses. When it’s time to do CAM reconciliations at the end of the year, you can quickly and easily pull a report and share it with your client to recover expenses.
STRATAFOLIO is an online web-based, secure, mobile-friendly software application service made for people who own, manage or lease real estate and use QuickBooks Online or QuickBooks Desktop as their accounting software.
Yes. STRATAFOLIO currently integrates with both QuickBooks Online and QuickBooks Desktop. If you have another integration from another accounting system you would like us to consider, please send us an email so we can add you to our waiting list of future integrations.
Yes and no. Currently, STRATAFOLIO is not set up to do this without some modification. You can use the CAP feature and modify it on the report to make it a base year instead. We would be happy to show you how during Onboarding.
Every lease agreement outlines specific terms for these expenses, but typically, CAM expenses are based on the tenant’s pro-rata share. The CAM Reconciliation Report pulls in the actual amounts from your QuickBooks company file for each expense the tenant owes a share of. We then present this information to you with the share for those tenants. Once you verify the amount they paid for the year, you can easily true-up with the tenant for the year.
We set up your CAM Reconciliation Reports to match what you have already given to your tenants. If you would like, during the Onboarding process, we will review the report and suggest ways to make it more complete or easier for the tenant to understand.
No. We only display all of the transactions and reports on a cash basis across the entire platform.
Yes! We can add CAPs for each CAM subcategory per lease you have set up. We can add a percentage for year-to-year, a percentage over a given amount, a percentage up to a given amount, or a variation of ways. This calculates from year to year, so it is only entered once, and then you’re finished!
Yes! The CAM Reconciliation Report is designed to show the pro-rata share of the tenant based on the rentable square footage of the building.
Yes. We have added additional details so you can find the percentage of the Asset or Entity as well if needed. There are many ways to set this up depending on the structure of your QuickBooks and your portfolio.
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