When searching for a new commercial real estate (CRE) investment, you may find common area maintenance (CAM) explanations and variables that make it challenging to decode which are the landlord’s responsibility and which are not. Often, marketing brochures are silent on CAM and the associated expenses, and there can be many hidden clauses that can slip by unnoticed. Before you move forward with your investment decisions, here are a few things to look for and the basics of CAM 101.
CAM Charges Defined
CAM charges are operating costs and maintenance fees charged in addition to the base rent for upkeep on the common areas of a property, such as parking lots, outdoor lighting, and landscaping. Ongoing costs for running the business fall into two areas: uncontrollable and controllable. Examples of uncontrollable CAM charges include monthly utilities and snow removal. Other CAM charges, such as taxes and insurance, are considered controllable.
Since the tenant benefits the most from the upkeep of common areas and building maintenance, in most cases, the tenant is expected to pay a prorated, or “pro-rata,” share of those operating expenses. Depending on the property type and tenant (single-tenant, multi-tenant, retail, fast food, etc.), and type of lease, CAM may include:
- Sewer, plumbing, electrical
- Parking lot repair, refurbishment, lighting
- Snow removal
- Trash removal
- Janitorial, pest control services
- Center signage/upkeep
- Common area utilities
- Common area HVAC maintenance
- Liability insurance
- Real estate taxes
- Landlord’s administrative/property manager costs
How to Decode CAM Charges for Non-Triple-Net Leases
You will find corporate leases vary from tenant to tenant on the subject of CAM. Some leases dictate that the tenant is responsible for CAM, others the landlord. Some leases provide for the tenant to reimburse CAM expenses, others do not. The bottom line is this: CAM charges are defined and paid for by either the landlord or the tenant as outlined in the terms of the lease and remain in effect for the lease term.
If the lease states that the landlord is responsible for the CAM and there are large fluctuations in the pre-determined estimated base charges compared to actual costs/charges, this can be costly to the landlord. When there is a fiscal-year CAM loss, chances are, the pre-determined charges are locked into a multi-year lease without the ability to be changed to reflect the higher costs. The inconvenience and cost to you, the property owner, of reconciling year-end actual CAM expenses versus the monthly charges billed to the tenant can be significant.
Decoding CAM and not missing any costs in the lease can be next to impossible without proper representation by a buyer’s advisor. With decades of experience in the commercial real estate industry, Westwood Net Lease Advisors know what to look for and have your best interests in mind when it comes to reviewing and negotiating complex leases. We eliminate the unknowns and ensure there are no surprises after the sale.
No CAM with Absolute NNN Investment
As an absolute triple-net lease property owner, it’s simple to calculate CAM – the tenant pays for 100% of those charges as defined in the lease. Most often, absolute NNN properties are investment-grade corporate tenants such as Walgreens, Dollar General, or McDonald’s, who want control of all aspects of the property for brand uniformity. As landlord, you do nothing but collect rent while the tenant takes care of everything, including the net real estate taxes, net building insurance, and net common area maintenance. Besides not having to deal with CAM, a NNN lease investment is a wise consideration with many financial and tax benefits and lifestyle advantages.
To Wrap It Up – Understand CAM Charges
As you search for your next CRE investment, thoroughly evaluate all the pros and cons, and be sure to define your portion of CAM before you purchase. This saves time, money, and legal hassles later. If you prefer to avoid CAM all-together, buy an absolute NNN lease property. Either way, whether you’re new or a seasoned investor, working with a Westwood Net Lease Advisor with comprehensive knowledge and experience will ensure you acquire the right property; one that’s safe and structured to your financial and lifestyle objectives – all at no cost to you.Financing, nnn down payment, nnn financing, nnn investment properties, NNN Lease Investments