CAM Reconciliation Services

Simply put CAM charges are operating expenses that landlords pay in order to maintain and repair the building shared by multiple tenants. CAM charges have a huge impact on the property's net operating income (NOI), cash flow and overall rent that a tenant pays for the space occupied. Common area, as the name suggests includes every common space as well as utilities shared amongst all multiple tenants of a building. To run, maintain and repair such common spaces of a building, CAM costs are included within the lease as an annual budget which is billed in small installments (monthly, quarterly, or annually) to the tenant. While what's included as CAM charges vary across lease and properties, some of the common costs include:

• Electricals and water connection
• Janitorial services, plumbing, and snow and trash removal
• Pest control, housekeeping of common areas, and building security
• Property insurance and taxes
• Building administrative costs
• Common area heating, ventilation, and air conditioning (HVAC), and parking lot

CAM charges based on estimates and not actuals. Property managers, based on previous few years expenses and various other market factors arrive at an annual CAM budget, at the start of every year. That estimate is then divided into small installments as monthly operating expense. Based on tenant's pro-rata share of leasable (usable) area of the building, that percentage is charged which is required to be paid in small increments throughout the year. For instance, if a tenant's leased area 2,000 square feet and the total area of the building is 100,000 square feet, the pro rata share of the tenants is 2% of usable space. This is the percentage used to allocate CAM charges.

CAM reconciliation is the year end accounting of CAM charges. Since CAM expenses are charged based on estimates, managers are required to tally and reconcile the charges paid by the tenants against the actual CAM expenses incurred throughout the year. After segregating these charges and capital improvements, incase, charges paid are more than the actuals then property managers need to send notifications of credits. On the other hand, incase charges have failed to cover the actual expense then property managers need to send invoice for the amount due based on reconciliation.

According to the Bureau of Labor Statistics (BLS) website Consumer Price Index (CPI) "is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services." These are indexes of average price data published by BLS for various locations across the United States. But you may wonder how it applies to CAM reconciliation. Well CPI is used to determine fair rent calculation within commercial real estate to ensure it is at par with the regional/national inflation rate. However, it is worth noting that lease terms differ, some may include:

• CAM floor (lower limit) and CAM cap (upper limit) that allow landlords to account and adjust CAM cost for the inflation only up to a limit mentioned with in the lease.
• Fixed percentage of increase like (2% or 5% a year) in which case you will not need to adjust for CPI.

There is a blog post we did on best practices, you can read about it here. Having a standard and methodical process in place is a good place to start. More often than not property managers follow siloed and manual processes that lead to slippages and errors. Establishing a structured process help streamline reconciliation and allow enough time for focusing on each step to ensure timely and efficient outcomes. From the documentation, general ledger view, timely invoicing to accounting for every capital expenditure and other operating expenses as drafted in the lease contract – every step requires a systematic approach so that there are no cascading issues throughout the workflow.

It is no surprise that CAM reconciliation is a tedious process due to expansive commercial real estate portfolios, complex lease structures, changes in tenancy, and other variable factors that influence CAM charges. Plus, today property managers are tasked with myriad of responsibilities which often leaves them overburdened and they barely have enough time to complete the reconciliation process within the deadline. All these factors make the process highly error-prone and often lead to delays. Outsourcing CAM reconciliation has therefore emerged to be a go-to strategy within the commercial real estate sector as it offers tangible benefits. Professional service provider brings in expertise, right tools, and industry best practices that enable you to ensure that the CAM reconciliation process is accurate, timely, and streamlined.