What’s In CAM? - August, 2015
What’s In CAM?
As a tenant, when you enter into a NNN lease you agree to pay a specified base rental rate, as well as a pro-rata share of operating expenses commonly known as CAM (Common Area Maintenance). This expense can vary greatly depending on the property type, with Class “A” Office buildings often commanding the highest CAM expenses due to their lower efficiency ratios (usable sq. ft / leasable sq. ft.). Knowing what all is included in these expenses can be vital to a prospective tenant, and often help shape strategic budgeting decisions. Operating expenses most commonly included in CAM are property taxes, property insurance, management fees, building maintenance, and grounds maintenance. These five line items represent the very basics of what can be included in CAM. Other expense items commonly included are, replacement reserves for short lived items such as roof, HVAC, exterior painting, pavement resealing, etc., condominium association fees (as applicable), CDD bond payments (as applicable), water/sewer utilities, janitorial expenses, and electric utilities in buildings not separately metered.
As a tenant, knowing what all is included in the CAM allows you plan for capital expenditures that may, or may not be your responsibility. For instance, some landlords may require the tenant to shoulder full responsibility for repair AND replacement of the HVAC units that service their individual space. As anyone who has ever replaced one of these units can tell you, this can equate to a substantial monetary outlay. Should a tenant be unprepared, or unaware of their responsibility, a sudden capital call of $5,000 (on the low-end) may put them in financial hardship. On the other end of the spectrum, should a tenant lease space subject to a CDD bond payment, knowing that this additional expense burden will not continue in perpetuity may allow them to plan for a redirection of those funds once committed for the CDD payment, towards something more productive, such as additional advertising. In commercial real estate, knowing what to ask for, often even more than understanding what is provided, can make or break a successful transaction.