CAM reconciliation lets you keep tabs on your tenants’ responsibility and compliance. This process enables you to keep healthy profitability. Overlooking it is a quick way to accumulate unnecessary expenses that eat away at your lease’s returns.
Today, we’ll share insight from industry experts—as well as ours—to help you understand why it’s so important. We’ll also go through a few tips to help you streamline the task.
Before we start, what is CAM Reconciliation?
Capital Retail Group has an excellent definition of the process. CAM refers to “common area maintenance” in the US. However, it goes under different terms in other regions. For instance, “service charge” is the common name in Europe. Others know it as T&M or operating expense.
For simplicity’s sake, we’ll refer to it as CAM clauses and reconciliation. The name is quite self-explanatory. CAM expenses include the tenants’ responsibility to cover for maintaining and repairing common areas. These spaces include stairs, elevators, pathways, and other areas where footfall traverse, which doesn’t belong to a specific occupant.
Reconciling these accounts basically involves ensuring all tenants comply with their contracts’ demands.
Why should you care about it?
CAM reconciliation includes sending reconciliation statements and assessing payments and refunds for tenants; ideally, this event shouldn’t be a significant occurrence for any party. That’s it if managers budgeted effectively, and tenants compiled with their payments.
Landlords who fail during expense planning and budgeting have to compromise their pockets or credit scores. Asking tenants for reimbursement is complicated and cumbersome. Similarly, being too aggressive with CAM responsibilities also alienates tenants.
In short, CAM reconciliation is an important affair for both tenants and landlords. It promotes healthy relationships while maintaining important common areas well-kept. That attracts more footfalls, thus benefiting everyone.
What are common CAM Reconciliation challenges?
As detailed by RSM, property managers tend to take care of these reconciliation statements. That’s already a challenge because CAM expenses are primarily an accounting matter. It translates into needlessly tedious and ineffective statements.
However, there are several considerations besides that. All leases are different, and expenses are the same. Lease agreements usually change with time, and all these variables can make big differences during the reconciliation season.
Following RSM, Imperial Properties also has an excellent article detailing other considerations. Let’s go through the most important points covered by both sources to help you mini
Interests
Some leases let you amortize capital costs, usually during the lease term. Unfortunately, many landlords forget about collecting the interest charges included in said expenditures.
Management Fees
You can charge over 5% of your building’s annual gross revenue as a management fee. Make sure to pass the right fee during your reconciliation, especially when the lease agreement dictates it.
Gross-Up
Gross-up lets you accommodate current occupancy to curb expenses when your building still has vacant spaces. Many landlords fail to include clauses correlated to occupancy during their reconciliation.
Information Collection
Invoice and charge collection is crucial for CAM calculations. Many managers lose money because they fail to understand every expense that falls under this category.
Tenant Charges
It would help if you used previous years’ costs when calculating your CAM fees. Ideally, try to inflate your fees a little. That way, you just have to refund your tenants instead of compromising your property’s profitability.
Deadlines and Communication
Finally, make sure every clause and deadline are clear to your tenants. Additionally, remember to follow up with your occupants to address concerns before they become problems.
What can you do to make things easier?
Fundamentally, CAM reconciliation is straightforward. You only need to add all operational expenses from your properties. Then, you compare them against the charges to your tenants.
Now, everyone who works in real estate knows that the fundamentals don’t always reflect on reality. In practice, CAM reconciliation can be one of the most time-consuming tasks when preparing for the fiscal year.
Luckily, that’s mainly because many property managers don’t really know how to approach the task. Once you understand the principles, it becomes a lot easier. Furthermore, proper budgeting and expense assessment streamline the process.
The Colorado Real Estate Journal has an excellent assortment of tips for CAM reconciliation.
The first step is to ensure your general ledger is set up correctly. Poor coding or building assignment compromises your reconciliation.
Adjust your reconciliation to account for spaces that haven’t been occupied for a whole year. The same is true for space renovations and relocations. You might need to run several reconciliations and reflect discrepancies.
Don’t forget to go through pro-rata shares, gross-ups, exclusion, and amortizations. Anything that can change the shares and amounts for common area maintenance should receive attention before even starting your reconciliation.
Additionally, you should take note of all expense caps for every tenant. Doing so takes time, so you don’t want to compromise your reconciliation season with something you can calculate beforehand.
Some tenants and third-parties also require special consideration. Long-term projects usually require special reports from the provider. Similarly, many tenants present specific requirements for their reconciliations; get the most complex ones out of the way first.
The last tip is to try and run your reports at once. It’s more efficient than doing one at a time. You should create checklists for every property’s reports and store them together in individual folders. Doing so prevents you from unnecessary pauses during the process.
Finally, what has COVID-19 done to common area maintenance?
Springboard has an excellent summary of the pandemic’s impact on CAM reconciliation. It starts with how COVID-19 impacted commercial real estate—both landlords and tenants. It’s not a secret that the crisis has been changing the industry.
Therefore, many property managers have needed to revisit their CAM clauses. Naturally, social distancing regulations mean that common area aren’t really “common” anymore. These spaces are quite prone to crowding, which is precisely what we need to avoid.
These measures have shifted operational standards significantly. It might translate into less maintenance necessary, but adapting operations is still a noticeable task.
How to reconcile it during the pandemic?
We already explained what this reconciliation involves. It’s easy to expect the pandemic to make the process easier. After all, less traffic means maintenance is easier, right?
Well, that’s actually quite the opposite. The Springboard article mentions that this task has ranked among the most complicated processes during the pandemic. That’s because different safety measures have resulted in restrictions and considerations for common areas.
Sure, less traffic lowers costs, but that’s where the problem comes from. It has led to reconsiderations, negotiations, discounts, and adjustments to CAM clauses. Tenants shouldn’t be taxed similarly to when these areas were at their full demand.
Therefore, property managers need to consider how these measures have impacted their expenses. If anything related to common areas has been cheaper, tenants should benefit from this as well.
COVID-19 has already disrupted businesses enough. There’s no need for CAM clauses to do the same.
The software implementation is a Key Advantage
Property management software has become vital for many companies. It used to be just a competitive edge, but it has transformed into a requirement for survival amid the pandemic. Mainly, it streamlines accounting and leases management tasks.
Platforms like Yardi, MRI, and other ERP and CRM systems have proven invaluable for countless businesses. We can personally attest to their effectiveness and aid towards dozens of our clients during the crisis.
You can streamline CAM reconciliation without too much effort. The platforms we mentioned let your teams collaborate remotely while accessing all the data they need from a central platform. Furthermore, automation scripts and other integrations provide additional features and functionality to your platform.
How to reconcile it during the pandemic?
From our experience, the best advice we can give you is to work with professionals. We provide expert consultancy to help you identify the best solutions for your businesses. Our consultancy includes:
Finding the best features for your goals.
Adapting our selections to your budget.
Optimizing your strategies depending on your current needs and growth expectations.
Still, we offer more than that. We can implement the entire system as well. That includes installation, onboarding your properties and users, and more. We provide training and the right permissions for every user. We also run regular maintenance and set up the right features for you.
Finally, we also offer professional offshore help desks for effective troubleshooting. Our dedicated resources ensure full-time availability depending on the working term you require.
Making sure your software works perfectly is critical if you want to leverage all its features and benefits. Don’t risk your profits and investments working with inexperienced personnel. Every investment should grow your company, not the opposite.