The Impact of CAM Reconciliation on Leasing Strategy
September 30, 2021
OHI
Accounting for Common Area Maintenance, or Reconciliation, better as CAM, contributes majorly in achieving accuracy in accounting and cash flow. It is one of the most critical processes in the commercial leasing process in real estate that needs to be handled extremely carefully, or else the entire process can be quite cumbersome and time-consuming.
CAM reconciliation does not have a one-size-fits-all solution that can simplify its process, and this is one of the primary reasons why it remains a challenge for most of them. Some of the common issues that derail the CAM recs. process are:
lack of time and competing priorities
inconsistent process
misinterpretation of lease terms
inaccurate classification of expenses
poor documentation and history of reconciliation
When CAM reconciliation is not done properly, it has the following adverse effect on the leasing strategy:
It leads to a huge negative cost impact for the landlords
It becomes the reason for conflict between the landlord and the tenant
Wrongly calculated and poor CAM reconciliation can lead to major losses for the landlord or overcharges for the tenant. This, in turn, leads to increased financial, reputational as well as operational risks
Poor CAM reconciliation and calculation can lead to the tenant paying less for household improvements and maintenance work done during the lease period
It leads to losing out and missing on recoding expenses incurred actually
Access to any kind of historical data becomes difficult
Impact of CAM Reconciliation on Leasing Strategy
CAM recs. for commercial real estate firms are a must. However, no matter how straightforward this may appear, it is quite a complicated process and prone to errors. Having a robust CAM calculation can not only improve the market position for landlords but can drastically influence portfolio performance as well. Let us talk about how CAM reconciliation, and CAM audit, impact leasing strategy in the long run.
Improves Tenant Relationship
CAM charges can get misinterpreted and is highly prone to errors. Both undercalculation or overcalculation puts an added burden on the landlord or the tenant, which can act as a bone of contention between the two. Where the landlord may suffer for lower calculation of the charges, an overestimation may prove heavy on the tenant’s pocket. In both cases, the landlord-tenant relationship may get jeopardized.
On the other hand, having accuracy, transparency, and punctuality in the CAM reconciliation process can help landlords in gaining trust with their tenants. This, in turn, can boost their relationship profoundly. To have a synergetic environment, landlords need to make sure they are transparent about how charges are levied. This would help them build their brand reputation and even ensure a successful leasing strategy.
Increasing Retail Competition
The commercial real estate market is sky-rocketing in retail properties. Under such circumstances, leasing and vacancy factors may be majorly influenced on the grounds of a shrinking market share. Under such competitive backdrops, landlords may add incentives to retain their old tenants and get their hands on new ones. Hence, every cost factor would impact the growth of the landlord considerably. Here, it becomes mandatory to have a clear, correct, and controlled CAM reconciliation calculation to ensure overall growth in the long run.
Negotiating Future Lease
To strike a viable and profitable deal in leasing commercial properties and to manage its performance efficiently, it is important to streamline the CAM recs. process. This would provide a clear insight into the expenses and ease off future negotiations on lease by strengthening its foundation. Having clear CAM data, instead of just working on assumptions, would make the entire leasing process easy, productive, and effective.
Benefits of Outsourcing CAM Reconciliation
If you wish to have a stress-free, effortless, and accurate way of CAM recs. for your leasing strategy, the best practice is to outsource it. Outsourcing this activity can fetch you the following benefits:
You could get your hands on the most accurate estimation of the pro-rata share of the tenant
You would always have a ready, legible CAM reconciliation report handy-to-use and refer to
It is the best way to uncover overestimated as well as underestimated figures
It helps to keep disputes between the landlords and tenants at bay
Final Take
CAM audit should be carried out every year, and while reconciling CAM, it is very important to stick to proper budgeting. For this, you need to refer to the previous year’s CAM reports and even take into account if there are any pro-rata shares. Although the CAM umbrella varies from property to property, some of the common expenses which come under its bracket are property insurance, pest control, taxes, utilities, security, HVAC, management expenses, and more. Hence, having a clear and robust CAM calculation system can save you from unnecessary conflicts and cost burdens for your future dealings.
About
OHI is a fifteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We currently provide these services to a portfolio of 75000 units across clients.
