How CAM Charges Can Hurt Renewals (Or Help!)

Not long ago we met with a prospective client with a wonderful mixed-use complex. Prior to our first meeting, we looked the property over and noted that a lot of money was being spent on keeping the place up to snuff and pride of ownership was present. For example, the parking lot had been sealed recently and striped. The landscaping was in great shape and the signage was modern. In our discussions with the ownership group, they told us they leveraged CAM charges and that the tenants were inclined to complain about the charges often, and loud. A call to a reference the group provided confirmed it; it was one of the first points brought to our attention.

Most of the tenants remained current even during the pandemic. (There were several businesses deemed “necessary” in the recent pandemic and this property had a few of them in their mix.)

After some discussion about expenses and revenue, the owners gave us their monthly cashflow reports along with other relevant documents so we could get an idea of where the money goes and how the CAMS were handled. Right away we could see why the tenants complained about the CAM charges. The owners recovered just about every expense item in a CAM charge. I mean everything! The reports and information provided to the tenants was in excruciating detail and it went on page after page after page.

Make no mistake, CAMS are an important part of managing a property and recovering expenses but no one gets style points for complexity. Tenants don’t want to go through a ton of reports and general ledger printouts to see what’s being charged. They have businesses to run, too, and that doesn’t include being a property owner or a manager.

Tenants with CAM charges want to know the who, what, when, where, and why. They want to know who did what work, when and where the work was done, and of course, why. Then they want to know how it impacts them and if the charges are recoverable in the CAMS consistent with the lease. It’s real direct, simple, and shouldn’t have any surprises.

In fact, my partner recently received an email from a property management company complaining about their landlord and the seemingly indiscriminate way CAM charges were being handled. It appeared the relationship had been damaged and the company was in the initial term of their lease and it didn’t look good for the landlord come renewal time.

Here’s the rub: Get it all complex and tenants get frustrated. For me, when someone starts being over the top I start to wonder what’s being hidden. CAM charges and calculations should be simple, easy to document, be consistent with the lease, and everyone concerned should understand what’s happening and why.

As we start calculating CAMS for the appropriate property consistent with the leases, we are also mindful of the old KISS axiom: Keeping it simple makes for a happy tenant and maintains trust.

Having a property manager on your team can make all the difference in the world. The Property Manager can be that third party, the records keeper, the “explainer” who can help the tenant understand the expenses, how their share was calculated, and what to anticipate.

But let’s go back to the opening of this article. If the CAMS are complex, if the detail is overpowering and the tenant feels they are being nickeled and dime’d to death, trust and tenant satisfaction is lost. You’d feel it when it’s time for lease renewal

Keep it simple, keep it clean, keep it well documented. No style points for complexity here.

Tom Cowan, Jr. is a private investor, a longtime Salem resident and lifelong Oregonian. He is retired from the ODVA after a 27-plus year career culminating as the Deputy Director and COO. Tom’s also a retired Captain in the Oregon Army National Guard. He has also jointly owned and operated several businesses in the healthcare, real estate and education sectors with great success. Reach him at: TOM@PIKESNW.COM