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What Is a CAM in Commercial Real Estate?

cam

What does CAM in CRE mean?

CAM stands for Common Area Maintenance, which are fees paid by the tenants to landlords every month to cover the costs of various maintenance needs for the building. The maintenance costs are solely for managing and maintaining the property. That being said, the landlord does not profit from any of the fees claimed by him/her. The costs that are included in CAM fees vary from one property type to another, and even locally from one landlord to another.

In Commercial Real Estate (CRE), the term CAM’s is often used simultaneously with the term Triple Nets (NNN). Interesting enough the CAM’s are just one (1) of the three (3) main components that make up the ‘nets’ or operating expenses. However, if you hear someone asking “what are the CAM’s?”, they’re probably referring to the total nets. The three (3) components are insurance, property taxes, and CAM charges. Hence, this article will focus just on the CAM charges. These CAM charges are an important part of a commercial real estate lease as it directly impacts the net operating income (NOI) of the commercial property.

 

When you lease a commercial building, typically you are paying for two (2) separate areas. These are the usable area and the common area.

  • Usable area is the space you are occupying. That means the actual square footage in a building that is specific for your use—personal or business use. Areas included are restrooms within the leased space, storage or closets, rooms, individual offices, or other facilities you need in order to do business.
  • Common area is the space that is available to you but shared with other tenants. It is outside of your leased space and it includes all areas of the building that you benefit from and shares with other tenants. The commercial property’s common areas include the lobby, common restrooms, elevator, public corridors, gyms, shared boardrooms, electrical rooms, stairwells, walkways, parking lot, etc.

 

 

Where can CAM fees be found? What is included in CAM?

There is a lot of information that is included and specified in a commercial lease contract and verifying through all of it is a good practice to avoid any misunderstandings and problems after you have signed it.

CAM charges are usually indicated in your lease contract. If it does not, clarify with your landlord as the CAM fees may be already included in your monthly rent. As I said, it is in your best interest to know the CAM charges before signing the lease contract.

The exact costs included in the CAM charges are completely dependent on the specific lease that a tenant and landlord agree on. It also varies from one market to another and the specific items that the CAM charges cover on the property.

Here are some common CAM charges:

  • Property maintenance
  • Roof & Exterior Building Repairs
  • Insurance, permits, taxes, or any legal fees
  • Administrative fees
  • Pest control services
  • Security systems and services
  • Other operating expenses – landscaping, parking lot cleaning, lighting, advertising, signage, snow removal, etc.
  • Any other expense a landlord may need to include

Please take note that the CAM charges mentioned above may vary from one property to another as these are not set in stone. CAM fees are typically common to retail, industrial, and office property types. Thus, always refer to what is indicated in your lease terms to know about the CAM expenses that you should be expecting.

 

 

How are CAM charges calculated?

CAM charges are calculated on a per square footage (PSF) pro-rata basis. This means that your CAM expenses will depend on the square footage you lease in a property—the more space you take up, the more CAM charges you will be paying. The charges correspond with the percentage of the total property size your space takes up.

Here is a sample of how you may calculate CAM charges:

First, gather all the necessary information—the gross leasable area of the building (total square footage of the property) and the tenant’s leased space (square footage of the rented area). Once you determine all the necessary information, take the tenant’s leased space and divide it by the gross leasable area. Then, multiply it by 100 to get the percentage.

For example:

  • 15,000 SF – tenant’s leased space
  • 60,000 SF – gross leasable area of the building

 

15,000 / 60,000 = 0.25

0.25 x 100 = 25%

 

This means that if you are leasing 15,000 SF of the building that has a total leasable area of 60,000 SF, you are responsible for 25% of the CAM charges for the property. If the monthly expenses for the upkeep of the property cost $2,000, you are responsible to pay 25% or ¼ of the total amount. Therefore, you will be paying $500 per month in CAM fees. Also, typically the Triple Nets, including the CAM charges are reevaluated on an annual basis, so these fees will be locked for a year and not fluctuate monthly.

 

Summary

CAM’s is just one term you may have heard when dealing with investing in or leasing commercial real estate. CAM charges cover a lot of areas in a commercial property and it is a must that you review and verify it on your lease terms before signing.

Having a clear understanding of what CAM charges are and how to calculate them will help you assess your monthly expenses.


Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.

 

Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!

 

Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.

 

Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE

 

 

 

 

5 Steps to Buying Your First Commercial Property

Commercial Property

Not all investments can be successful as you hoped they would be. Commercial real estate (CRE), like any other investment, requires a lot of research, knowledge, and effort to be successful -- most especially if you are a first-time buyer. That’s why it is important to weigh the pros and cons before making your first purchase and to understand that though investing in CRE can potentially yield big returns, there are also risks imposed in this type of investment that you should be mindful of. As the saying goes, “The bigger the risk, the bigger the reward.”

Purchasing commercial property is a great investment for your business but it can also be a long process. In this article, we will help you cover all your bases and will walk you through the important steps to purchasing your first commercial property.

 

5 Steps to Buying Your First Property:

 

  1. Ask and assess

The first step is to identify your “why”. Ask yourself why you want to buy a commercial property in the first place, or why would you choose this type of investment. Determine your end goal because there is no point in investing in a commercial asset if you don’t know what you hope to accomplish.

Then, assess the “what” in your goals. What type of commercial property do you want to deal with? As you may know, CRE is a broad term – it simply doesn’t limit itself to high-rise buildings near the downtown area.  It can include everything from office and medical buildings, industrial complexes, retail shops and restaurants, apartment buildings, and many more; as long as it is used for business purposes. Thus, assess what type of commercial property suits your business plan – the type of CRE that would help you achieve your ultimate goal.

 

  1. Secure financing

Buying your first commercial property can be quite a challenge and before you start searching for your first property to buy, figure out your financial position first. Like many individuals, you’ll likely need financing to purchase a commercial property. Any bank, credit union, or lender will require you to procure a personal financial statement which lays out all your assets, debts, and other financial obligations. This is one way for them to assess whether you are creditworthy or not. Therefore, it is better to have this form ready in hand when shopping for the best lender.

Here are some of the Types of Commercial Property Loans that could help you finance your first commercial property:

  • Bank Loans
  • Life Insurance Companies
  • Agency Loans
  • Debt Funds
  • Commercial Mortgage-backed Security (CMBS) Loans

It is also in your best interest to know whether the type of commercial property you wish to buy is within your budget; otherwise, the bank, credit union, or lending company will most likely deny you financing. That’s why it is wise to line up your financing options in advance.

 

  1. Build the right team 

Commercial Property

Purchasing commercial property is a complex process and involves a lot of components. Thus, it is important to surround yourself with the right people. It may seem costly hiring these professionals, but it will surely save you from making mistakes along the process. That being said, building your A-team will make sure your investment will go smoothly and have the best chance of success.

Your team should include:

  • an accountant to assist you in analyzing your financial position and what properties you can afford, not to mention the tax benefits you get with buying that property.
  • a commercial real estate broker that specializes in completing this deal. He/she can help find the right property for you – which meets your criteria. Your CRE broker will also alert you with viable properties that just hit the market.
  • a commercial real estate attorney, the main role of your CRE attorney is to help you prepare the contract for the purchase transaction of your chosen property. He/she will also oversee the legalities of the transaction.
  • a commercial property mortgage broker who can work with you in obtaining the financing you need for your investment. He/she will also take care of the financial aspects to complete the transaction.

Several professionals can also help especially if the property you choose to purchase is a bit complex. Outside of that, consider hiring these experts at the very least as they will help you land that first property you always have been dreaming of!

 

  1. Mind due diligence

You may already have a property in mind that you want to purchase. But before closing that deal, you should consider doing your homework first; hence, mind due diligence.

A lot of factors are to be considered in choosing the right property for you. Always run the numbers and analyze the deal as a whole. Location is usually the most critical factor – see to it that the property is accessible since location is significant in your business operations. Also, make sure that your chosen property is best suited to your business goals. If not, consider looking for other commercial properties.

Lastly, there will always be risks in any type of investment. Therefore, make it a point that the inherent risks are worth the potential rewards you will gain in the long run.

 

  1. Make an offer and close the deal

After considering all factors and once you find a property worth pursuing, write up an offer. At this point, your CRE agent will help you in making your purchase offer. Once a contract is drafted it should be reviewed by your attorney first before you sign it. Some sellers ask for earnest money as a sign of good faith that you are interested in buying the property, so be prepared for this.

More importantly, make sure that you write an offer with a contingency clause. In cases that certain problems may arise or that the commercial property doesn’t pass your inspection during your due diligence period, you have an escape hatch and can discontinue the transaction.

If the transaction looks good, all things considered, continue to mind due diligence by reviewing all included documents until you move forward toward closing the deal. During this time, you will need the help of your team of experts in checking that everything looks good since the deal is coming up to a close.


Buying your first commercial property is not that easy and everyone should consult a professional before moving forward with a CRE purchase. Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.

 

Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!

 

Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.

 

Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE

 

 

 

 

What is Absorption in Commercial Real Estate?

Absorption Rate

Absorption, or absorption rate, is a measurement used in Commercial Real Estate (CRE) to indicate the difference between the amount of space vacated by companies or tenants in a certain time period and the commercial space they or other tenants have moved into within the same locality or time frame.

To put it simply, absorption is the rate at which commercial space is “absorbed” (sold or leased) over a specific period of time in a given market, described as positive or negative.

 

There are two (2) metrics that go hand-in-hand and have a huge impact on CRE. One is the absorption rate, and the other one is vacancy. Vacancy is defined as the units or square feet available in a commercial property, expressed in percentage or number of available units. Vacancy has a direct effect on the net operating income (NOI) of a commercial property – low vacancy means more rental income being generated. Both absorption and vacancy rates are used by real estate investors as determining factors whether to hold, buy, or sell commercial properties.

 

 

Gross Absorption and Net Absorption

When real estate investors talk about absorption rate, it can only be one of the two - Gross Absorption or Net Absorption. In a leasing context, here are the differences between both:

Gross Absorption refers to the total amount of space that a tenant physically moved into in a specific time frame in a given market.

Whereas Net Absorption refers to the total amount of space that a tenant physically moved into minus the amount of space they vacated during the same time period, described as positive or negative. Thus, net absorption is a very important metric used by real estate investors in analyzing the commercial market’s supply and demand trends.

 

 

Net Absorption further explained

Since net absorption rate is the metric being used by commercial real estate investors most of the time, this article will focus more on understanding net absorption.

Typically, you can gauge the market’s supply and demand dynamics by knowing the net absorption rate, which can be described as either positive or negative.

Absorption Rate

If the market indicates a positive absorption rate, it means that more space is being leased or occupied than vacated. There is basically a decrease in the supply of commercial space in a given market resulting in a rent increase. If the market indicates a negative absorption rate, it means that more space is vacated than occupied. This means there is an increase in supply for occupancy resulting to rent rates being lowered to attract commercial tenants. With that being said, knowing the absorption rate in a specific area in a given time frame helps real estate investors forecast cash flow in their investments.

 

 

How to calculate Net Absorption rate and Vacancy rate

Since absorption rate goes hand-in-hand with vacancy rate, here is an example of how to calculate net absorption rate in relation to vacancy levels.

Let’s say the commercial property has 24,500 square feet of leasable space and 2,250 square feet is available from 5 individual spaces. To calculate the vacancy rate, divide the amount of available square feet by the amount of total leasable space in square feet.

2,250 SF (vacant) / 24,500 SF (total leasable space) = 9.2% (vacancy rate)

 

To calculate the net absorption rate, let’s assume there is a 2,250 SF of available space throughout this year, a new tenant moves in and leased 1,200 SF of space. It means that the vacancy rate has decreased to 4.3%.

2,250 SF (vacant) – 1,200 SF (new tenant occupies this amount of available space) / 24,500 SF (total leasable space) = 4.3% (new vacancy rate)

With the new tenant “absorbing” a 1,200 SF of space, it leaves an available space of 1,050 SF vacant from the total vacant space of 2,250 SF throughout the year. It creates an annual net absorption rate of 53.3% (1,200 SF absorbed out of 2,250 SF of space available in a year). Thus, it indicates that there is a positive net absorption rate for the commercial property in a period of one (1) year.

 

 

Factors that influence Net Absorption

A lot of factors can impact the net absorption rate of a commercial property. As an investor, you should consider these factors so that you could plan the next steps to take for your investments to be successful based on the market’s current status. Here are three (3) major factors that greatly influence the market:

 

  1. Availability
  • Consider analyzing and taking into account the commercial availability in your area. Businesses that just opened up will quickly occupy spaces that were vacated for them to operate in areas with little availability. This means there is a high net absorption rate in that certain area. While in areas with high availability, commercial properties are experiencing low net absorption rates due to competition of occupancy with other properties. Therefore, evaluating the overall availability in your geographical area will help you in your decision-making about your investments based on the commercial market’s current conditions.

 

  1. Pricing
  • Rent rates relative to leasable space can greatly influence the net absorption of a commercial property. Businesses or tenants will look for spaces that not only fit the needs and day-to-day operations of their business but also spaces having low rent rates. If you are a landlord or an investor, knowing what price to set for your commercial property can prevent high vacancy and negative absorption rates.

 

  1. Economic Conditions
  • One of the factors that have a strong impact on net absorption is the change in economic conditions. Take for example the time when COVID-19 hit us and many people and businesses have suffered globally. During this time of economic struggle and crisis, many businesses decided to close and those that planned to expand or open up a new business chose to hold it off because of uncertainties and risks of losing their investments.

 

In addition, the COVID-19 pandemic shifted the business processes and operations of companies to remote work. It led to commercial properties being vacated and a decrease in occupancy. Other businesses tend to lease smaller spaces to cut overall costs since employees are now working from home. With this new setup, the net absorption rates of commercial properties are greatly affected.

 

 

The bottom lineAbsorption Rate

Commercial real estate is highly competitive, and there are a lot of factors, including net absorption that impact the market. Gathering data, taking advantage of these elements, and analyzing the market’s current trend can be a game-changer in handling your investments.

 


Even after outlining all this information above, investing in CRE can still seem daunting. Please feel free to contact us anytime with your questions and concerns. The Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment and business goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.

 

Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!

 

Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.

 

Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE

 

 

 

 

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