What Is a CAM in Commercial Real Estate?
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.
- 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.
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 firstname.lastname@example.org.
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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