Common Area Maintenance (CAM) and other operating expenses are carefully defined and included in the lease. While these clauses clearly outline the tenant expenses, more often than not real estate owners end up losing money due to incorrect reconciliation.
Inaccurate CAM reconciliations can result in losses that can run up to tens of thousands of dollars over the term of an individual lease. It can be particularly damaging leading to major financial losses for retail/commercial landlords. With expansive and large property portfolios the figures can run into the hundreds of thousands, making it difficult, in some cases impossible to recover. However, despite such high stakes, commercial real estate owners and property managers often end up with incorrect or incomplete reconciliations resulting in costly discrepancies and backlogs.
What makes this process so inefficient?
Reconciling CAM and other related operating expenses as per the lease terms is a tedious and cumbersome process. Moreover, majority of the property managers still rely on manual process for CAM reconciliation, making it prone to errors and incredibly time-consuming. Poor lease interpretation, not accounting for certain lease clauses, faulty calculations or simply running behind on the process are some of the very common but grave issues faced by property managers because of the nature of the process.
Why is it so difficult to streamline reconciliation?
CAM and other expense reconciliation demand meticulous review of multiple leases. Property managers and accountants are required to calculate each lease’s share based on current lease terms and granted modifications – an extremely complex and tedious task. The challenge is especially compounded for commercial real estate portfolios because more often than not they lack the capacity to manage reconciliations of such magnitude on time. As a result, they fall behind on reconciliations. The backlog only adds to the woes of property managers and accountants leading to further errors in the process. Typically, where backlog runs into years, landlord may have to end up offering substantial rent credits, or charge huge sum, making their tenants unhappy. While in some other cases, there could be a cut off period on how far back you can charge — miss that statutes of limitations, and the recovery is lost forever. Because of this cascading effect, streamlining this process becomes almost an impossible undertaking.
Is there a viable recourse?
Given today’s volatile market landscape, it is critical for commercial landlords and property managers to stay on top of every recovery while ensuring a smooth flow of operations. CAM reconciliation requires undivided focus coupled with skill and advanced tools and methods that can really help streamline and improve the process. This is why many property owners are increasingly choosing to outsource several real estate services including CAM reconciliation to get access to efficient systems and dedicated resources. This alternative not just helps ensure process efficacy and timely recovery, maximizing cash flow but also help save time and money that can better position you to focus, thrive and evolve as per market demands.
We have been working with several global real estate players which has helped us build a deep understanding of the industry dynamics. Talk to us to find out how we can help you overcome your challenges and drive better business outcomes.