What is CAM in Commercial Real Estate and how does it affect your lease?
Whether you’re considering a build-to-suit, ground-up development, or redevelopment project, OneTen REI has years of experience in providing flexibility with their Triple Net Lease structures. Let’s take a closer look at what are CAM charges in commercial real estate and how might it affect your lease.
Rent Cost:
Calculating rent cost is one major factor in budgeting for your commercial real estate lease. Rent cost is the cost that a business pays to occupy a given property. Rent cost is a fixed cost that does not change with an increase or decrease in the goods and services provided or sold. It’s important to note that these fixed costs are expenses paid outside of its business activity. Rent cost can greatly influence the profitability of your business and therefore it is helpful to understand the types of leases you may encounter as you plan your business expenses. Considering rent cost and how your lease is structured, can be one of the largest operating expenses, let’s talk a bit more about some key concepts you might expect when planning for your commercial real estate lease.
Understanding the Property Owner’s NOI:
Your landlord, the property owner, needs to also consider the Net Operating Income (NOI) for your project. The NOI is a calculation used to determine the profitability of income generated on their real estate investment. The NOI is equal to all revenue generated less the operating expenses of the business. The NOI will help the owner establish if the property is worth owning and could determine the type of lease you will be signing. When calculating the investment commitment from both tenant and owner, CAM charges are often a large component of the discussion and can help determine whether the agreement is beneficial to both parties.
What is a CAM Charge?
What are CAM charges? CAM charges are Common Area Maintenance charges. Examples of CAM charges might include such items as building security, cleaning services, property taxes, property insurance, and general repairs that might not last greater than 5 years. Things that would not typically be considered as CAM charges might include such items as roof repair, foundation maintenance, exterior wall repair, parking lot paving, or anything that would be considered useful for greater than five years.
CAM charges are calculated based on the square footage of the space being rented by the tenant. The tenant will be asked to pay a pro-rata amount based on the leased space rather than the costs needed to maintain the entire commercial building. These CAM charges are typically paid monthly and the tenant should be aware that depending on lease agreement conditions, inflation may increase the CAM charges throughout the lease term. There are times when the landlord may factor these CAM charges as part of your monthly rent. This percentage amount of your rent is sometimes referred to as the load factor. When a single tenant occupies an entire property, they will most likely be responsible for the entire CAM charge associated with that property.
Types of Net Leases:
Given the understanding that expenses need to be factored in by both the landlord and tenant, there are three primary types of net leases one might encounter. A Net Lease requires a tenant to pay more of the expenses held by the landlord. These Net Leases are commonly broken into three options. A Single Net Lease might provide a lower base rent for the tenant but would require the tenant to pay property taxes associated with the property. A Double Net Lease typically requires the tenant to pay base rent plus the property taxes and insurance premiums associated with the property. A Triple Net Lease, most commonly used with OneTen REI, includes the base rent, property taxes, insurance premiums, and CAM charges.
Conclusion:
With a variety of factors at play with your commercial real estate property, it’s beneficial to have an experienced partner in your next project. Our lease mitigation process provides you with the opportunity to mitigate your lease obligations after 12 months. This is an uncharted development service that most developers would likely be unwilling to include in their deal structures. At OneTen REI, we like to think outside of the box, literally. After 12 months, if a location is not working up to the performance needed for your company to profit, we will seek to rent the space to another user and move your business to an alternative site.