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Ahead of the game

Tips for today to make CAM reconciliations easier tomorrow

By Colleen Nemeth, CPM, CSM
Interior Of Modern Office Building During The Day

It’s never too early to start thinking about what can be done to ease the stress of common area maintenance (CAM) reconciliations. Although we think of it as a once-a-year event, making notes as things change will help you be more prepared and efficient the next year. Here are some tips I use. Apply what you can to the reconciliations you’re doing now, and then build them into your regular business practices for 2021 and beyond.

Don’t reinvent the wheel

In the event you take on a new property during the year, you can be ahead of the game by making sure you receive the previous CAM reconciliation from the prior ownership or management company. Best case scenario is for it to be in an Excel® worksheet, so you can use it as a foundation for future reconciliations. Those you get in a PDF format can’t be adjusted in the same way, but the file is still valuable because you’ll be able to see how the tenants were used to getting their reconciliation information. With these documents in hand, you can do some preliminary work to prepare yourself for the next reconciliation.

Start by creating a draft reconciliation using the spreadsheet from the previous owner or management. If company policies allow, use the same spreadsheet the previous company used—it’s better to use a current property spreadsheet that has the appropriate method already incorporated into the formulas. Verify that the formulas are consistent with the property type, methods of calculation and lease provisions. Alternately, transfer the information from the previous management’s spreadsheet to one that’s organized per your own company’s standards.

For your existing properties, you can start a draft CAM reconciliation from the previous year’s files by just changing the dates. This will give you a new file for notes and updates as the year progresses. It will relieve your memory and allow you to keep from dropping things through the cracks when it’s time for the final reconciliation.

Match the method to the property type

When you have a task that needs to be finalized only one time a year, you’ll find that keeping it in mind year-round as you complete numerous other tasks will make it easier when that time arrives.
Here are several reconciliation options based on property types. In all cases, CAM caps and the exclusion of uncontrollable expenses should be taken under consideration.

Retail

  • Straight pro rata share: Calculate tenant’s square feet divided by the total center square feet.
  • CAM pool pro rata share: Allocate shared expenses in the fairest way to the tenants who actually benefit from the expense. Each group of expenses is allocated to a CAM pool, and each tenant is included or excluded from the CAM pools depending on the expense. How are CAM pools calculated? Tenant’s square feet divided by total square feet that applies to that expense pool.

Industrial

  • Straight pro rata share: Same as retail.
  • Modified gross: Tenant pays pro rata share of property taxes and insurance, as well as pro rata share of operating expenses that are over the lease base year expense.

Office

  • Core factor: Determine core factor and rentable vs. useable square feet (core factor percentage equals total common area square footage divided by total building square footage).
  • Current year vs. base year: Tenant pays pro rata share of all operating expenses that are over the lease base year expense.
  • 95% occupancy method: The expenses that are based on building occupancy (janitorial, utilities, supplies, etc.) are grossed up from the actual occupancy rate for the year to 95% occupancy.

Take note

Here are more suggestions:

  • As you are coding your operating expenses, take care to properly code them between allocable and nonallocable in your general ledger.
  • Review the year-to-date general ledger to confirm the prior months were coded appropriately.
  • If there is an unusual expense item you might be excluding for some tenants or want to amortize over a period of time, make notes on the spreadsheet pages in your draft reconciliation.
  • When a tenant vacates, and you need to reconcile their CAM responsibility mid-year, use your draft reconciliation. This way you can do that tenant’s reconciliation, and it will be part of your final reconciliation.
  • If you have made any CAM abatements during the COVID-19 pandemic, go to your 2021 draft CAM reconciliation, and make notes on the individual tenant pages. You don’t want to bill them for something that you agreed to abate.

Mind your calendar

It is extremely important to be aware of the reconciliation deadlines in your leases. They vary from 60–120 days after year-end. Some leases also provide for an “outside” deadline, and if it gets missed, the tenant may no longer be required to pay anything that might be owed. You don’t want missed deadlines to result in missing funds!

When you have a task that needs to be finalized only one time a year, you’ll find that keeping it in mind year-round as you complete numerous other tasks will make it easier when that time arrives. Incorporating CAM reconciliation tracking into your regular routine will streamline the process and make it easier to accomplish each year.  

the Journal of Property Management staff

Colleen Nemeth, CPM, CSM, is the director of real estate at Spectrum Property Management in San Diego and has been in the real estate industry for more than 35 years. She is a past president of the IREM San Diego Chapter and the author of “The Transformation of Miramar Home Fair,” published as part of The ICSC Guide to Renovating & Expanding Shopping Centers the Smart Way.

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