Traditionally, asset management in the commercial real estate sector was a maze of spreadsheets,...
Depending on which part of the country you're located in and what kind of building you're managing, you might be dealing with lawn maintenance, snow removal, window washing, bathroom cleaning, pest control, elevator maintenance, security personnel, and the list goes on and on.
What's more, every one of these services is most likely being provided by a separate vendor or service provider. This can be a lot to keep track of, especially when it comes time for CAM reconciliation.
CAM reconciliation is that time of year when you have to go through all of your receipts and invoices for common area maintenance expenses and make sure that you are charging all of your tenants the correct amount for their share.
Hopefully, you have a system in place that doesn't involve slipping all of these documents into a folder and leaving them there until the start of the next fiscal year. But if that sounds like you, then you're probably not alone.
Many property managers resort to Excel spreadsheets for tracking all of the individual charges and accounts, but this means of CAM accounting can be overwhelming when you are dealing with large amounts of data and multiple properties.
Well, luckily for you, there is a better way to manage the numbers, dates, and payments involved in common area maintenance. But before we get to that, let's talk about CAM fees - what they are, how they're calculated, and what some of the common challenges are when it comes to tracking and recording them throughout the year.
What are CAM fees?
CAM stands for common area maintenance, and CAM fees are the payments that tenants make to cover their share of maintenance expenses. When lessees sign their lease contracts, they agree to pay these apportioned fees at a rate that is consistent with their use of the building and property.
While CAM fees cover all of the normal ongoing maintenance costs, such as landscaping and janitorial services, they can also sometimes include additional fees that are less frequent. These might include carpet cleaning, painting, parking lot repairs, etc.
Although these kinds of services and expenses can easily be defined as "common area maintenance," it is important that these kinds of one-off charges be listed in the lease agreement to avoid disputes. When ongoing maintenance costs are listed alongside less frequent and incidental fees, lessees will have a better understanding of the charges they might incur during their tenancy in your building or property. Ultimately, this will facilitate a more friendly owner/tenant relationship and help avoid issues when it comes time for CAM reconciliation.
How are CAM fees calculated?
There are a few different aspects of calculating CAM fees, and you will need to take all of these into account when determining what you will charge your tenants.
Occupancy
CAM fees are most often calculated based on the square footage allocated to each tenant, but they can also be determined by occupancy percentage and other formulas. Whatever the case may be, the amount that each tenant pays is generally proportional to their use or occupancy of the overall property.
Let's say that the overall cost for common area maintenance throughout the year is $10,000, and you are renting out four equally-sized business suites. If one business occupied two of the suites, they would be responsible for paying $5,000 in common area maintenance fees.
This is a simplified example, and it can often be much more complex to calculate the correct amount for each tenant. For example, you might have ten business suites that are all different sizes. In this case, you wouldn't want to charge each tenant 10% of the total amount.
In these situations, the property manager will calculate the cost per square foot of the total rentable space in the building and the fees will be distributed according to the square footage occupied by each tenant. This is generally considered to be the fairest way of calculating CAM fees because they are proportional to the resources each tenant is actually using.
Let's use another example to put this into perspective. If you had ten suites in your building but only five were occupied, you wouldn't split the CAM fees five ways. If you were to do that, then you would essentially be charging your tenants extra to cover your unrented spaces.
Projected costs
Rather than calculating the exact monthly CAM costs and adding them to each tenant's monthly lease payment, these expenses are typically calculated for the entire year and split up over the course of the fiscal period.
CAM fees will often be calculated based on the previous year's costs, but if you are aware of an upcoming repair or maintenance that is not part of regular ongoing maintenance, it's important to include these in your calculations at the beginning of the year. However, even though CAM fees are calculated at the beginning of the new fiscal year, you will still be able to make adjustments to these charges if necessary.
What is CAM reconciliation?
Once the fiscal year is over, property managers and owners will need to review all of their common area maintenance expenses for CAM reconciliation. CAM reconciliation is the accounting process in which maintenance fees are comprehensively compiled to compare them to what was actually charged to each tenant.
Although property managers do their best to make their CAM fees as accurate as possible, there will almost always be some variation between actual maintenance costs and what tenants are charged throughout the year. This may be the result of a particularly snowy winter, unexpected repairs, or increased sanitation protocols, as we have seen in recent years.
CAM reconciliation gives property owners the opportunity to rectify these charges and make sure that each tenant is paying the correct amount. Sometimes, management may find that tenants actually overpaid, in which case they would be entitled to either a refund or credit on their lease payment.
Once all of the maintenance fees have been compiled, property management will provide each tenant with a detailed itemized list of the year's maintenance costs. This gives tenants an opportunity to review their charges and attempt to settle any disputes.
The dispute resolution timeframe should be stated in each tenancy agreement, allowing tenants a specific amount of time to raise any concerns regarding their CAM fees. If tenants fail to bring any concerns to the attention of the property management team within the designated time frame, they will automatically be assessed or refunded any differences in costs.
Property Management Accounting Software
When property managers and owners become overwhelmed with keeping track of their yearly expenses by hand, they will often turn to software solutions such as Kardin Portal to simplify this process. Software can offer many benefits and features that can greatly reduce the amount of time and manual calculations involved in keeping track of property management expenses.
Here are some of the ways that these software solutions (like Kardin Portal) can make your property management efforts more efficient and organized:
CAM Expense Tracking
Software solutions, like Kardin Portal, have an easy-to-use interface that allows you to quickly record your CAM expenses in one central location with an intuitive layout. This makes CAM tracking simple enough that anyone can do it, even with little to no accounting experience.
Additionally, products like Kardin Portal will seamlessly integrate with all major accounting systems, which means you can import all of your accounting data and eliminate redundant entries.
Budgeting and Forecasting
Solutions like Kardin Portal also include powerful tools for budgeting and forecasting expenses. With this powerful tool, you can easily set allocation rules and define expense categories to prepare and monitor your yearly CAM spending.
CAM Reconciliation
CAM reconciliation is a simple and straightforward process with your software like Kardin Portal. You will be able to quickly create and compare expense reports against forecasted CAM fees.
With software like Kardin Portal, you can analyze CAM expenses and rectify tenant fees in just a few simple steps.
Document Management
CAM accounting software, including those from Kardin, provides a centralized location for storing and managing documentation for CAM expenses, such as lease agreements, receipts, and invoices. With all of your documentation in one place, you will easily be able to access the information you need for CAM reconciliation and audits.
Reporting
Software like Kardin will also give you powerful tools to gain insights into CAM costs and generate reports for accounting purposes. Property managers can also create detailed charts and graphs to analyze their spending and identify areas where they can reduce costs.
Automation
When you designate expense categories with Kardin, for example, the program can automatically categorize expenses to reduce the amount of manual sorting involved. In addition to eliminating repetitive tasks, automation features also reduce the risk of errors that come with manual data entry to ensure accurate reporting and invoicing.
Although CAM reconciliation is something that you might not look forward to every year, using CAM reconciliation software like Kardin does a great deal to simplify and streamline this otherwise tedious task. See below to see the Kardin Approach and to arrange a custom demo tailored for your business.
Simplify CAM reconciliations with Kardin Portal
Navigating the intricate landscape of CAM reconciliation doesn't have to be a daunting task. With Kardin, the process is transformed into a streamlined and efficient experience. Our innovative property management software is designed to take the guesswork out of CAM reconciliation, offering a suite of tools tailored to the unique needs of property managers and owners.
From CAM expense tracking to budgeting, forecasting, and robust reporting, Kardin's platform integrates seamlessly with major accounting systems. Automation features reduce manual data entry, minimizing errors and saving valuable time. The centralized location for all documentation ensures that everything you need is at your fingertips, making audits and reconciliation a breeze.
Ready to Simplify Your Property Management Process?
Contact a Kardin Specialist today for a customized demo. Discover how Kardin can transform your approach to CAM reconciliation, making property management more streamlined and successful.