What advice do you have from a commercial property management perspective for raising CAM fees if the rate charged has remained stagnant for over 12 years and there is now a need to increase the rate by over 50%.
what is a good way to approach tenants?
ANSWER: As you might imagine, particularly in this market when tenants' businesses are suffering, a 50% CAM increase isn't going to be received favorably. A lot will depend on what is causing the CAM to increase so dramatically and rapidly. Normally, when we do our budgets (on which the estimated CAM charges are based), we'll include annual reserves for the big ticket items so that we don't hit the tenants hard in any one year. If you haven't done that, one option would be to spread the cost to reimburse for whatever is causing the CAM to increase over the course of the next several years.
Other than that, you'll need to do your best to try and explain the reason for the increase, which hopefully includes that it was for something that will benefit the property, and thus the tenants.
---------- FOLLOW-UP ----------
QUESTION: Thanks Mike,
One major factor for fluxuation in the costs is snow removal and that changes from year to year. In your example of annual reserves, how do you deal with variances. That is if you collect more fees than the actual costs. At what point would you refund the charge?
Answer Most commercial leases allow you to charge the tenants an estimated monthly CAM charge (based on a budget created at the beginning of each year), and then reconcile that against actual expenses at the end of each calendar year. The reconciliation will result in either a make-up charge, or a credit, depending on whether actual expenses were higher or lower. The same is true for the reserve line items, although those are usually not reconciled every year (only in the year the expense occurs). That's usually for something where several years of reserves are necessary to pay for a large expense (such as painting, parking lot slurry seal, etc).
For snow removal, that's somewhat hard to predict as it depends on the weather each year. So, your property owner will need to decide whether to try and charge all the tenants in one year, or agree to spread it out as I suggested. My guess is the better approach would be the former in this economy, but it depends on your specific situation.
