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Commercial Real Estate Investment/CAM Charges
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Question
Is the garden center considered a building and part of the structure to prorate the square footage for the common area. I have never included the garden center becuase it has walls but does not have a roof, so I only calculated their building in the square footage. Should I include the garden center as part of their building footprint.
Jay-
You would be pleased if I said there is a hard and fast rule in the retail commercial real estate industry that answered your question.
Often this is a matter of what has recently been the practice in your market area. Normally your answer is found in the relative leverage the landlord or tenant has in the negotiations for the premises.
If the situation involves a major anchor tenant like a 80,000 to 125,000 square foot ("SF") K-mart, Sears, Home Depot, Walmart etc., coming into a retail shopping center with 200-300K SF total rentable feet of store area, it may be that the landlord will back away from pressing for the inclusion of the exterior garden center in the negotiations rather than risk losing such a large anchor lease opportunity. However, if there are 6 major national firms all competing to lease the same large store space, the landlord may be able to get the tenant to include the exterior garden center areas in its prorata share calculations.
Note that ostensibly the landlord is only trying to make itself whole for the common area maintenance costs it incurred for each 12 month calendar or fiscal period. For example; if a landlord has incurred $1 million in common area maintenance costs in a 12 month period, there is no reason for the landlord to fall on its sword if all of the prorata shares of all of the component tenant leases in the shopping center combine for an aggregate reimbursement that gives the landlord its' 100% of cost reimbursement.
Am I being clear about this? If all of the fractional prorata shares for each and every tenant of the center add up to 100%, the landlord will collect all of his reimbursement for the one-million of CAM expenditure for the period.
I am purposely avoiding the situation where a landlord is actually trying to recoup more than 100% of what it spent for a 12 month period on CAM expenses.
I am tempted to give you the logic and step by step rationale behind the assessment of CAM charges, however there are so many: "yes but what about the following component CAM expenditure in the such and such particular situation..." that can reasonably impact any element in CAM considerations.
Factoring the exterior area of a garden center in or out of the tenants prorata share can be justified by many considerations that come to mind. I have testified as an expert in court in such CAM related matters and I assure you that the specifics of most of these CAM matters are endless. Usually, experts are asked to state the "standard industry practice" regarding the issue at hand and 1.) the answer may change from specific market area to another, and 2.) there may not be a standard practice.
I hope I have been helpful.
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Answers by Expert:
Jim Avancena, CPM
Expertise
Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.
Experience
Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.
Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.
Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".
Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.
Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.
Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.
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