Another CBM Original…
NNN shopping centers are such an attractive investment…
because tenants pay the vast majority of your property expenses. This, however, is a moot point if you’re not taking full advantage of your NNN lease terms. And a surprising number of shopping center landlords are doing just that.
If you’re not familiar with NNN (triple net) leases, you can read prior posts here and here to find out more about how these type of leases work.
Common Problems with Administering NNN Leases
1. Staying current with CAM charges
Many landlords, especially if they’re self-managing, fail to keep up with CAM charges (the fee charged to cover NNN expenses). The basics of managing a retail shopping center – collecting rent, paying monthly bills, and dealing with tenants – can be overwhelming. Also managing CAM charges means collecting for monthly maintenance charges, in addition to impounds for taxes and insurance (all in separate amounts for each tenant, based on their pro rata share). This added layer can become too much to keep track of. As a result, landlords don’t collect CAM charges (or don’t collect enough). And wind up paying all (or at least a portion) of CAM charges out of pocket.
2. Charging tenants full CAM fees
CAM charges are one of the first charges for which tenants are apt to ask for a break. A residential lease rarely requires any additional payments beyond rent and utilities. As such CAM charges are foreign to most tenants and often seem an unfair burden. Landlords who buy-in to what may be false hardship pleas often agree to reduce CAM fees. In turn, they’re forced to make up the difference out of pocket.
3. Charging tenants supplemental CAM fees
When properties are hit with unexpected expenses – an increased tax bill due to a special assessment, construction cost to replace a damaged roof or slurry and re-stripe a decaying parking lot – normal CAM impounds for maintenance may not completely cover the costs. Technically, according to the terms of an NNN lease, these charges should be passed along to the tenants. Here again, landlords are incredibly hesitant to pass a (potentially huge) bill along to tenants. And end up paying a large portion out of packet.
Running Your Property Like a Business
What it really comes down to is running your property like a business. Your shopping center is an investment that’s supposed to earn money. Tenants have entered into a legally binding agreement. And have an obligation to pay rent and CAM fees.
It’s understandable, however, that many landlords are hesitant to saddle tenants with additional fees. This is especially true if tenants are objecting on the grounds of financial hardship or threatening to leave the property.
And that’s where a professional property manager can help. They step in on your behalf and enforce the terms of the lease agreement: Collecting CAM fees accordingly.
Moreover, an experienced property manager who’s knowledgeable about your tenants, can determine who can pay, how much, and when.
Brief Case Study
Let’s say you have to replace the roof of your shopping center. The final bill is $40,000. Technically, the entire bill (assuming your center is fully leased) is your tenant’s responsibility.
Here’s how a professional property manager knowledgeable about your tenants would proceed:
Tenant – A successful national real estate firm occupied 60% of the shopping center. Their pro rata share is $24,000. They have thriving business and are heavily invested in their operation.
Recommendation – They can simply afford to pay. And should be expected to do so within 30 days of receiving appropriate notice.
Tenant – A hair salon, occupies 20% of the center. Their pro rata share is $8,000. This tenant benefited from low rent and low CAM fees over a sustained period.
Recommendation – They’re earning enough income, relative to their expenses, to pay. Maybe not all at once, but a payment plan can be arranged.
Tenant – The remaining tenant is a tailor. The owner is an aging gentleman whose business has steadily declined.
Recommendation – He likely cannot pay the remaining $8,000, except possibly in small increments.
How Professional Property Management Can Help
As a landlord, you have every right to recapture the full measure of your NNN Expenses. As the scenario above illustrates, however, the situation is less than straightforward. But that doesn’t mean you can’t collect all, or at least a large portion, of the funds due to your under the terms of an NNN lease. And a professional property manager can make this happen.
A manager overseeing your property is extremely knowledgeable about your tenants. They know the ins-and-outs of their business, the benefits they’ve enjoyed and challenges they’ve endured. A manager likely has firm understanding of and their financial situation. And if they have any questions, they can determine the facts with a quick operating statement and income tax analysis. With a complete picture of the situation in hand, acting on your behalf, a manager will ensure your tenants are held responsible for the terms of their lease – making the necessary arrangements to collect every cent of CAM fees reasonably obtainable.
This guarantees the highest rate of CAM fee collection possible. It also rescues you from the stress of facing angry or emotional overwrought tenants to collect the funds. One more difficult and highly undesirable task removed from your already over loaded shoulders.
Find Out More
To fine out more about how CBM’s property management services can help you recapture more NNN fees visit our Services page.