C.A.M. aka Common Area Maintenance: When you lease (and sometimes buy) commercial space, you pay for more than just the actual square footage you will occupy. In many commercial leases, and in particular retail and industrial space leases, extra fees are often referred to as “Common Area Maintenance” (CAM) fees. In non-industrial spaces, this expense may be referred to as “Load Factor,” which includes CAM fees.
- There are two basic calculations for CAM fees: (1) Variable CAM fees, in which the amount a tenant is required to contribute increases based on a number of factors; and (2) Flat CAM fees where the fees are a fixed amount.
- CAM fees may be paid monthly, quarterly, annually, or even charged from time-to-time as major repairs to the building or entire business/industrial park are required.
- CAM fees can escalate at a different rate than the monthly lease rate because they tend to be more variable. So it is also important that your lease differentiate between “variable” and “fixed” CAM fees and include some sort of cap or maximum that your CAM fees can be increased each year. This rate of increase should be a separate consideration from how much your basic rent increases each year.
CAPITALIZATION: A process of determining the value of real property in which project income is divided by a predetermined annual rate (capitalization rate). For example, a building with an annual project income of $100,000 is worth $1,000,000 at a 10 per cent capitalization rate ($100,000/10% = $1,000,000).
CAPITALIZATION RATE: The rate that is considered a reasonable return on investment (on the basis of both the investor’s alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. (See also Free and Clear Equity and Capitalization.)
CARRYING CHARGES: (1) Various costs that are incidental to property ownership (e.g. taxes, insurance costs, and maintenance expenses). (2) The costs involved in keeping a property which is intended to produce income (either by sale or rent) but has not yet done so.
CCIM: A Certified Commercial Investment Member is a recognized expert in the commercial and investment real estate industry. This includes brokers, leasing professionals, investment counselors, asset managers, appraisers, corporate real estate executives, property managers, developers, institutional investors, commercial lenders, attorneys, bankers, and other allied professionals.
CERTIFICATE OF OCCUPANCY: A certificate issued by a local government building department or agency stating that a building is in a condition suitable for occupancy. It is also known as a C of O or a Non-Residential Use and Occupancy Permit (NON RUP).
CHAPTER 11: A section of the Federal Bankruptcy Code dealing with business reorganizations. A separate section referred to as Chapter 7 deals with business liquidations.
CLEAR-SPAN FACILITY: An interior area which does not use columns or posts to hold up the roof, thereby creating a large, open area with maximum visibility and use of the floor space – for example, a clear span parking structure construction utilizing vertical columns on the outside edges of the structure and a clear span between columns, making it unnecessary for vehicles to maneuver between columns.
COMMON AREA: The area owned in common by the owners of condominiums or planned unit development homes in a subdivision. Also, the total area within a shopping center that is not designed for rental to tenants but that is available for common use by all tenants or groups of tenants, their invitees, and adjacent stores. Parking and its appurtenances, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are typically included in the common area.
COMMON AREA MAINTENANCE (C.A.M.) CHARGES: Includes income collected from tenants for operating and maintaining items pertaining to common areas. Shopping center leases usually contain a clause requiring the tenant to pay its share of operation and maintenance for common areas. Such clauses typically define the basis on which charges are made and the type of cost items allocable to maintenance of the common area. The most common methods by which landlords prorate common area charges among tenants are (1) a prorated charge based on a tenant’s leased area as a portion of the total leasable area of the center or the linear exposure in store frontage, (2) a fixed charge for a stated period, and (3) a variable charge based on a percentage of sales. Some centers include a cost-of-living increase in the common area charges.
COMPARABLES: Recorded sales of properties similar in size, use, construction quality, age, and often located within the same sub-market that are used as comparisons to determine the fair market value of another particular property.
CONCESSIONS: (1) A granting of a right by government or privately, usually for use of land or area in a building to carry on a business. (2) Cash expended by the landlord in the form of rent abatement, build-out allowance, or other payments to induce the tenant to sign a lease.
CONDEMNATION: The process by which private property is taken by a governmental agency for public use without the consent of the owner but only upon payment of just compensation. (See also Eminent Domain.)
CONSTRUCTION BOND: Is a type of surety bond used by investors in construction projects to protect against an adverse event that causes disruptions, failure to complete the project due to insolvency of the builder(s), or the job’s failure to meet contract specifications. There are generally three parties involved in a construction bond – the party or parties building the project, the investor/eventual owners, and the surety company that backs the bond.
CONSTRUCTION MANAGEMENT: An arrangement for building construction whereby the owner engages a contractor to oversee the work of all building trades, each of which enters a separate construction contract with the owner. (See also General Contractor.)
CONSUMER PRICE INDEX (CPI): A federal government index that measures the change in the cost of a variety of goods and services. Used in loans, purchase agreements, and leases as a measure by which to adjust future payments to reflect inflation. (See also Cost-of-Living Index.)
CONTIGUOUS SPACE: Adjoining space that is adjacent to another space or series of spaces, for sale or lease. (1) Multiple suites/spaces within the same building and on the same floor which can be combined and sold or rented to a single tenant. (2) A block of space located on multiple adjoining floors in a building (i.e., a tenant leases floors 3 through 6 in a building).
CONTRACT DOCUMENTS: The contract documents are one of the most important segments that will help insure a successful project. They include design plans and specifications for construction of a facility, and working drawings that detail for the contractor the exact manner in which a project should be built. (See also Working Drawings.)
Some of the most common documents that should form part of every construction contract are the:
- General Conditions
- Special Conditions
- Bill of Quantities
- Pricing Schedules
CONTRACT RENT: Rent paid under a lease. This is the actual rent as opposed to the market rental value of the property.
CONVEYANCE: Most commonly refers to the transfer of title to land between parties. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.
CORE FACTOR: The percentage of common areas in a building (rest rooms, hallways, etc…), that when added to the net usable square footage, equals the net rentable square footage. This may be computed for a building or floor of a building. A Loss Factor or Load Factor is calculated by dividing the rentable square footage by the usable square footage. (See also Design Efficiency.)
COST APPROACH: A method of appraising real property, whereby the replacement cost of a structure is calculated using current costs of construction less depreciation, plus land value.
COST-OF-LIVING INDEX: A cost-of-living index measures differences in the price of goods and services, and allows for substitutions to other items as prices change. A consumer price index measures a price change for a constant market basket of goods and services from one period to the next within the same city (or in the Nation). The CPIs are not true cost-of-living indexes and should not be used for place-to-place comparisons.
COVENANT: A private, legal restriction on the use of land, recorded in the land records.
COVENANT OF QUIET ENJOYMENT: Usually inserted in leases or conveyances whereby landlord or grantor promises that the tenant or grantee shall enjoy possession of the premises in peace and quiet without disturbance.
CPM: Certified Property Manager is a real estate professional designation awarded by the Institute of Real Estate Management (IREM) and recognized by the National Association of Realtors (NAR). To achieve the CPM designation, a candidate must pass required courses given by IREM.
CRE: A Counselor of Real Estate credential is awarded only to those individuals who are invited by their peers into the membership of The Counselors of Real Estate.
CUMULATIVE DISCOUNT RATE: A discount factor applied to the rental rate that takes into effect all landlord lease concessions expressed as a percentage of base rent.