Why Retail Landlords Lose Tons Of Money To Faulty Expense Calculations

Retail real estate has an underappreciated problem: Year after year, incorrect or incomplete tenant expense reconciliations cost landlords an enormous amount of money.

Erroneous common area maintenance and other reconciliations (generally referred to by the catchall term “CAM recs”) can account for hundreds of thousands of dollars in losses over time for landlords. This is especially true of those with large portfolios comprised of dozens of shopping centers and hundreds of tenants. Even for just a single tenant, incorrect calculations or lease interpretations can add up to a five-figure annual loss for the landlord. The longer the mistake goes unrecognized, the greater the damage. Reconciliation complexity also grows exponentially with property size, making inaccuracies more likely. Such mistakes can complicate and delay property transactions and even spur conflicts that sour landlord-tenant relationships.

Important as CAM recs are, however, landlords often fail to complete them on time.

Chalk it up to the labor-intensive, time-consuming nature of the process. Generally speaking, it amounts to a herculean effort for already-busy property managers and accountants. Timing wise, CAM recs are usually conducted right in the middle of spring tax season. As a result, real estate companies’ internal teams work incredibly long hours as they dive into the weeds on expense calculations, caps and modifications in addition to their daily responsibilities. This presumes the team is actually able to engage on CAM recs. All too often, companies run years behind on the process precisely because their internal teams already have too much to do.

There’s a double-whammy here: Let’s say a company is three years behind on its CAM recs. When it does eventually find time to straighten things out, it is likely to frustrate its retailers by asking them to pay back huge sums.