How often do you see overbilling on CAM to tenants?

With CAM reconciliation season in full swing, is it common to see overbilling of CAM, like padding the expenses a bit to squeeze more juice from a tenant? I am mainly referring to like corporate tenants or better quality ones that have the balance sheet to pay whatever the bill is.

Comments (28)

ctc19, what's your opinion? Comment below:

You mean like fraud? It's all good and dandy until the audit comes back, which is usually from the corporate clients that are knowledgeable enough to employ such contingency based services. Once they find a decently sized mistakes, be prepared to have all your books poured through 

  • 6
  • Investment Analyst in RE - Comm

Who are generally the sophisticated tenants? Out of curiosity.

ctc19, what's your opinion? Comment below:

The tenants with an experienced multi-person real estate department overseeing lease structures, CAM reimbursements, etc. 

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CREdible_Value, what's your opinion? Comment below:

I've seen more underbilling than overbilling this year; however, I'm in Chicago where commercial properties are getting killed by large assessment increases. Prior to this year, overbilling was pretty typical and amounted to $0.50 to $1.00psf on highrise offices, which was always reconciled. 

Ricky_GiveEmTheHeater, what's your opinion? Comment below:

Still unclear to me why you think it's possible to just "bump" expense load unless you're talking about occupancy gross-ups...which should have an explicit definition in the lease and won't apply to all expenses (only those that are impacted by occupancy).  Unless your accounting fee is based on revenue, gross-ups would not apply to either of your examples.

Apart from absolute bottom-barrel commercial leases, there are almost always definitions for what can be charged back and majority of the time it's "landlord's actual expenses incurred".  As noted by multiple people, sophisticated tenants will heavily negotiate gross-up provisions, annual caps on increases (either aggregate or individual expense categories), expense exclusions (i.e. additional direct cleaning provided to another tenant), audit/contest timelines, etc.  This is where CAM can really start to get complex. 

Assuming you're not talking about gross-ups, can you walk us through how you justify billing an expense pool that's greater than what you actually spent?  Trying to give the benefit of the doubt but not giving us much to work with here. 

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  • Anonymous Monkey's picture
  • Anonymous Monkey
  • Rank: Chimp
Anonymous Monkey, what's your opinion? Comment below:

Over-billing on CAM, as you said ' bumping up expense load ' from actuals to ' made-up ' - that's a law suit waiting to happen

FreelancerCRE, what's your opinion? Comment below:

Only 'overbilling' I've seen is through admin fees and property management. 

In house property management but still charge a % revenue back to the tenants = 'overbilling' ... not really, but you'll make profit on your in house management

Other form is admin fees like 15% on everything, $150 parkade ? $150 x 1.15 billed back to the tenants

Billing back 10x back to the tenants is not right, and honestly you're hurting yourself when you go back to sell the asset or get an appraisal for a refi since you're showing high opex.

Providing institutional grade CRE pitch decks and excel models at
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FreelancerCRE, what's your opinion? Comment below:

You really wanna cheese your tenants? Here's how I would do it:

- 15% admin fee on CAM, inclusive of property tax. Property tax is usually excluded from admin fees and being the largest expense, an extra 15% recovery on prop tax is juicy to the bottom line

- 15% admin fee on property management, yes thats right. We have admin fees on admin fees... 

- 15% admin fee on amortized capex billed back to the tenant (if you're charging back some roof repairs, etc.), slap anotha 15% on it

Your biggest lever is the admin and property management expense line items. Your lease clauses will have to support the above notes obviously. 

Thats my blackbook on how to cheese some extra dollars

Highest recovery ratio I've seen was a suburban office building at 127% recovery on cash expenses through various admin fee structures.  

Providing institutional grade CRE pitch decks and excel models at
  • 4
  • Analyst 2 in IB-M&A

Wow, I don't work in real estate, but this sounds like an extremely scummy thing to do. Blatantly overcharging your tenants to juice returns? Oh my. I agree with the guy above, this sounds like fraud plain and simple. I think this may be one of the reason for the general public's disdain for the real estate industry. Maybe time to take a look in the mirror

Fuhnance is WACC, what's your opinion? Comment below:

Obviously do not condone over billing a tenant for made up expenses. Do not risk a $1 to make a $.10…

Just saying though, having someone who's in IB talk down to people because apparent fraud in their industry is ironically pretty funny.

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  • Developer in PE - Other

Fraud... doesn't make sense to squeeze a couple bucks here and there. Next buyer is going to recognize this (assuming decent due diligence) and will refuse to recognize the income. 

  • VP in RE - Comm

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StrawMan004, what's your opinion? Comment below:

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