The CAM-to-IRR Connection: A Practical Playbook for Finding (& Funding) More Value
Cutting CAM costs means lower operating costs – and so much more
.jpg/jcr:content/960px-Oculus_Rhododendrites(41393p).jpg)
When checking out your real estate asset(s), investors want to see ongoing income generation. They want to see high IRR, ROIC, and high capitalization rates. They want “proof” that your portfolio creates value.
One way to boost those key investment metrics is to cut common area maintenance (CAM) costs. Yet many property owners and managers don’t think they can get their CAM down because:
- They don’t think it matters,
- They believe it can be passed on to the tenants without being questioned,
- They don’t know how to bring it down, and/or
- They don’t know where to get the money to make improvements.
For all these folks, we have "thoughts."
Why CAM Costs Matter to Your Bottom Line
Life doesn’t hand out many home runs, but getting value out of lower CAM costs is one of them. As we said in a previous article, lowering the $/sf value in your CAM line item improves your financial picture quickly by increasing revenue, improving leasing optics and marketability, and streamlining financial cycles. You can achieve an immediate double-digit ROIC through accurate utility submetering, and that’s just an average across industry sectors and utility types.
Great, you say, but where do I get the money to implement or upgrade my submetering system? We got you! Here are some places to source funds outside of your annual budget.
How to Find the Money for Submetering Maintenance & Upgrades
Below is a mix & match list of ways to implement a solution and refine your CAM costs.
1. Review Leases for Maintenance or Upgrade Allocations Beyond the Utility Clause
Sometimes, property owners and managers have forgotten or are unaware that they have recovery options listed outside the utility clause of the lease. For example, the discussion/description of square footage may contain language that allows you to share the cost of submetering maintenance or upgrades. Review all lease sections for mentions of cost sharing.
2. Improve Usage Estimates
If you’re estimating tenant usage based on metering and then reconciling at the end of the year, can you improve your estimating? Better accuracy and full tenant confidence in your metering can minimize true-ups, which will help cover the cost of the upgrades through earlier and more accurate recovery and less time spent on reconciliation (and tenant disputes).
3. Retrobill Where Allowed
Particularly in retail, retrobilling is an available method for capital recovery. One large retail owner we work with had a 7-month payback on water submetering and recovered $592,000 in a one-time backbill.
4. Apply for Incentives
Many local utility providers offer funding for utility tracking because it helps them out as well. These grants require detailed analysis to show your site is “worth the money,” and putting your application together can feel overwhelming. Don’t let it. Instead, call us. Let’s talk through your specifics. The IGA (investment-grade audit) from the grantor is free and can be an enlightening menu of options to create a proposal for the upgrades you need at a more manageable price.
5. Start With Pilot Sites
If you have a portfolio of assets with similar reasons for high CAM costs, put together the most similar sites for a pilot program. The results there will provide proof of concept for your stakeholders for a wider implementation (and even more savings).
Key Takeaways
The aspects of your property that matter most in the boardroom often start in the basement. Reducing your CAM is a repeatable method for increasing operating income. Plus, by lowering those ongoing owner costs, you’re also reducing tenant disputes and turnover, all of which bolster your IRR, ROIC, NOI, and the rest of the acronym alphabet soup that investors want to see.
The point we really want to make is this: lowering CAM is not just an exercise in expense management – it's a practical way to strengthen NOI, reduce friction in billing and reconciliations, and create repeatable value that shows up in the metrics investors care about the most. Whether you start by tightening up lease recoveries, improving estimating and true-ups, retrobilling where allowed, or tapping utility incentives, the results will pay off in measurable portfolio performance.
You Might Like
Related articles from our blog:
About utiliVisor
Your tenant submetering and energy plant optimization services are an essential part of your operation. You deserve personalized energy insights from a team that knows buildings from the inside out, applies IoT technology and is energized by providing you with accurate data and energy optimization insights. When you need experience, expertise, and service, you need utiliVisor on your side, delivering consistent energy and cost-saving strategies to you. What more can our 45+ years of experience and historical data do for you? Call utiliVisor at 212-260-4800 or visit utilivisor.com
