At the end of the day someone has to pay for all those expenses to operate the building … but “who” that someone should be remains the real question.
It’s hard to believe that I am now entering my 4th quarter with the MacRo team. After handling a few leasing deals, it seems prospective tenants more often than not ask me the same question, “What is ‘additional’ rent?”
While I know we touched on this issue in the recent post entitled Office Leasing Terms 101, I think it’s time we dig in a little deeper.
Additional Rent, which is also called and/or includes Common Area Maintenance (CAM), Operating Expenses (OPEX), or Pass Throughs, is that proportionate share of expenses that the landlord passes through to the tenant. The expenses passed through will vary depending on the property and lease type. This is most often found in what is known as a Net Lease, where all or at least a major part of common expenses is paid over and above the base rent payment.
Clients often ask me why the pass through expenses are higher in traditional office buildings in comparison to single offices, retail, warehouse or flex spaces. The reason for these differences has to do with the expenses the landlord is handling for tenants within the building. Just like any business, each year property owners review expenses from previous years in order to establish a budget for the year ahead. While landlords wish to recover expenses such as real estate taxes, insurances, management fees, and CAM costs, that is usually where similarities end.
Traditional multi-unit office building pass through expenses can range between $6.00 to $10.00 per-square-foot. I know, your first thought may be, “Wow, that will nearly double my monthly rate!”