Property Managers Go Beyond Traditional Thinking To Lower CAM Costs

Growing Contractor Flexibility, New Products and Processes Facilitate Savings

By Rose Evans, Vice President, Property Management
Levin Management Corporation
North Plainfield, N.J.

Many retail tenants' leases make them responsible for paying a share of a shopping center's operating costs, raising their total cost of occupancy. As such, keeping CAM (Common Area Maintenance) costs down - without sacrificing service and aesthetics - is key to both attracting and retaining tenants. Today, the most successful property managers are incorporating untraditional methodologies to achieve these savings.

The concept is straightforward: property managers review all the outside services they hire and then work to reduce those costs. The approach, however, is becoming more multifaceted. This results from growing flexibility among contractors focused on maintaining their business relationships, even at lower profit levels, plus new products and processes in the market.

Consider regular maintenance costs. Many shopping centers currently have higher vacancy rates as a result of the recession. Can the frequency of sweeping and trash removal be safely reduced? At a grocery-anchored center, the answer is almost certainly "No." People shop these stores every day of the week and their parking lots tend to have more trash than a property anchored, for instance, by a big box clothing store.

Renegotiating contracts for outside services, like line striping, landscaping and snow removal also provide avenues for savings. Formerly, if a contractor agreed to hold price, Levin might renew their services for another year or two without bidding. That is no longer the case: if we are happy with the service, we ask the contractor what amount of saving they can give us without sacrificing quality.

Landscaping is a good example. We have negotiated a 5 percent drop in fees almost across the board during the past year. Rather than risk losing clients, realistic contractors are willing to reduce their fees. As a result, they avoid competitive bidding, saving them time and money. We achieve better pricing without any change in the service being delivered.

We also reject annual "price creep," regardless of changes in the Consumer Price Index.

For years, Levin has saved money across regional property portfolios by awarding bulk business for individual services at several centers. For example, we recently negotiated a "master account" relationship with a major waste services company based on the scope of our business. By streamlining our many property accounts into one single account, we have gained both administrative efficiency and bulk pricing benefits.

We also have begun to bundle several services through a single provider to achieve a similar efficiency, particularly effective at smaller centers. Already this year, we have awarded contracts that combine sweeping, landscaping, power washing and painting at two retail properties - with a net savings of about 20 percent on these line items.

Efficient property managers also can achieve cost-savings by continually seeking new, economical products and processes. A number of such options have come onto the market in recent years.

Lighting alternatives are a key area. We have changed the lighting in several centers entirely to energy efficient "white light" bulbs, which provide the output of 1,000 watts at the cost of 750 watts. From a utility savings perspective, the payback is less than three years. And, because the bulbs are all new, they will not require any significant bulb changing for several years, which reduces maintenance costs.

White lighting also makes a significant contribution to nighttime curb appeal. These bulbs make colors look better, brighter and more natural. At one of the newly relit properties, nighttime traffic was always slow. The new bulbs have made it far brighter and more inviting. The number of shoppers at the property after dark has increased notably.

Two new sidewalk maintenance products, Epoxy Quartz System and Valkum 360 System, are also worth noting among the industry's newest technologies. Anyone doing business in the Northeast knows that salt used to melt ice on sidewalks can do extensive, costly damage. The systems enable landlords to refinish, rather than replace, sidewalk surfaces. They are attractive, affordable, adhere well and provide a level surface.

The obvious challenge in all of this is to reduce costs without sacrificing quality, and all the while maintaining or improving a shopping center's curb appeal. What consumers see and feel at a property dictates whether or not they want to shop there, which directly impacts tenant prosperity.

Clearly, there is no "one size fits all" solution for property-by-property cost savings. Each shopping center must be individually examined for logical ways to save money. Property managers who work to secure the best services at the best prices, while paying attention to research involving new opportunities and new ways of thinking, are best positioned to leverage industry shifts to the advantage of property owners and tenants.