Most open-air retail centers operate on NNN leases. Tenants pay Common Area Maintenance (CAM) charges plus taxes and insurance. This creates an opportunity most landlords overlook.
The rule
Capital expenditures are normally excluded from CAM — **unless** the improvement reduces operating costs and is amortized over its useful life with the annual amortization not exceeding annual savings.
LED lighting retrofits fit this exception perfectly.
How it works
Standard lease language allows landlords to amortize energy-efficiency capital improvements through CAM when:
**Result:** Tenants effectively fund the retrofit through lower electricity charges, while the landlord gets a modernized asset and higher property value.
The math
Take a 200,000 SF grocery-anchored center:
Both sides win. The landlord's net investment after CAM recovery: **$0**.
Why this matters for acquisitions
For buy-side due diligence, LED lighting is Tier 1 — the first thing to evaluate because:
1. Always CAM-recoverable
2. Self-funding with documented payback
3. Improves NOI immediately
4. Increases property value at cap rate
At a 7% cap rate, $26,000 in annual savings adds **$371,000** to asset value.
Common anchor lease caps
Most anchor tenants have CAM caps of 3-5% annual increase on controllable expenses. LED amortization typically falls within this range because the offsetting savings reduce the net CAM increase.
The key is structuring the amortization correctly in the CAM reconciliation. We have done this across hundreds of NNN properties.