It's All about Class...
The other day, a dear friend wanting to learn more about commercial real estate, asked about class A, B and C properties. So, I put this quick note together for him… and wanted to share it here, too.
Not all real estate was created equal…
For that very reason, investors have created a class system that allows them to categorize and communicate value. Many higher end firms – for example – operate with Class A properties – the “trophies” of the real estate market. These are the gems, the highest quality buildings on the market. They’re the “must-haves…”
These properties are newly built with top line fixtures, systems, and amenities in place. They sit in highly visible locations, such as business districts, demanding above-average rent and return for well-placed investors.
Class A differentiates a higher level of risk and return, than a Class B or C, determined by location, offerings, tenant income, growth opportunity, and rent income.
Class B property is a step down.
These are generally older buildings with lower income tenants. Rental income is lower with some maintenance issues. Through proper upgrades, renovation and other improvements, there does exist an opportunity for Class A classification. It all depends on the extra investment you’re willing to put in, though. They also carry a bit more risk than that of a Class A.
Class C property is a bit old.
Located in less desirable, lower visibility locations, these are typically in need of renovations and improvements. Infrastructure may need to be brought up to date. Rents and cash flows are not desirables for investors. These often take the longest to lease, too.
It’s not a desired property.
It is always essential that you – as a smart investor – understand the risk reward that each class offers. Class A offers higher security with steadier income. That’s the reason I specialize in this class.