An Intro to the Three ClassesIt is highly likely you will see something marked as Class A, B, or C, when looking at commercial real estate. However, if you are newer to commercial real estate you may not be clear as to what exactly those classifications mean. These particular classifications were established by the Building Owners and Managers Association, and they have been used to help both tenants and investors in their decision processes, when trying to identify whether to purchase or lease a particular space.
What Are Class A Buildings?Class A buildings are considered the nicest and most valued properties to have. This is true for two reasons. The first reason is because the buildings are in good condition. The second reason is because the buildings are in a good location. Some of the similarities you will see among Class A buildings include the following:
What Are Class B Buildings?Class B buildings aren’t quite as nice as Class A buildings. The main differences are that Class B buildings are usually older, and not quite as up-to-date as the newer Class A buildings. You may have seen these buildings while visiting a major shopping destination. On the main street, there are often great attractions, high quality hotels, restaurants, malls and the sort. Then, when you go off a side street, you may see some nice buildings, but they are not quite at the same level of quality you saw on the main street. This is a good example, to show the difference in the step down from Class A to Class B. They are still nice, but not quite as nice as Class A. You can safely expect Class B buildings to include the following commonalities:
• Fairly good parking lot
• Decent architecture
• Reasonably comfortable conditions, due to elevators, HVAC, possible security, etc.
• Well maintained, but not necessarily abundant with building amenities
Having Class B space can be a benefit, because it isn’t as expensive as Class A space, but it can still be rather nice. Also, Class B locations are certainly nicer than Class C locations. An additional positive aspect about having a Class B building is that you can potentially restore or upgrade it, so that it takes on a Class A quality. If done well, an investor may be able to make a good profit with a property like this.
What Are Class C Buildings?A Class C building is considered to be the lowest valued type of property available on the market. This is because Class C buildings are typically in poor physical condition, need repair and are not located in the most ideal location. Here are some of the common things you could expect to find with a Class C building:
Applying this InformationIf you are looking to invest in a building, a space within a building, or becoming a tenant, it’s a good idea to identify your business needs. Do you need something top-notch, and are you willing to pay the difference for a nice location? Is having a Class A or B location not necessary and saving money by going to Class C a smarter move for you? Do you want to invest in a B or C Class property, and then upgrade it to Class A or B status, making a profit through your upgrades? These are questions you will want to ask yourself when determining your business goals and identifying how best to invest your money.