Understanding The 3 Major Property Classes In Commercial Real Estate
What you need to know about classes A to C.
2.5 min read
In real estate, it is in the buyer’s best interest to do a thorough analysis of a potential investment. The same goes for those in the commercial field, as these property types could come with more significant risks.
One of the many key considerations when investing in commercial real estate is what class the property falls into. Property classes give commercial investors an inside look into the value and quality of the real estate asset before even stepping into it.
Now, let’s take a deeper look into property classes and the three major types that could determine whether a property is worth the investment.
What are Property Classes?
Property classes take into account various characteristics of a property, including physical, geographic and demographic factors. No matter what class a property falls into, there are always different levels of risk and return. When looking at property classes, an important thing to keep in mind is that their distinction is relative- meaning that a property can hold different classes depending on what market they are in.
Class A
When a property falls into the class A distinction, they are typically considered ideal investments. Class A properties tend to be low-risk assets, newly built and located in high-income areas, usually outside cities. Lower maintenance costs, higher rental rates and low vacancy are also attractive factors with a class A property. Overall, these properties offer investors lower risk and higher returns.
Class B
Class B properties tend to be slightly older than Class A buildings, resulting in somewhat higher maintenance costs. These properties also hold value for investors, being that they are generally well-kept. Class B properties are located in areas with more investor-owned and tenanted properties.
Class C
Class C properties carry the highest risk for investors for several reasons. Located in undesirable areas, these properties are typically more than 20 years old and need significant improvements. They do, however, offer the potential to generate a high revenue stream than other classes. Seasoned investors or property managers typically acquire class C properties.
Whether you’re an investor or a commercial real estate agent, all parties must do their due diligence to ensure your potential investment is the right fit.
Reference
Simeonova, V. (2018, February 20). Property Classes: Defining CRE from Class A to C [Web log post]. Retrieved May 21, 2021, from https://www.reonomy.com/blog/post/property-class-how-to-identify-and-search
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