Commercial real estate works by using a grading system. This set of grades allows for easy ratings regarding quality and vital characteristics.
A building can be classed as either A, B, or C. This ranking plays a big role in how effective the building is, what its position is within the current marketplace, and how valuable it can be.
These building classes apply to every type of property. The following list serves as a guide for the different types of buildings and is based on majority-agreed descriptions.
Class A, B, and C in Commercial Real Estate
Class A Properties
The first type of commercial real estate property to consider is the Class A property.
Any property which has a rating of Class A is considered to be among the best in the market. Typical characteristics can include things like high-class construction and interior design, cutting-edge architecture, high-end mechanical systems, and modern comforts.
Examples of Class A office perks might include locker room facilities, valet parking, bike storage, as well as access to an on-site bar or restaurant.
Class A domestic properties may be things like results, which will usually have fountains, fitness centers, and swimming pools.
The Class A property is considered to be the best of the best and, in its respective market, will have the highest level of rent.
Class B Properties
The Class B property is considered to be the middle tier. It is not as good as a class A property with regards to location, quality of the build, or local amenities.
Generally speaking, an asset is graded as Class B due to advanced age. It is rare that a property is built to be Class B from the beginning.
Properties of this type are typically in good condition and may generate slightly higher than average rents, but compared to the Class A buildings will often fall short.
Class C Properties
The lowest level of property that a commercial real estate investor can acquire is Class C. This is an asset that is considered incredibly cheap to rent, largely because it is not functional.
These types of properties may well require large amounts of renovation or maintenance to use successfully and are often in the final days of functional life. After a certain point, they become obsolete and cannot be used effectively or safely.
Even older warehouses, which barely need anything in terms of operating costs if used for storage, are usually not fit for modern purposes.
Classes Can Change
It’s important to note that there are many situations where the class of a building can change.
This can be down to a variety of different factors. Generally speaking, age and issues will cause a building to fall down into the lower categories, and some buildings, when they go past class C, are not considered investable assets at all.
However, if a building had a complete renovation, top to bottom, then that probably would go up in class.
There are moments when classes can go up and down, and it’s important to keep an eye on the class of the building that you are planning to invest in.
Final Thoughts
So, it’s probably important to acknowledge that there are situations where the class of a building can go up and down. Understanding how the building classes work is also very important. Obviously, commercial real estate is based on getting the best return on your investment, so making a choice to commit to Class A buildings is the way forward.
Taking the time to understand how the class system works will help you to make smarter decisions when it comes to making a proper investment on a long-term basis.
