When it comes to commercial real estate, there are many different types. There are office buildings, industrial buildings, retail spaces, industrial warehouses, and land. In addition to these types, there are also many types of nonresidential property, such as self-storage, hotels, warehouses, and automobile repair shops.
Class A Buildings
Class A buildings are among the highest quality commercial properties available in a market. They typically have high-quality construction and building infrastructure, are well-located and accessible, and have professional management and amenities. As a result, they command the highest rents. They also tend to be more desirable to tenants.
The main criteria used to determine building class include the location and amenities. Class A buildings are often the best, newest, and most high-end buildings in a given market. The standards for a Class A building in New York City may be much higher than those in Milwaukee. But that doesn’t mean that all Class A buildings are alike.
Class B buildings tend to be older and have less fancy amenities. However, they can still generate market rents. This makes them attractive for value-added investors. Often, well-located Class B properties can be renovated to Class A status. Class B buildings should not be functionally obsolete, and they should be well-maintained.
Class B and C buildings are similar to Class A buildings, but are not as upscale or expensive. These properties typically have lower rents than Class A properties and are more affordable for small businesses or low-income households. However, they tend to be in lower-quality areas and are not as well maintained as Class A buildings.
Class B Buildings
Class B buildings in commercial real estate are buildings that are not particularly high-end and typically do not boast striking lobbies and fixtures. These properties tend to be older and not in the best locations, but are still very livable. Compared to Class A buildings, their lease terms are lower and they are more affordable for businesses. They also tend to be middling in quality, but they have the potential to be renovated or upgraded in the future.
Some real estate investors are seeing a great financial opportunity in upgrading Class B buildings. By adding new features to these properties, they can raise the value and status of these properties. In developing areas, this can be a great way to invest in commercial real estate. Developers are taking advantage of this trend and converting older structures, which were once primarily industrial, into all-in-one commercial and residential buildings.
Class B properties are typically older and leased to lower-income tenants. Additionally, they might not be professionally managed and may have deferred maintenance issues. As a result, Class B properties can offer better investment returns than Class A properties. They can also be acquired for lower CAP rates and are often in low-income areas.
Class B buildings often have many smaller tenants, and are generally located on side streets and Midtown South. In NYC, APF Properties recently purchased a Class B building at 28 West 44th Street, near Grand Central Terminal. The new ownership plans to renovate the property with a $12 million capital improvement program. This investment will include new elevators, windows, and bathrooms.