Class A, B or C?
If you’ve spent any time listening to people discuss commercial real estate, you’ve heard of Class A Office space, Class B, or Class C. Each Class denotes a very specific type of property that could have quite an impact upon quality and pricing. Let’s talk about what each different class of building means.
Class A buildings are new, sleek and in the most in-demand locations for commercial real estate. These buildings are built within the last 10 years or so and feature all of the modern amenities expected in commercial or multifamily space.
Class B buildings are still solid locations, but they might be a little more dated, and simply not as quality as Class A. These buildings were built in the last 20 years and feature some modern amenities but can’t compete with new deliveries. Rents and sales pricing will be moderate - higher, but certainly not the peak of the market.
Class C buildings are locations in more run-down areas and might need much more work on them before they can be inhabited by a tenant. These buildings were built 30+ years ago and haven’t been substantially renovated since.
Every building is right when you can pair it with the right tenant. Class A buildings are easy because you know what you’re getting, but they’re going to be more expensive to purchase or lease. Class C buildings often take much more work but with some renovation, can become some of the best buildings in the area after they get a makeover.
Building Classes are also fluid - while you likely can’t justify renovating a Class C building into Class A (it would likely be better to tear down and rebuild), you could renovate Class C into a Class B asset.
This is such an important topic to be aware of as investors. Sometimes renovating and doing the work for a Class C location may simply not be worth the money. Most investors look for Class A properties simply due to their low-risk.
It’s good to know all the risks heading into any property. So it’s important to know what kind of property you’re getting into.