A Closer Look at the 3 Commercial Real Estate Building Classes
2 min read.
If you are looking to invest in commercial real estate, several things should be considered. One of the most important factors to consider is the type of building class that would best suit your needs.
We're breaking down the type of building classes and what they each offer so that you can make an informed investment decision.
Class A Commercial Real Estate
Class A represents the pinnacle of prestige and expense in the commercial real estate market, including office buildings, schools, hospitals, and hotels. Defined by strict standards in location, Class A buildings are strategically situated in high-traffic areas or in proximity to major transportation hubs. Their superior condition and strong tenant profiles categorize them into two subclasses: prime property, denoting structures in excellent condition with established tenants, and non-prime property, which requires renovations or repairs.
Class B Commercial Real Estate
Class B, typically comprised of office, industrial, or retail spaces, occupies a distinct position in the real estate hierarchy. Generally smaller in size compared to Class A properties, Class B real estate often finds its place in suburban or rural settings. With lower appraisals, these properties come with more affordable price tags, making them an attractive investment option for offices, restaurants, hotels, and similar businesses. While Class B properties may be less desirable due to a limited number of high-quality tenants, they offer investors a more budget-friendly entry point. Lower rent and property values are the main differences between Class A and Class B office space, influenced by location, age, and condition.
Class C Commercial Real Estate
Class C CRE represents the most budget-friendly option and comprises older buildings and structures needing renovation. It can be found in less desirable locations and smaller sizes and may require more modern amenities, resulting in lower market value. While these properties offer an affordable entry point for investors, they may present higher operational and maintenance costs. Class C buildings provide affordable options for start-ups and businesses with limited resources.
Understanding the distinctions between Class A, B, and C real estate is pivotal for you as an investor. Selecting the right business location can facilitate your business success.
Reference
Walling, G. (2023, March 15). 9 types and 3 classes of Commercial Real Estate. biscred. https://www.biscred.com/post/guide-to-commercial-building-classes
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