Building Classifications

What are the different types of real estate asset classes?

Buildings are generally classified into one of three different categories: class “A”, class “B”, or class “C”. Determining building classifications isn’t an exact science and while there isn’t a definitive formula, building class is usually dictated by the overall condition, location, and amenities of a commercial property. Building classification is useful as it allows investors to more accurately compare, contrast, and differentiate buildings.

In general, the better the building classification, the more expensive and in demand the property, with Class A being the best class. On the flip side, a commercial property that falls into classes B or C will have less desirable features, such as an older property, less quality construction, or a less desirable location. As such, Class B and C properties may be good choices for investors, seeking a balance between risk and return though it really depends on what type of investment property you’re looking to acquire. Below is a general guideline of building classifications.

Class A

If you are looking for the best commercial real estate available, you’ll look at Class A buildings. Class A properties refer to the newest and highest quality properties in the most desirable markets. They are the best looking buildings with impressive aesthetics, newer construction, and require few renovations.

Class A buildings are well located, have favorable access, and are usually professionally managed. As a result of this, they attract higher quality tenants and also command the highest rents. With Class A properties, you typically see a lower ROI as the building is already at the peak of its potential. While you may get higher returns with the lower classes, they are also a riskier investment and often require greater upkeep.

Class B

Class B buildings are the next notch down from Class A. Class B properties are generally a little older, but still have good tenants and quality management. Value-add investors usually target these buildings as investments since they are well-located can be returned to their full potential through non-structural renovations such as facade and common area improvements. Class B buildings are generally well maintained and are not functionally obsolete.

Class C

The lowest classification of commercial buildings is Class C. These are older buildings, located in less desirable areas, and often require extensive renovation. These buildings typically have the least desirable architecture, infrastructure and technology. As a result, Class C buildings have the lowest rental rates and take the longest time to lease.

Want to learn more? Give us a call at (805) 900-3000 or email us at team@champagneinc.com