A, B, C, D… if you’re getting flashbacks to your high school report card, relax! Real estate properties are categorized, or “graded,” along a similar scale. When you are in the market for an office building, it is important to understand these classifications to ensure you make the right investment decisions, recognize the risks and rewards, and see the return you need.
At the head of the class, a class A building is located in a desirable area and features a host of attractive amenities (e.g., fitness center, conference spaces, hardwood flooring, high end finishes, etc.). It’s typically fewer than ten years old – though this is subjective. Many older buildings (25-30 years) still achieve an A ranking if they’re advantageously located and offer plenty of amenities.
A class B office building is a solid performer. While they may include gyms, cafes, and other amenities, they are typically in less (even if slightly less) favorable locations. They may, for example, be located further from the sought-after downtown area. A class B won’t have the high end touches of a class A and, because they are older, they’ll need more repairs and ongoing maintenance. Still, they’re good – average – properties.
Now you’re getting into fixer-upper territory. Older (more than 30 years) and not recently – or ever – renovated, you’ll be dealing with far more maintenance issues. The amenities and location leave much to be desired, and more intensive renovation and modernization efforts will be needed to bump them up to a class B.
Most real estate investors refuse to even look at class D properties. They’re old, run-down, and in need of extensive renovation. As well, they are located in disadvantageous – and often dangerous – areas.
Pros and Cons
Which is the right fit for you? A class A building seems like the only choice! Certainly, you can expect high rents and a stable tenant base. But the trade off is that these properties are fewer in number and fetch a much higher price tag. If you are interested in renting or leasing space or an entire building, be aware that the cost will be higher. Opting for a class B is easier on the budget, and you may find that it suits your strategy better.
Cs and Ds are often best left to those willing to incur heavier risks. If you need help choosing between a class A building or a class B, contact our expert real estate team today. We’ll help you make the right call on an office building for your strategy, budget, and needs.