The ABCs of Commercial Real Estate

Posted on December 27, 2018

Commercial real estate offers significant opportunities for investment growth thanks to long-term leases with reliable business tenants and ownership in a physical income-producing property that is not influenced by the large swings of the equity markets. However, it is important that investors know how commercial real estate is classified in order to understand the level of risks and rewards that come with their investment in a particular property.

Class A properties command higher rents because they are generally well-located, professionally managed buildings that were constructed within the past 15 years. Because these properties are so new, investors typically will not need to expend additional capital to improve them. However, Class A properties are exposed to the risk that tenants will be unable to pay higher rents during economic downturns.

Class B properties are considered value-add investments because they are older than Class A properties and may require some capital improvements to increase rents and upgrade to Class A or B+.

Class C properties are generally buildings that are more than 20 years old and require renovations. They tend to be bought and sold at higher cap rates than Class A and Class B properties with significantly lower rental rates.

Investors should meet with qualified professionals to understand how a property’s classification meets with their unique financial needs and ultimate goals.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.