Delving into commercial real estate can be frustrating and confusing when real estate brokers, property owners or even lenders use unfamiliar acronyms and jargon. These words normally get used out of simple habit, but commercial brokers may also try to vet out the experience of an investor sitting on the other side of the table. Don’t let experience and unfamiliar terminology bowl you over in a negotiation. Taking the time to learn a few key phrases will give you more credibility during the purchasing process.
At first glance, differentiating between grades of office buildings sounds like a difficult task for anyone but a seasoned commercial real estate veteran. In reality, brokers use basic categories to grade the quality of commercial buildings. Picking up some easy lingo will help commercial investors communicate their goals to their agent when finding the right office investment. CRE qualifies offices buildings into A, B and C classes, with each one representing a different quality level.
Commercial Real Estate Class A Office Buildings
Class A Structure is the highest quality office building. Almost always new construction, these units will provide the best fixtures, amenities, and HVAC (heating, ventilation, and air conditioning) systems. These buildings need to utilize the most up-to-date infrastructure and investors should look for state-of-the-art tech.
It comes as an expectation that these buildings will be aesthetically pleasing and placed in a prime location. Both their interior and exterior design should provide a wow factor that other grades of office buildings cannot.
These structures must include easy access and remain well managed. More often than not, these buildings include concierge and security teams. Investors looking into Class A Offices should expect high-quality finishes, with floors, walls and doors a cut above the rest.
Due to their quality, these buildings demand above-market rental rates and compete for the upper tier business tenants. The building should not only compete against other office realty, it should surpass a vast majority of the market in order to attract its client base.
CRE Class B Office Buildings
Class B Office buildings represent the middle ground of office real estate, usually providing similar amenities as Class A buildings, but at a slightly lower grade. You can expect to find elevators and HVAC systems, but they will not be as efficient or green as those found in Class A buildings.
Class B buildings may offer quality finishes, but do not have to offer them. Investors may want to keep their eyes peeled for marble or tiled floors, but shouldn’t expect the highest-level fixtures and finishes.
Class B buildings often do not provide the easy access that A buildings do, so parking may be sparing or uncovered. In exchange, Class B buildings have a larger tenant pool than Class A buildings. Class B real estate competes for a wider range of tenants and can still attract high-tier tenants looking for a better deal. Investors should expect to see rental rates on par with the rest of the office market.
Class C CRE Office Buildings
Commercial Real Estate brokers qualify Class C buildings as ones that are 20-plus years old and have had a long history of tenant occupation. Class C structures will have the lowest quality finishes. Due to their age, their infrastructure and other systems will be dated and less efficient than Class A and B buildings. More often than not, these structures will not include elevators, parking and sometimes they will not have central air.
These buildings tend to offer the most inexpensive rental rates; so when investors crunch the numbers, they should expect to see rentals at below market value. These buildings attract tenants who do not need the amenities that client or customer service-based industries expect. If the quality and value line up, these buildings will fill both quickly and easily.
Hunt Mortgage Group Understands Commercial Real Estate
While commercial real estate can be intimidating at first, more often than not, they follow straightforward categorizations. Do you have questions about which grade of office building will best fit into your financial portfolio? Contact the experienced lenders at Hunt Mortgage Group for more information, advice and investment strategies today.