The most misunderstood description of commercial buildings also happens to also be the most overused description of commercial buildings, which is especially true for office and medical. If you are not familiar with the building designations (Class A, B or C), than pay attention to the next time the owner, broker or developer speak about the property. Most often you will hear the building oversold as a Class A, the highest classification of the grouping. But, the truth is that the majority of the buildings built over the last 5-10 years could easily be classified as a B building and possibly a C.
There are no true definitive, distinctive ground rules set a regulatory commission regarding classifications, thus the oversell of the building and property’s amenities to the public. But to make an simple correlation, think of a building like you would a car.
- Is there enough demand to keep the price of the vehicle higher than the market average?
- Is the vehicle engineering above par, on par, or below market?
- Does the manufacturer have a good track record, or do they spit out product cheaper and cheaper each and every year?
- What does the user say of the car?
- If the car is under warranty, how is the customer service when brought to the shop?
- Can anybody, everybody, use this type of car or do they establish a lengthy track record, celebrity or rapport in their respective business to obtain?
- Is the interior built-out using the lastest and most recent technology, as well as design strategy?
- Is the car using the most efficient and safety measures?
- Are the majority of the amenities built-in or tacked on…
…and so on.
The Square Feet blog, to which I am a subscriber, posts…
- Class A. These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings also are well-located, have good access, and are professionally managed. As a result of this, they attract the highest quality tenants and also command the highest rents.
- Class B. This is the next notch down. Class B buildings are generally a little older, but still have good quality management and tenants. Often times, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation such as facade and common area improvements. Class B buildings should generally not be functionally obsolete and should be well maintained.
- Class C. The lowest classification of office building and space is Class C. These are older buildings (usually more than 20), and are located in less desirable areas and are in need of extensive renovation. Architecturally, these buildings are the least desirable and building infrastructure and technology is out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.
And additional consideration for…
- HVAC Capacity
- Elevator quantity and speed
- Backup Power
- Security and life safety infrastructure
- Ceiling heights
- Floor load capacity
- Access (freeway, public transportation)
- Construction, Common Area Improvements
- Nearby and/or on-site amenities (dry cleaning, restaurants, ATM, etc.)
…in which I could supplement with…
- LEED designation
- Insurance requirements
- Interior build
So, next time you hear a real estate representative tell you that a building is Class A, you now have the armament to dispute or corroborate.