Commercial real estate is composed of several different properties all with the purpose of performing business functions. These properties can include office buildings, retail spaces, industrial facilities, warehouses, and hotels. Even though there are several different types of portfolio, no two buildings are exactly alike. Each property has some sort of unique characteristic whether it be size, location, layout, etc. Because of the vast number of differential properties and the unique characteristics, the Building Owners and Managers Association International (BOMA) created a system to help classify each building. This classification system has become the most common system used worldwide to reference commercial property in the same market or region. Each building’s class is determined by its use, age, size, construction materials, and several other factors. This system helps commercial real estate professionals quickly identify and understand a building’s portfolio. This system classifies buildings into three main categories, Class A, Class B, or Class C.
Class A Buildings: Class A buildings are considered the most desirable and highest quality commercial buildings. They are typically newer or recently renovated buildings located in prime locations in major business districts. These buildings are equipped with high-end finishes, modern technology, and amenities, such as fitness centers, on-site restaurants, and concierge services. Class A buildings typically have higher rents, top-notch tenants, and longer lease terms.
America Place at River Ridge is comprised entirely of Class A properties. America Place owns six industrial warehouses and two office buildings within River Ridge. The industrial properties are located in an area we call the "Winner’s Circle" Campus. The eight projects, the offices and industrial warehouses, were completed within the last ten years and have efficient layout plans, desirable locations for a multitude of tenants, and the highest quality construction materials. River Ridge is a developing community with an ideal location for our properties due to the proximity to Louisville and access to the Fouridor.
Class B Buildings: These buildings are slightly older, well-maintained buildings. However, they may not be as luxurious or centrally located as Class A buildings. They typically have fewer amenities, but still offer good value compared to Class A buildings in terms of location, accessibility, and cost. Class B buildings are generally occupied by a diverse group of tenants and have moderate rental rates.
Class C Buildings: Class C buildings tend to be older than 15 years and are typically low-rise commercial structures located in less desirable locations. These buildings may lack modern technology and the amenities that most tenants desire. They also may need major renovation. Class C buildings generally have lower rents and shorter lease terms, and they are often occupied by lower-credit tenants.
Over time, a building can move from one class to another. Class B buildings that see major renovations can move up to Class A, or as Class B properties age they could move lower to a Class C. A commercial property will change classifications several times over its lifespan, due in part to aging of the building and other economic factors. Just as a property can change classifications over time, it can also change classification depending upon the region it is located. A property that is classified as an A in one part of the world does not mean that it would be an A in another part. For example, a Class A office building in Kansas City is not the same as a Class A office building in New York City. As markets change, so do the classifications of commercial real estate.
Which is best? In choosing the best class for a particular scenario, it largely depends on several factors unique to the tenant. These factors can include a tenant's budget, location, target market, and other considerations. If the tenant aims to have high-end finishes, modern technology, and high-class amenities, a Class A building is recommended. If the tenant aims to have good value and moderate rental rates, a Class B building is more suitable. If the tenant has a financial constraint and just needs basic facilities, a Class C building is more appropriate. Overall, there is not one class that is better than the rest as each tenant chooses which class is best for them based on their needs and financial capabilities.
References:
“Class A vs. B. vs. C Buildings: Commercial Real Estate Property Guide”
Last modified November 16, 2022
Class A Vs. B. Vs. C Real Estate: CRE Property Classes [Guide] (dealpath.com)
“Building Classes: The Difference Between Class A, Class B, & Class C”
Last modified October 21, 2020
Building Classes: Class A, Class B, & Class C Explained | FNRP (fnrpusa.com)
“What is the difference between Class A, B, and C properties”
What is the difference between Class A, B, and C properties? - Feldman Equities
