When marketing a property, real estate agents will often use shorthand phrases to indicate the general characteristics of their properties. When discussing retail properties, for instance, the phrase “power center” might pop up; even though there can be a large degree of variation within the power center category, you will at least get a general idea of its size range, the types of users it will attract, and other characteristics. You would not, for example, confuse a power center with a neighborhood center, which is much smaller and caters to an extremely different user base. Along those lines, the most common way real estate professionals categorize large office buildings (and several other real estate asset classes, including apartment complexes) is by referring to them as Class A, B, or C. These categories carry with them a general set of expectations about the building’s level of quality and general features. Unfortunately the Class system is often misused, as building owners, brokers, and other interested parties are quick to crown their properties with the Class A moniker.
The first thing to understand about the Class system is that there is no governing body out there giving buildings official designations. Organizations such as BOMA – the Building Owner’s and Manager’s Association, which created one of the most widely used industry standard building measurement techniques – recognize its usefulness and give general guidelines to follow. However, individual parties are welcome to assign whatever Class to a building they want. Obviously many buildings out there get called Class A when they perhaps should not be. Even parties who are being completely honest are still basing this on their own opinions, which may differ from that of their peers. The other major thing to keep in mind when considering the Class of a building is that it is very much relative to the market it exists in. A Class A building in Naples Florida may be only a Class B building in Chicago or New York, while a Class B building in Naples could easily be a “A” building in smaller and less affluent markets. All that being said, let’s look at what constitutes each category.
Class A
Larger, newer, and of a higher level of “fit and finish” compared to others, Class A buildings should typically be at least 30,000 square feet in size (for the Naples market), and could be much larger. They will have interior corridors, larger lobbies and superior construction and design, and will have excellent locations with superior access, visibility, and signage. They also often have amenities that other buildings lack, such as backup generation. Overall, they are the highest quality buildings in the market and attract the most desirable tenants and command the highest rental rates.
An excellent example of a Class A building in Naples would be the Fifth Third Center, located at the northeast corner of US 41 and Vanderbilt Beach Rd. The building was built right around the turn of the century, is extremely visible on a major intersection, features extremely high quality finishes, large floorplates with a very functional distance between the outer wall and the inner corridors, and an ample parking garage (an amenity that other buildings in our market lack). All of these factors combine to create a package which is extremely attractive to companies seeking a prestige location, and can afford to pay for it.
Naples Fifth Third Center – 999 Vanderbilt Beach Road
Class B
Buildings in this category lack one or more of the primary characteristics of their Class A peers. Often times they are older – the Class A buildings of yesteryear – or are a step down in quality or design. Alternatively they may simply be poorly located. They are not functionally obsolete, but have less curb appeal. All that being said, they will still have good management and strong tenancy, and will make up the bulk of the properties in the marketplace. Under the right circumstances they could be brought up to Class A status through renovation. As you might expect their rents are lower and all great choices for the more value minded tenants that may not need the prestige factor. You can generally expect rents to be 20-30% less than a Class A building.
Class C
Older buildings that lack quality, design, maintenance, location, and generally approaching functional obsolescence. As such, they have the lowest rental rates, and are often targets for redevelopment.
Smaller Buildings
One important thing to note is that the “Class” system is really meant to be used when speaking about larger, vertical office buildings. Smaller, single tenant buildings or office parks very well might be of the same quality level as Class A buildings, and many people would label them as such. However, this is a misnomer.
I hope this has given you enough information to cut through the marketing chaff and start looking at buildings on their own merits. In coming posts we will look at the ways retail properties are grouped, as well as look at important factors for apartment complexes that buyers consider.
| Dougall McCorkle, MBA Sales Associate and Commercial Specialist Premier Commercial, Inc., Licensed Real Estate Brokers | Darren McCorkle Sales Associate and Commercial Specialist Premier Commercial, Inc., Licensed Real Estate Brokers Direct: 239.213.7223 Cell: 239.207.8668 darren@premiermail.net |