Commercial buildings are classified in order to give owners and potential buyers some standard to gauge market value. These building classifications will more than likely be different in various sub-markets, but for the general Raleigh area, here’s a look at each category and some idea of what requirements are needed in each.
One caveat – building classifications are NOT based on a formula and are somewhat subjective. A strong understanding of the Raleigh commercial real estate market is required in order to make sure you get what you pay for.
A Class Buildings – The cream of the crop. Theses are the newest buildings on the market complete with state-of-the-art amenities. This high-quality structure must have a great location and be managed by a professional management group. In turn, these buildings will draw very stable tenants and receive the highest rental income.
Can an older building cross over to Class A? Absolutely, if the building has good bones, a good location, and the owner is diligent in the renovation process. If they incorporate the highest quality, updated materials into the infrastructure, then it can move up in classification.
B Class Buildings – These buildings are just a step down from Class A. They’re a little older, but are well maintained, have steady tenants, and are professionally managed. They command a lower lease rate than Class A but can earn a very steady income.
If one of these buildings has a good location, investors often target them. Why? By placing a minimal investment in upgrades, an investor could restore a Class B to Class A and receive a healthy return on their money.
C Class Buildings – Generally, these building are much older and are not located in desirable areas. Sometimes they need extensive renovations to the exterior and/or interior and infrastructures (such as internet connections) are outdated. They receive the lowest rents and usually take a longer time to lease. However, they are the perfect re-development opportunity as we have seen with many of the buildings in Downtown Raleigh and Durham.
One other challenge is that not all sub-markets are alike. A Class A building in West Raleigh may not be a Class A building in North Raleigh or Downtown. A Class B building in Apex might not be a Class B building in Cary.
It’s far from being a science, but these categories give you some indication of what to look for depending on your strategy for purchasing a commercial building. It’s prudent to seek the help of a commercial broker who has extensive knowledge of the Triangle market to help you find just the right investment opportunity or home for your business.
At Craft Commercial, our goal is to build a relationship with each client, passing on our extensive market knowledge, and helping them to realize their real estate goals. Give us a call (919-446-5000) if you would like to strategize about your real estate needs with one of our seasoned brokers.