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The Three Main Types of Commercial Real Estate

Not all commercial real estate is considered equal. Whether you're buying an apartment complex or an industrial building, learn the three main types of commercial property.

[Updated: Aug 12, 2021 ] Jun 19, 2020 by Liz Brumer

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Attributes of Class A property Pros of Class A property Cons of Class A property
• New buildings.
• Top-of-the-line technologies or construction elements.
• Amenities.
• Prime locations.
• Highest quality.
• Premium rental rates.
• Highest value of the three classes.
• High demand because of the convenience of ownership and quality of tenants it brings.
• Lower cash flow or yield for an investor.
• Can be a competitive market.
Attributes of Class B property Pros of Class B property Cons of Class B property
• Older buildings around 15 to 30 years of age.
• Some outdated technology, construction elements, or design.
•Located in slightly less desirable locations.
•Midrange quality.
• Median-range rental rates.
•Midrange value of the three classes.
•Medium to high demand because of the stable income it can provide.
• More ongoing maintenance over time.
• Can still be expensive, especially in competitive markets.
Attributes of Class C property Pros of Class C property Cons of Class C property
• 30 years or older.
• Considerable deferred maintenance, poor condition, or substandard construction elements.
•Undesirable locations.
•Lowest quality.
• Cheapest cost.
•Opportunity to add value and improve it to achieve a Class B value.
•Often has the opportunity for higher income or yield.
• Will require more active management to improve and operate the facility.
•Undesirable locations and substandard quality of real estate in general.
•Significant upfront work to repair or improve the property.
•Can be difficult to obtain a loan because of condition or vacancy rates.

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