Commercial Real Estate

Classification System

Office buildings are typically classified into three categories:

• Class A: Premium buildings with high-quality finishes, state-of-the-art systems, exceptional accessibility, and a prestigious tenant base. These buildings command the highest rents and are typically located in prime areas.
• Class B: Good quality buildings, potentially older than Class A, with adequate systems and average to good finishes. These buildings typically have good management and quality tenants, and may be candidates for renovation to Class A status.
• Class C: Older buildings (typically 20+ years) with outdated systems, lower quality finishes, and less desirable locations. These properties offer functional space at lower rents and may be candidates for significant renovation or conversion.

Office Subtypes

• Central Business District (CBD): Located in downtown areas with high-rise buildings
• Suburban Office: Located outside city centers, often in office parks
• Medical Office: Specialized spaces for healthcare providers
• Creative Office: Non-traditional spaces often in converted industrial buildings

Investment Considerations

• Lease terms typically 3-10 years with tenant improvement allowances
• Sensitive to economic cycles and employment trends
• Evolving due to remote work and flexible office space trends
• Higher build-out costs compared to other property types

Major Retail Formats

• Regional Malls: Large enclosed shopping centers (400,000+ sq ft) anchored by department stores
• Community/Power Centers: Open-air centers (150,000-400,000 sq ft) anchored by big-box retailers
• Neighborhood Centers: Smaller centers (30,000-150,000 sq ft) typically anchored by a grocery store
• Strip Centers: Small convenience-oriented centers without anchor tenants
• Lifestyle Centers: Upscale, open-air centers with dining, entertainment, and high-end retailers
• Outlet Centers: Manufacturer-branded stores selling discounted merchandise
• Single-Tenant/Standalone: Freestanding buildings occupied by a single retailer

Investment Considerations

• Location and visibility are critical success factors
• Tenant mix significantly impacts property performance
• Lease structures often include percentage rent (based on tenant sales)
• Evolving due to e-commerce competition and changing consumer preferences
• Higher tenant turnover compared to other property types

Industrial Subtypes

• Warehouses/Distribution Centers: Large facilities for storing and distributing goods
• Manufacturing Facilities: Buildings designed for production and assembly
• Flex Space: Hybrid buildings combining office and industrial space
• R&D Facilities: Specialized buildings for research and development
• Cold Storage: Temperature-controlled facilities for perishable goods
• Data Centers: Facilities housing computer systems and telecommunications equipment

Classification System

Industrial properties are typically classified based on:

• Class A: Modern facilities with high ceiling heights (30'+ clear), state-of-the-art systems, excellent loading capabilities, and prime locations
• Class B: Older buildings with adequate specifications (24-30' clear heights), good functionality, and secondary locations
• Class C: Older, functionally obsolete buildings with lower clear heights, limited loading capabilities, and less desirable locations

Investment Considerations

• Lower operating expenses and capital expenditures compared to other property types
• Triple net (NNN) lease structures common
• Strong demand driven by e-commerce and supply chain evolution
• Location relative to transportation networks is critical
• Technical specifications (clear height, column spacing, loading capabilities) significantly impact value

Multifamily Subtypes

• Garden-Style: Low-rise apartments (1-3 stories) with landscaped grounds
• Mid-Rise: 4-8 story apartment buildings, often in urban/suburban locations
• High-Rise: 9+ story apartment buildings in urban locations
• Student Housing: Properties serving university students
• Senior Housing: Properties designed for older residents (independent living, assisted living, memory care)
• Affordable Housing: Properties with income restrictions and/or government subsidies

Classification System

• Class A: Luxury properties with high-end finishes, extensive amenities, and prime locations
• Class B: Good quality properties with moderate amenities and average locations
• Class C: Older properties with limited amenities and less desirable locations

Investment Considerations

• More stable cash flow due to diversified tenant base
• Shorter lease terms (typically 1 year) allowing for more frequent rent adjustments
• Higher operating expenses and management intensity
• Specialized financing options (agency loans through Fannie Mae and Freddie Mac)
• Relatively recession-resistant as housing is a basic need

Hospitality Subtypes

• Full-Service Hotels: Properties with restaurants, meeting spaces, and extensive amenities
• Limited-Service Hotels: Properties with minimal food service and fewer amenities
• Extended-Stay Hotels: Properties designed for longer stays with in-room kitchens
• Luxury Resorts: High-end properties in destination locations with extensive amenities
• Boutique Hotels: Smaller properties with unique design and personalized service

Classification System

Hotels are typically classified by:

• Chain Scale: Luxury, Upper Upscale, Upscale, Upper Midscale, Midscale, Economy
• Star Rating: 1-5 stars based on quality, amenities, and service levels

Investment Considerations

• Highly operational business with daily "lease" terms
• Most sensitive to economic cycles among all property types
• Revenue per Available Room (RevPAR) is a key performance metric
• Often operated under management agreements or franchise agreements
• Higher operating expenses and capital expenditure requirements

Self-Storage

• Facilities offering rental units for personal and business storage
• Relatively low operating costs and capital expenditures
• Month-to-month rental terms with ability to quickly adjust rates
• Recession-resistant with steady demand drivers

Healthcare Real Estate

• Medical Office Buildings (MOBs): Facilities housing physician practices and outpatient services
• Hospitals: Acute care facilities with specialized infrastructure
• Life Science: Specialized facilities for research, development, and production
• Stable demand driven by healthcare needs regardless of economic conditions
• Often feature long-term leases with credit tenants

Data Centers

• Facilities housing servers and networking equipment
• Specialized infrastructure with redundant power and cooling systems
• High barriers to entry due to technical requirements
• Growing demand driven by cloud computing and digital transformation

Other Specialty Types

• Single-Family Rentals: Portfolios of rental homes
• Manufactured Housing Communities: Land-lease communities for factory-built homes
• Infrastructure: Cell towers, energy facilities, transportation assets
• Agriculture: Farmland and related facilities