What are the most important factors to consider when financing a commercial real estate office building?
The most important factors to consider when financing a commercial real estate office building are cost, the building's quality and features, the needs of the buyer and potential tenants, the office market in which the property is located, and the potential for future growth.
The primary concern when buying an office property is cost — even if you can afford the price and mortgage payments, do the costs pencil, considering the building’s quality and features? While a low price may look attractive to buyers with limited capital, consider the costs of any improvements necessary to make the property useful to potential tenants. A cheaper building may, in the long run, cost far more than a larger initial investment in a higher-class asset.
At the same time, it may not be the best idea to splurge on the property that has the most features. There’s little sense in paying more money for something you or your tenants may not have any use for. Does it make sense to pay more for an office building with a slightly dated fitness center, or less for a property located near a retail center with a state-of-the-art gym? Consider your actual needs carefully.
Before you even start looking for an office loan, it's important to have a firm understanding of the office market in which you're looking to buy or refinance. They will have a measurable impact on the loan terms you will get — after all, your lender will have done their homework, too.
Not sure where to begin? Many major real estate investment brokerage firms, like Cushman & Wakefield, CBRE, and Colliers, put out regular reports — usually quarterly — covering what’s happening in most primary and secondary markets across the country.
Grab a cup of coffee, get a couple of those in front of you, and take a few minutes to research average rental rates, vacancy rates, and other key market indicators in your area. This will help you get a sense of the overall health of the market and the potential for future growth. Compare that with your property — how does it measure up?
FAQs
Most Class B buildings are 10 to 20 years old. While these properties show signs of age, Class B buildings are still elegant and functional office spaces. They may not pack the pizazz—or price tag—of Class A office spaces, but they fit the bill for many businesses.
What is the difference between Class A and Class B buildings? ›
By definition, Class B buildings are older than Class A buildings, meaning that the investment opportunity presents a relatively higher risk for investors. While Class B buildings aren't necessarily in disrepair or on the outskirts of a city, they are generally middling in quality.
What is the difference between Class AB and C office space? ›
Class C buildings offer functional space with old or rough finishes and some basic amenities at a fraction of Class A or Class B costs. They offer the lowest commercial rental options. But you definitely get what you pay for—like a patch of hallway for a “lobby” or a glacially slow elevator.
What is type C building? ›
Type C includes buildings that have a lower risk and is therefore the least fire resistant.
What is the difference between Grade A and Grade B office space? ›
Grade B space is cheaper to rent than Grade A and the fixtures and fittings will be to a lower standard. However, many Grade B offices can be well-maintained and facilities can still be excellent.
What is the difference between Grade A and Grade B offices? ›
Grade B commercial spaces for rent offer good quality facilities and services, but naturally, at a slightly lower standard than Grade A. They tend to be located in less central areas, however, many still offer convenient access to transportation and amenities such as food and shopping options.
What does structure quality C mean? ›
A Class C property is one that is older (typically 30+ years old), in fair to poor condition, and typically not as well-located as a Class A or Class B building.
What is a class C building in NYC? ›
Class C buildings are often much older (often 20 years or more), need substantial renovation or improvements, don't usually have elevators or central air conditioning, and are often located farther from desirable areas.
What is grade a office space? ›
The most select Class A office properties constitute a separate sub-class called trophy space. Generally speaking, Class A or Grade A offices are modern premises that offer top-notch amenities and facilities, along with advanced infrastructure and a central location.
Which is better Class C or Class B? ›
Class C motorhomes are generally larger than Class B models, typically ranging between 20 and 33 feet in length compared to 16 and 22 feet for Class Bs. Furthermore, Class. Cs offer more interior living space and exterior storage.
In essence, Class A space is the best available space in a local market in that it is the best building available at the time in the best location.
Which is bigger Class B or C? ›
What is the difference between a Class B RV and a Class C RV? A Class B is usually smaller and more fuel-efficient than a Class C. Because of its size and car-like characteristics, some consider a Class B easier to drive. A Class C offers more interior living space and more exterior storage.
What is Type B and Type C construction? ›
Type A construction is the most fire-resistant type of construction, Type C construction is the least fire-resistant and Type B construction falls between these two. C1. 1(b) requires building elements to comply with Specification C1. 1 for the appropriate type of construction.
What is a class B structure? ›
Class B buildings “compete for a wide range of users with rents in the average range for the market.” They're generally nice, fully-functional buildings but don't typically boast the same high-end fixtures, architecture, and striking lobbies as Class A buildings.
What is a Class A office building? ›
Class A. Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.
What are Class B locations? ›
These properties are one step down from Class A and are generally older, tend to have lower income tenants, and may or may not be professionally managed. Rental income is typically lower than Class A, and there may be some deferred maintenance issues.
What is class C space? ›
The lowest classification of office building and space is Class C. These are older buildings and are located in less desirable areas and are often in need of extensive renovation. Architecturally, these buildings are the least desirable, and building infrastructure and technology is outdated.
What is a class B building in NYC? ›
Class B buildings are generally older properties that may still have some amenities or recent renovations. Many are beautiful buildings with grand lobbies and many extras. Frequently, these Class B gems include large windows, spacious and beautifully decorated loft spaces, high ceilings, and open areas.
What is a Grade A office space? ›
Generally speaking, Class A or Grade A offices are modern premises that offer top-notch amenities and facilities, along with advanced infrastructure and a central location.
