Letter Grading Areas...C+, B, D

[Arnie Guida]

Something new to me is when I see people letter grading real estate areas. "The building is in a C+ area." What constitutes a C+ area? B area?

How is this determined?

Thank you.

Arnie

[Leon D.]

Arnie Guida Grading areas is borrowed and adapted from commercial real estate, where buildings are rated based on age and quality.

Here's an example:

Class A. These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings also are well-located, have good access, and are professionally managed. As a result of this, they attract the highest quality tenants and also command the highest rents.

Class B. This is the next notch down. Class B buildings are generally a little older, but still have good quality management and tenants. Often times, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation such as facade and common area improvements. Class B buildings should generally not be functionally obsolete and should be well maintained.

Class C. The lowest classification of office building and space is Class C. These are older buildings (usually more than 20 years), and are located in less desirable areas and are in need of extensive renovation. Architecturally, these buildings are the least desirable and building infrastructure and technology is out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.

There's no absolute standard to any of these, and it's all more-or-less relative (Class A in Cleveland might only be considered Class B in Beverly Hills, for example). These descriptions are adapted to neighborhoods as well: A is the hot area with huge rents and prices, B somewhere below that, C would perhaps be a solid blue-collar area (stable, a bit run down, but generally solid residents), D and below are places you want to avoid after dark.

The grades are just short-hand to give everyone an idea of what to expect.