Understanding Multifamily Location Grade in Columbus, Oh.
How do you know what grade property and location you are looking at?...and how does it differ across locations? This post will address how we classify (or grade) locations in the Columbus, Ohio market. Before we get there, let's take a moment to clarify a couple of items;
- There are two types of classifications when talking about investing in real estate
- Property class
- This is the general condition of the property and includes items like building age, building type, etc. So, it’s possible to buy a “C-class” property in a “A-class” location.
- Location grade
- This is a direct result of desirability...the converse is likely true here, meaning you will rarely purchase an “A-class” property in a “C-class” location. That said, you will see this occur more frequently in neighborhoods in transitional markets like Columbus…and this can be a potentially toxic combination for a variety of reasons.
Property class is generally a function of large MF properties and referenced by firms like CBRE and Marcus and Milichap...you’ll see this represented as “A-class” “B-class” or “C-class”. The point of this post is to address location grade, which is the first metric to consider when buying property...this is essentially asking “is this property in a good location?”
Our opinion is the sale price of any property is a direct result of desirability...i.e. People pay more for properties in better locations.
The extension of this is that better locations attract better owners and tenants who maintain properties to a higher standard with more tax revenue to enhance municipal services, infrastructure, school systems, and amenities. If that sounds logical, let's dig in and actually look at this applied to the Columbus market.
Picture looking down at the city from a satellite. The structures in the city are basically a bunch of boxes of different sizes and configurations with different finishes, etc. The distinction here is that the most important metric we can look at for MF property is the price per unit.
Our method is to take all the closed MF properties over the last 6-months and start to look for patterns. The amazing thing is that the market will define itself into 4 groupings...which work quite well when assigning grades of “A”, “B”, “C”, and “D”.
Before we look at the data, it’s important to distinguish between “Neighborhoods”, “Cities”, and “Secondary Markets.” They all behave a little differently.
- 1- Neighborhood- defined location within the city limits of the major city
- 2- City | Suburb- defined location in the same (or abutting) county- these locations might be a suburb, but not always. They almost always have their own municipal services and school systems, etc.
- 3- Secondary Market- cities or villages that are located outside the major city limits and likely located in different counties. These will almost always be referred to as “C-class”
The combination of all 3 of these locations is referred to as the Metropolitan Statistical Area (MSA).
Enough about that...here is the breakdown:
Columbus Neighborhoods
source data: MLS (does not include SFR properties)
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