Proper Classification of Apartments

[CATaxAssessor]

I am in the process of appraising a large apartment building. I have looked at comparable sales in Co-Star and I am not sure about how they determined what a class A apartment is versus a class B apartment. So, I did some looking around for a more concise definition of the various classes and was not able to come up with much. So, would anybody care to share with me the differences between Class A, B, C, and D apartments? If you have a solid credible source, please provide that info as well. Thank you all in advance.

 

[berniek]

As far as I know, these classifications are subjective. Some states like N.Y. might have some kind of definitions, also lenders might have regional classifications of conditions for lending purposes.
I do know that Marshall & Swift classifies buildings as A, B, C, or D on the basis of construction materials used, primarily considering the fire resistant quality of materials. Alternatively, buildings can be classified according to market acceptance as superior buildings or Class A, B, or C as follows:
Class A: High quality, well designed, using above-average materials, workmanship, and finish; sought by investors and prestigious tenants; excellently maintained and very well managed, especially if the building is more than 10 years old. Attractive and efficient, these buildings are the most desirable in their markets.
Class B: Offers useful space without special attractions. Has functional layout and design, though not unique. Average to good maintenance and management. Typically 10 to 50 years old.
Class C: Typically an older building that offers space without amenities. Average to below-average maintenance and management, average to poor mechanical, electrical, ventilation systems. Attracts moderate- to low-income tenants who need affordable space.


[FONT=&quot]What a Multifamily Property’s Class Can Tell You[/FONT]
[FONT=&quot]When you are dealing with multifamily properties, it is very important to understand the different classes of properties. The class that a property is assigned can tell you a lot about the property and if it is worth your time and money to invest in. There are four different property classes: A, B, C, and D.[/FONT]
[FONT=&quot]Property Classes are really set by the conditions of the property and where it is located. They are not set by the appraisers. The classes are not something that is formally defined but more of something that is set in the vernacular.[/FONT]
[FONT=&quot]Class A [/FONT][FONT=&quot]properties, naturally, are the cream of the crop. These apartments are newer and have a higher rent than apartment buildings that are in the other classes. You can actually have a new Class A property in a Class B area. They are classified as Class A because they are new but they have lower rents than other Class A properties because of their location.[/FONT]
[FONT=&quot]Class B [/FONT][FONT=&quot]properties are multifamily properties that are 10 – 15 years old, well-kept and are in the “middle class” part of town.[/FONT]
[FONT=&quot]Class C[/FONT][FONT=&quot] properties are in low to moderate income or blue collar neighborhoods. They range in age from 30-40 years so they have usually been through at least one rehab. The average rent for a one bedroom is $400 – $425.[/FONT]
[FONT=&quot]Class D [/FONT][FONT=&quot]properties are in very bad neighborhoods. These are in high crime neighborhoods; neighborhoods where you do not want to get out of your car. You generally do not want to work with Class D properties.[/FONT]
[FONT=&quot]If you are going to do Class D properties, you need to be in that niche. You are not going to turn around a Class D property without turning around the neighborhood that it is in. Class D properties are suffering from a neighborhood problem and not a property problem.[/FONT]
[FONT=&quot]Class D properties are bought only because they are cash flow machines. You will not get any appreciation on them. They require intense management and heavy security.[/FONT]
[FONT=&quot]Class C and lower Class B multifamily properties are your bread and butter and they do not offer many amenities to tenants. The further you go down from Class A to Class D, the better your cash flow. The premium deal is finding a Class C property in a Class B area that you can reposition.[/FONT]
[FONT=&quot]If you could find a property that is considered a Class D because of its condition but it is in a Class C neighborhood, you would have a great deal. In this case, you can come in and clean up the property by either making a physical change or a security change to it. You can buy it low, make the changes that are needed and then sell it for a great profit.[/FONT]
[FONT=&quot]Your understanding of the property classes enables you to effectively assess the potential value a multifamily property has as an investment for you. You can then more easily decide if it is deal that you would like to pursue or not.[/FONT]
http://www.apartmentwealthinfo.com/what-a-multifamily-propertys-class-can-tell-you/

 

[Michael S]

As far as I know there's no real source. It's market derived. Talk to local apartment brokers and investors and get their opinion.

A lot of times with apartments its broken down between the location and the improvements. You can have a Class A property in a B location, or an older Class C property that's in an A location.

I generally look at age and amenities. Laundry room with no W/D hookups or W/D? Class C. W/D in every unit, Class A or B. "Luxury" type properties with granite counter tops, high ceilings, attached garages, etc. Class A. I usually use a + or - as well. If a property was Class A when it was built but it's 15 years old, It's probably a B+ now. If a Class A property is in a so-so location, maybe A-.

 

[Mike Kennedy]

I am in the process of appraising a large apartment building. I have looked at comparable sales in Co-Star and I am not sure about how they determined what a class A apartment is versus a class B apartment. So, I did some looking around for a more concise definition of the various classes and was not able to come up with much. So, would anybody care to share with me the differences between Class A, B, C, and D apartments? If you have a solid credible source, please provide that info as well. Thank you all in advance.

Location and Governing Municipality?

 

[CATaxAssessor]

Thank you for the feedback. I did see what Marshall & Swift said in terms of classing but the primary emphasis was on quality of construction. After reading several websites, it seemed that the amount of amenities, location and proximity to shopping, employment, and good schools were at the top of the priority list and these units typically fell into the class A and B territory. The last items were the quality of the rents. It this region, the average a one bed/one bath goes for $700-$800 / month. There are still several complexes that offer the same one bed/one bath for $800-$950. And if that is not enough, there are still high end luxury units that lease one bed/one bath units from $1000-$1200 / month. Wouldn't the quality of the income stream have an influence as to the way they are classed? Am I off base?

 

[berniek]

"Wouldn't the quality of the income stream have an influence as to the way they are classed? Am I off base?"

Not at all. I'd say that lenders look at this in a very positive light and rate it accordingly, just like FICO scores.