Learning How to Define The Class of an Office Building

The class of an office building is defined by the building's characteristics. Let's discuss this is further detail. Class A Buildings To categorize a structure as a Class A building, it must be brand new or, at the very least, have been built in this current building cycle. It has all the bells and whistles that the best buildings in town include. It’s typically downtown, usually a high-rise, and it has no functional obsolescence. Best of all features, it has the highest rent tier. Currently in Orlando, Class A buildings are between $25 and $30 a square foot, while Class B buildings are between $18 and $23 a square foot. Notice the gap of a few dollars between those two tiers—that’s typical in your community, too. You know the class of a building instantly by the rent per square foot as compared to other building rents. Class B Buildings Class B buildings are usually over eight years old or older, depending on your neighborhood. If the current building cycle you’re in is only three to four years old, then a five or six-year-old building might be Class B. Essentially, it’s not the age of the building that is so important, because buildings don’t age quickly. It’s the systems within these buildings. If it’s a five-foot hallway instead of six feet, that’s a Class B building. People will feel that way about it, because nobody built six-foot hallways until fairly recently. Now, if they were like hospital corridors with that extra one linear foot, it just feels so much more luxurious. Class C Buildings In Orlando, a Class C building would be more than 17 to 20 years old. This is an example, and remember that drops in class will be different based on the building cycles in YOUR area. This is very important to understand when trying to define the class of an office building. A Class C building would have additional and certainly more functional obsolescence than a Class B building. Functional obsolescence will also be found in areas like the hallways, where you would have 4 feet or less of hallway. When you have a building with 3- 4 foot hallways, you feel closed in, since you are so used to the newer buildings having five and even six foot hallways. If no buildings during the last building cycle were built in your town with six feet hallways and you walked into a building like that, you would be surprised at the impact that it has on the visitor. It doesn’t cost the builders much to do that, but it lends an upscale feeling to the building. Class C buildings are older, with lots of functional obsolescence and with systems starting to wear out. Maintenance on a Class C building costs a great deal more than the other two categories. When the restrooms are between floors, it’s a hard thing to fix because you have to go up or down half a flight of stairs to get there, typically by using the fire stairs. Not only is that not ADA compatible, but it’s inconvenient and outdated. That particular functional obsolescence immediately marks the building as Class C. Investment Issues You may own some buildings you would have to classify as Class C buildings, if you are going by their age. However, they may still command high Class B-rate rents. This difference just depends on how you maintain your property. Right now, if you buy a Class A building in Orlando, Florida, you would pay the equivalent of a 6 % “Cap Rate”— in other words, you should not buy one because there’s more bang for your buck as of this writing in older buildings. It is not an economically sound investment. However, you can do fairly well with a Class B building. If you buy it on a 9% “Cap Rate”, the investment will most likely produce cash flow for a substantial period of time. Tip: Office buildings last for decades and more, especially if they are built correctly. Therefore, the biggest bang for your buck is from the Class B building, because it will be that class for a long time if it’s well-maintained. Keep in mind that the class of an office building is defined by it's characteristics and not just by when it was built.  I hope this information will help you broaden your knowledge on how to define the class of an office building.

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