Class A Multifamily: A Solid Investment for Investors

Some of the most sought-after and expensive real estates is class A multifamily. They are the luxurious skyscrapers that are springing up in major cities, featuring breathtaking vistas and floor-to-ceiling windows.

But is spending money on luxury a wise investment? What exactly falls under the Class A multifamily property classification?

Highlights of the blog:

• What does Class multifamily mean?
• The characteristics of Class A, Class B, and Class C multifamily properties.
• Is a class A multifamily property a good investment?

What Does Class A Multifamily Mean?

An informal A/B/C rating system is frequently used to evaluate investment-grade multifamily housing. The highest quality apartments are classified as Class A; these are the newest buildings in prime areas with numerous amenities, luxurious finishes, and typically higher rents.

Multifamily real estate in CRE is a property with five or more residential units and is typically thought of as one of the most solid asset classes CRE investors can choose because people will always need a place to live.

So a Class A multifamily property combines top-of-the-line quality with a reliable CRE asset class.

Characteristics of Class A Properties

Class A, B, and C properties are categorized based on vaguely defined traits that lenders and real estate investors use to evaluate a property. What to expect from a Class A property typically includes:

• Up-to-date renovation (in the last 10 years)
• Location in the heart of a highly attractive city, close to transit
• Completely updated and refurbished with luxurious amenities (e.g., granite countertop, stainless steel appliance)
• Building amenities like a gym, pool, and/or working area
• Concierge and doorman services
• Laundry facilities 
• They frequently see low vacancy rates, are in high demand and tend to draw a city’s best earners.

You’ll become more adept at classifying properties as you develop your evaluation and analysis skills for multifamily properties.

What Are Class B and Class C Property Classifications?

While Class A properties are top of the line, here are some of the criteria for Class B and C properties:

Class B Multifamily Properties

• Properties constructed during the last 20 years.
• The amenities package is less than what is currently available at the upper end of the market for both the building and the residential unit.
• Rents for the units fall under class B rates.
• The building is in good shape and requires little ongoing repairs.
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Class C Multifamily Properties

• Real estate constructed during the last 30 years.
• Hasn’t undergone renovation.
• Not located in a central location.
• The building offers occupants few or no amenities.
• Equipment has not been updated.

Is a Class A Multifamily Property a Good Investment?

Although Class A multifamily properties are generally regarded as secure investments, industry experts disagree on whether this is the best course of action. One thing is sure, though: Class A properties are also the highest-priced ones. Only the wealthiest developers will be able to consider these assets.

Few reasons Class A multifamily real estate properties may be particularly strong investments right now.

1. Since there is a nationwide housing shortage, particularly middle-class housing, Class A is widely available and in high demand. It will probably continue to profit from the supply/demand imbalance-supporting demographic and migratory super trend, such as very substantial net in-migration/population increase in specific regions, cities, and submarkets.
2. Younger professionals are renting for longer periods as buying a home becomes more expensive. Empty nesters and other people are also increasingly choosing to live in apartments, which supports a more mobile lifestyle.
3. Class A multifamily are considered safe investments because the tenants who occupy these buildings tend to be financially solid.

Conclusion

Despite being a wise investment, Class A multifamily properties are only available to investors with the resources to invest in a more expensive asset class. While some professionals think they are becoming more in-demand as housing becomes more scarce across the U.S., others think the migration from big cities in search of more affordable housing is making them less in-demand. Multifamily properties are still seen as a safe and recession-proof investment, with Class A properties being the highest-quality ones, regardless of the property classification.