A common question we receive from our investors is what do properties marketed as Class A, Class B and Class C mean, and why does it matter? To begin, investors, lenders and brokers have developed property classifications to make it easier to communicate amongst themselves about the quality and rating of a property quickly. For investors, property class is an important factor to consider because each class represents a different level of risk and return. Investors can use these differences about property class types to consider how each property fits within their strategy of investing return objectives and amount of risk they are willing to accept in order to achieve those returns.
Each property classification reflects a different risk and return because the properties are graded according to a combination of location and physical characteristics. These letter grades are assigned to properties after considering a combination of factors such as age of the property, location of the property, tenant income levels, growth prospects, appreciation, amenities, and rental income. There is no precise formula by which properties are placed into classes, but here is a breakdown of the most common classes, A, B and C.
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