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Thoughts and Opinions on Real Estate, Crowdfunding and Investment

Multifamily, Office, Retail, Industrial - What you need to know

Commercial real estate properties are divided into four major property types, also known as “food groups” or “asset classes”: Multifamily, Office, Retail, and Industrial.  In addition to these four major categories there are many sub-groups and minor property groups, including hospitality, senior housing, student housing, medical office, self-storage, and raw land.  If you are new to commercial real estate investing, you should become familiar with each major property type.

Multifamily.  The Multifamily property type includes residential properties that are designed to accommodate more than one family.  Duplexes, garden apartments, and high-rise luxury condominiums are all Multifamily properties.  The majority of commercial real estate investments available through crowdfunding platforms are Multifamily properties; garden apartments are particularly well-represented. 

Office.  Office properties cover a wide range of non-retail businesses.  Single story suburban office parks, large corporate campuses, and huge skyscrapers in Manhattan are all examples of Office properties.  Office properties located in central business districts (“CBDs” or “downtown” areas) of large cities are usually more expensive than those located in suburban areas. 

Office properties are divided into three classes – Class A, Class B, and Class C – based on location, condition, and other factors.  Class A office space is usually relatively new, has modern amenities and design, and tends to be located in CBDs or other desirable areas.  Class A properties command the highest rents.  Class B office buildings are high-quality, but usually a little older that most Class A buildings.  Class B buildings can be renovated into Class A buildings.  Class C buildings are usually much older or located in less desirable areas, and may need very extensive renovations.  Class C buildings may present attractive re-development opportunities to sponsors.  Class C properties command the lowest rents.

Retail.  The Retail property type consists of consumer-focused spaces.  When you think of retail, you may picture malls or big box stores, but small storefronts and even restaurants are also classified under the Retail property type.

Industrial.  The Industrial property type includes factories, warehouses, and distribution centers.  Like other property types, Industrial properties come in a variety of sizes.  A non-profit organization may lease a small warehouse to store donated items, while a large multinational may have a huge manufacturing center with dozens of loading docks and internal crane and conveyor belt systems.  Most industrial properties also include a limited amount of office space for management.

Keep in mind that many properties are classified as “mixed-use,” meaning they include more than one property type.  For example, many large buildings, especially those located in CBDs, include office space, apartments, and retail space.

Now that you know the four major commercial real estate property types you will be better able to understand the investment value of a property.  You may be wondering which property type makes the best investment.  There is no black-and-white answer to that question.  An individual property’s value as an investment is a function of many factors, so due diligence is vitally important.  Investors should consider the location and condition of the property, as well as market demand.  Above all, investors should closely inspect the sponsor and its plans for property.  Furthermore, it’s often advisable to diversify your real estate allocation among multiple asset classes.

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