What Are The Different Multifamily Apartment Classes?
If you have been looking at multifamily investment memorandums or been researching multifamily for any time it is likely that you have seen or heard something about the “class” of the apartment community. The headline in the memorandum may have read something like “Class A, Multifamily Apartment Complex 226 Units, Midtown Atlanta.” That sound’s good and all but what does the term apartment “class” even mean?
What Are The Different Multifamily Apartment Property Classifications?
Property classifications refer to a grade that investors give to a property based on the physical condition and market attributes of the property. This classification system is very similar to the manner that a student would get a grade in school; property classifications include Class A, B, C and D. Class A apartments are the most pristine while a Class D apartment is in the worst condition.
Additionally a plus or minus may be added to the classification to give a more specific indicator of where that property is in the spectrum of other properties within that class (i.e. Class B+ properties vs. Class B- properties).
You may be thinking “Ok, that makes sense. So, to get the best investment I should look for the Class A apartment.” Unfortunately, it’s not that simple. There are investors that investing in properties in all classes. Based on their investment strategies and philosophies they would choose to invest in a property class that most aligns with their goals.
While there may be different schools of thoughts on were the borderlines are for each property classification, there are some commonly held understandings of what constitutes a Class A, B, C and D property. We break down the different property classifications below.