A Guide to Investing in a Class A Industrial Building

By Published On: October 25, 20223.2 min read

Industrial buildings are one type of commercial real estate property, usually located outside urban areas, along major highways. Typically they are low-rise buildings categorized into four types: heavy manufacturing, light assembly, bulk warehouse and flex industrial.

These buildings, which are regulated by industrial zoning laws, are also further categorized by class. There are Class A, B and C industrial buildings.

What Is a Class A Industrial Building?

Class A industrial buildings are considered the “most prestigious and sought-after” industrial buildings in the market, said Alex Capozzolo, Co-founder at Brotherly Love Real Estate. These buildings boast state-of-the-art infrastructure and high quality facilities, Capozzolo added.

According to Reid Hogan, a Commercial Real Estate Advisor at PropertyCashin, Class A industrial buildings are usually located close to a city, on significant roads or highways and with good access to airports and/or rail transportation. Generally, the tenants in Class A buildings are financially strong, Hogan said, and oftentimes those tenants might be national or regional companies that provide strong lease guarantees.

Benefits of Investing in Class A Industrial Buildings

Class A industrial buildings come with a number of benefits. According to Capozzolo, these buildings come with less risk, the best amenities, prime locations, low vacancy rates and high-quality tenants.

Hogan noted that Class A industrial properties provide more stable income than other classes of industrial properties, and tenants are willing to sign long-term leases. Repair and maintenance expenses will be lower because the building is newer.

Drawbacks of Class A Industrial Buildings

The main drawback of a Class A industrial building, according to both Hogan and Capozzolo, is that these buildings are more expensive. As a result, buyers and investors will need to pay more money per square foot acquired. They also trade at lower cap rates, increasing risk if a tenant should leave.

Example of a Class A Industrial Building

Some examples of Class A industrial buildings, Capozzolo said, include a modern logistics facility or a food manufacturing factory.

This fully occupied, multi-tenant flex building featuring an office, warehouse and storefront space in Amarillo, Texas is an excellent example of a Class A industrial building. The building, built in 2007, is located in a prime location, near a dense commercial hub, just minutes from an airport and a downtown area.

Considerations Before Buying a Class A Industrial

Before purchasing a Class A industrial building, there are a couple of different factors to consider:

Financing

Class A industrial buildings are “the creme-de-la-creme of industrial buildings,” Capozzolo said. Buyers need to have the money. For those just starting out in commercial real estate who perhaps don’t have as many financing options, Class A industrial buildings might be too far out of reach.

Location

Does the location have potential for future growth?

Capozzolo recommended researching future growth strength based on location and customer attraction. If the location is not ideal or does not seem to be growing, then it may be more difficult to turn a profit and retain tenants long-term.

Return Expectation

With Class A buildings, although they are lower risk, the rate of return on your investment could be lower. For instance, major tenants like Google or Amazon may lease a Class A building, resulting in lower risk but lower return.

Is Class A Right for You?

For commercial real estate investors with plenty of money, Class A is the nicest choice for your industrial building investment. However, Class A buildings are in high demand, so be prepared to compete with other investors, including institutional investors.

On the other hand, if you’re looking for something less expensive, Class B and C industrial buildings are also an option. Either way, it’s important to have a clear understanding of each type of building to ensure you’re making the right decision for your specific needs.

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