Commercial real estate generally refers to properties used for purposes other than housing single-family residential occupants. Within this broad phrase, however, there are many different types of commercial realty. Let us look at the various commercial buildings and their contrasting qualities to see how they might affect your role as a real estate investor.
Multifamily properties are units that house residential tenants. Industry professionals consider property as commercial if it contains five or more units, while one with four or fewer units is named residential. Commercial multifamily properties usually have stricter lending guidelines than their residential counterparts and often require higher down payments between 25% and 30%. These requirements are often the case, even if the owner plans to live in one of the units.
Multifamily properties have many subclasses, including:
- Garden apartments. Garden apartments are usually three to four stories high and contain anywhere from 50 to 400 units. They often include surface parking and a lack of elevators.
- Mid-rise apartments. Mid-rise apartments tend to stay between five and 12 stories and contain an elevator. They are typically made up of 30 and 110 apartment units.
- High-rise apartments. Usually found in larger, urban markets, high-rise apartments are those that generally exceed 12 stories. They are managed by professional property management firms and contain more than 100 units.
Similar to multifamily properties, commercial office spaces are characterized by low-, mid-, or high-rise, based on the building’s construction and design. These types are placed into one of three classification categories: A, B, or C.
- Class A. Class A buildings are considered the best in terms of construction and where they’re located.
- Class B. These properties usually rank high in terms of build but may not be in prime locations.
- Class C. Class C commercial office properties tend to be in less favorable locations and lack aesthetics and construction quality of the higher class properties.
Industrial properties vary significantly in terms of size and usage. Nearly every industry interacts with industrial, commercial real estate at some point in the supply chain, as warehouses are often the starting point in buyers’ journeys.
Industrial real estate has several subcategories:
- Heavy manufacturing. Heavy manufacturing facilities begin with a specific use-case in mind. They are well-customized with machinery that’s intended for particular jobs or industries. With that said, it’s often quite challenging to repurpose these facilities for different types of tenants should an existing one move out.
- Light assembly. Light assembly sites are also designed with a purpose, but they are far more flexible and adaptable than heavy manufacturing facilities. They can be more easily reconfigured to welcome different types of tenants. These usually include storage, product-assembly, and office spaces.
- Flex warehouses. By definition, flex spaces are designed to be easily converted into whatever type of environment is necessary for incoming tenants and often contain a combination of one or more uses such as office, warehouse/distribution, industrial, etc.
- Bulk warehouses. Bulk warehouses are typically quite large, ranging from 50,000 to 1 million square feet. They are used for local or national distribution of products and are designed to ensure trucks have unobstructed access to the facility by way of the highway.
Brick-and-mortar businesses are still vital to our economy, despite the ever-increasing surge in online purchasing. The following are a few types of retail buildings that are a part of many individual’s day-to-day errands:
- Shopping centers. Strip centers are smaller retail spaces that may contain anchor stores, but often they do not. Anchor stores are retail outlets that customers look for when they are on their shopping excursions, such as Target or Lowes. These types of centers contain a mix of small retailers that provide everything from gardening and home goods supplies to nail and hair salon services.
- Community retail centers. Community retail centers range between 150,000 and 300,000 square feet. You might find multiple anchor tenants within these spaces, as well as a few food establishments.
- Power centers. Power stores are characterized by several anchor tenants, such as Best Buy, Walmart, and Petco. Each tenant usually occupies between 30,000 and 200,000 square feet of space.
- Regional malls. Malls can be designed to give shoppers an indoor or outdoor experience. They can range between 400,000 and 2 million square feet, offering a handful of anchor tenants such as Macy’s, Bed Bath and Beyond, and other big-box giants.
- Out parcel. Many larger retail centers contain several parcels — that is, they offer sections of land that can be used by standalone tenants such as banks and fast-food establishments.
Hotels are a prominent kind of commercial real estate that can be found in any location. However, there are several different subsets of this property type:
- Full-service hotels. Full-service hotels typically boast of big brand names like Marriott, Hilton, and Four Seasons. They are often located in downtown districts or areas where many tourists or business travelers converge.
- Limited-service hotels. Hotels in the limited-service category are often considered “boutique,” meaning the properties are smaller and may not provide features such as room service, on-site restaurants, or meeting spaces.
- Extended-stay hotels. These hotels are equipped for day-to-day living, offering larger living spaces and full kitchens.
Mixed-use commercial real estate can come in many forms, usually utilizing any of the properties mentioned above within the space. It is common for mixed-use land to offer a combination of residential real estate atop retail, restaurant, or office properties.
Seek Commercial Real Estate Advice From The Experts
Before you become an investor, it is essential to speak to professionals within a commercial real estate agency. They will help guide you through the process, so you make the best investment possible for your situation. Always consider what type of property you want to invest in, how much money you have to put down, and what kind of maintenance and care your space will require.
After all, you want your commercial real estate investment to work in your favor. To understand even further, seek information from an agency that offers commercial real estate services to help you find the best opportunity for your unique needs.
Rakow Realty is a full-service commercial real estate agency representing tenants, buyers, owners, and sellers for more than 30 years. Rakow’s commercial real estate services are in place to best serve New York, New Jersey, and Connecticut’s resident’s real estate needs. From leasing to buying, Rakow Realty protects their clients’ interests every step of the way.
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