Multifamily commercial real estate (MFCR) is a term used to describe residential properties with more than five units. If we take the word ‘commercial’ out then even properties less than 5 units and more than one qualify as multifamily real estate. ‘Apartment building’ or ‘Apartment complex’ is usually what we are referring to when talking about multifamily commercial real estate.
There are a few subtypes within multifamily commercial real estate:
- Garden apartments: Typically found in the suburbs, gardenapartments are usually walk-ups and two to four stories high.
- Mid-rise apartments: Mid-rise apartments have five to nine stories.
- High-rise apartments: High-rise apartments have over 10 stories.
Multifamily Asset Classes
Multifamily is further divided into asset classes. As an investor, it’s important to know which asset class best fits your investment criteria.
- Class A: Class A properties are essentially luxury buildings. They offer high-end amenities like pools and state-of-the-art fitness centers. As you might expect, these properties garner the highest rents, but they also require the biggest investment. They provide a safe investment with possibly less cash flow compared to other asset classes. Business owners, professors, white-collar workers usually live here.
- Class B: Meanwhile, Class B properties still offer a good amount of value in terms of quality, location, and function, but they may not have as many amenities. Class B are also referred to ‘steady Eddie’ – they tend to be most stable during economic cycles. Both white- and blue-collar workers live here.
- Class C: Class C properties are still functional but generally outdated. These properties offer the most affordable rents. These properties also offer high cash flow compared to class A or B but also provide less stability during recessions since the tenants are usually blue collar workers to tend to loose their jobs during these times.
- Class D: Class D properties yield the highest cash flow with the highest risk of investment as well. It’s common for their properties to have tenants receiving government subsidies and usually are in high crime areas.
Other investor sectors include officebuildings, retail spaces, industrial properties, self-storage, and mobile homes. Our investment focus is on Class B and C value add multifamily assets.