Class A apartment properties typically hold the lowest overall risk. This product class offers newer construction in prime locations. An example would be a property less than 15 years old in outstanding condition and operations. Entry level price per unit in most markets exceeds $250,000. This type of property can be found in any metropolitan market in the country. These newer constructed properties generally offer luxury living. Typical features include private heating and cooling systems, independent sub-metered water as well as electric and gas utility service. Many properties built during the condo boom had exit plans to sell individually. The 2008 economic crisis hit, and many were turned into rentals to accommodate rental growth.
These units command higher rental prices and acquisition prices. The higher price structure is supported by the cost of materials, replacement value, and amenities. Featured amenities could include swimming pools, fitness centers, car wash bays, laundry facilities, dog parks and washing stations, garbage valet service, unit cleaning services, and others. These features help hedge the investment by providing options for resident retention.
In most cases, buyers and investors for this product class will consist of hedge funds, REITs, and insurance companies more often than private investors. The major reasons these investors purchase this property class are for a consistent investment return and to capitalize
There are disadvantages to this product class. A downturn in the economy may cause these units to be affected first. A market downturn finds class “A” residents fleeing early in a shift to save money. Over saturation in a market makes it necessary to lower rents to stay competitive. This action negatively affects cash flow and cap rates.
In summary, Class A properties offer stability at an inflated investment. There are fewer distressed or “value add” opportunities available. When looking for “value add” properties look elsewhere.