In my opinion, Class “B” properties are the “sweet spot.” I find that there to be an abundant supply of Diamonds in the rough in this class. Class B assets offer residents the look of luxury without the cost. This optimizes returns and provides more opportunities for rent growth.
Class B properties can range in age from 16 to 25 years old. These properties offer varying features such as 9-foot ceilings, Formica countertops, floor coverings, lighting, paint packages, and community amenities. A lack of top-tier product upgrades and features provides a tremendous opportunity to upgrade and increase value.
Upgrading class B units increases the value for residents and community stakeholders. Fire Sales offer value add opportunities. Major attributes are location, location, and location. Class B properties offer a plethora of opportunities for property enhancements. This strategy keeps the rents affordable.
I have visited thousands of properties. Often, I notice office managers, leasing agents, and maintenance staff look tired. With a lack of clear leadership, they seek inspiration to live again. Properties tend to lose revenue and lifeless residents continue to develop. During a transition, staff may tend to lose interest in the day-to-day basics. New ownership has the potential to bring excitement and a future back to existing staff and property which previously been lost.
In summary, investors should consider strategically targeting underutilized and mismanaged Class B properties. They provide tremendous upside through rent growth and the implementation of minor to moderate upgrades. Class B properties provide valuable alternatives to other product classes.