Understanding the Types of Commercial Real Estate Property (Part 2)
Commercial real estate is a complex investment. There are many types of commercial real estate property to choose from, and you need to know the differences between them before investing in properties.
In this blog post, we will discuss the two other types of commercial property—multifamily rental units and retail spaces. We’ll talk about what each type of building might offer an investor and the financial risks that come with it.
Primary Types of Commercial Real Estate Property
1. Multi-family rentals
In general, living space is not considered a commercial property. However, any apartment building with four or more separate units meets the criteria for commercial real estate. These complexes run the gamut from low-rise garden apartment rentals to sleek high-rise condominiums.
Three types of multifamily structures:
- Low-rise: These are usually garden apartments that became very popular in the 1960s. They are smaller structures of one to four stories and they are almost always walk-ups. This is lower-density housing often found in suburban areas.
- Mid-rise: This is an elevator building with five to nine stories. This type of complex is often developed on a vacant property that is located within an existing community. Another term for this is urban infill. The apartment is “filling in” one of the remaining vacant parcels in a community that is pretty much built out.
- High-rise: High-rise describes anything over nine stories. They are large complexes often having more than 100 units. They are usually professionally managed and not owned by small investors.
These multifamily rental properties can be further classified on a scale that goes from A to D. Class A is the cream of the crop in terms of age, quality, and location. Class B falls somewhere in the middle and Classes C and D are usually older buildings in less desirable locations that need more help in terms of maintenance.
2. Retail properties
The retail type of commercial property covers a broad range of sales and services. That small boutique you love, your favorite take-out place, the veterinary clinic on the corner and the funeral home down the street are all examples of retail establishments. Most business owners lease their properties. So, retail space can be a lucrative venue for investors.
Types of Retail Spaces:
- Free-Standing: This is a stand-alone property that has its own premises and parking such as a local bakery or a small boutique.
- Mixed-Use structures: Office and multi-family complexes often dedicate their ground floor or a couple of lower floors to retail space. These tend to be located in high-density areas with high walkability scores.
- Malls: These are enclosed shopping centers with indoor walkways and amenities, including onsite parking. But they are not enclosed. Both malls and strip malls have onsite parking.
- Strip Malls: These spaces are mall-like in that the stores are clustered together, but not enclosed under one roof. Also, these have onsite parking.
Note: Depending on their size and character, malls and strip malls usually have one or more anchor stores.
Conclusion
Learning the different property types of commercial real estate helps investors decide on what type of investment suits their business goals. All the four main types of CRE properties give investors the opportunity to generate passive income and build wealth over time.
Contact a trusted partner to learn more about how these properties may benefit your portfolio strategy. You need a team of experts ready to work with clients who want help building their assets through CRE investments. Start a conversation today.
