DFW Multifamily: Class A vs. B vs. C – Submarkets, Amenities, Tenant Base, Lenders
/By: James Eng, Senior Director Old Capital
What determines if a multifamily is a Class A or B or C? Is it the location, the year built, the property and unit amenities, the building characteristics, tenant base, etc..? In this article, I am going to walk through what makes determines what class a property is, what they are trading for in today’s market in DFW, and who is lending on each type of property.
Class A
Typical submarkets: Uptown, East Dallas, Plano, Frisco, McKinney
Year built: Late 1990’s-Present
Amenities: Structured or garage parking, gated, pool, clubhouse, fitness center, 9 ft ceilings, stainless steel appliances, faux wood flooring, granite counter tops, 2 inch blinds, and tile back splash
Building characteristics: Pitched roof, individual HVAC and water heater, and washer/dryer connections. Avg. SF of units 900-1,100 SF.
Typical tenants: White Collar professionals earning over $75,000
Sales price per unit: $125,000-$200,000
Rents $1.50/sf/month-$3.00/sf/month
Lenders: Non-recourse financing at very low rates (under 4.00%) is available for these properties as life insurance, agency, and local banks have no problem lending on Class A properties as they are very stable.
Class B
Typical submarkets: Richardson, Carrollton, Irving
Year built: 1980’s-1990’s
Amenities: Covered parking, gated, pool, clubhouse, fitness center, 8 or 9 ft ceilings, black appliances, faux wood flooring, refinished countertops
Building characteristics: Pitched roof, mostly brick exterior, individual HVAC, boiler or individual water heater, and washer/dryer connections. Avg. SF of units 800-1,000 SF.
Typical tenants: Blue/White Collar professionals earning over $50,000 annually
Sales price per unit: $65,000-$95,000
Rents $1.10/sf/month-$1.25/sf/month
Lenders: Non-recourse financing at rates near 4.50%-5.00% is available for these properties as agency and local banks are comfortable lending on Class B properties.
Class C
Typical submarkets: Garland, Irving, Arlington
Year of construction: 1960’s-1970’s
Amenities: Surface parking, no perimeter fencing, no clubhouse and very small leasing office, 8 ft ceilings, white appliances, carpet, 1 inch blinds, laundry rooms
Building characteristics: Flat roof, Chiller for HVAC, Boiler, No washer/dryer connections. Avg. SF of units 600-800 SF.
Typical tenants: Blue Collar supporting service industry earning $30,000-50,000 annually
Sales price per unit: $40,000-$65,000
Rents $0.90/sf/month-$1.10/sf/month
Lenders: Non-recourse financing available for experienced owners through agencies and CMBS. Recourse financing through local banks for inexperienced owners.
Most properties do not have all the characteristics listed in each class. As an investor, you have to look at all the components together and decide what class the property currently is and what it can become. Some aspects of a property you cannot change, but other things you can improve to take a property from one class to the next.
I help investors in all 3 classes of multifamily on the lending or equity side of the transaction. I can be reached at 214-300-5035 or you can send me an e-mail at jeng@oldcapitallending.com.