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Summary: Class A is a sponsor’s assessment, not a government designation. Realberry’s Tyler Farrelly and Jake Maggy explain what the label means, how maintenance, market performance, and exit buyers factor in, and how Class A compares with Class B and C.

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Many investors hear the term Class A and assume it belongs only to institutions. A closer look at what the label means helps separate assumption from fact.

That was the focus of a recent webinar led by Tyler Farrelly, Director of Investor Relations at Realberry, and Jake Maggy, an associate on the Investor Relations team. They walked through the label, the market data, and the trade-offs.

What Class A Really Means

Start with what Class A is not. Class A, B, and C are not government designations or certificates. They are a sponsor’s assessment (a sponsor is the firm that develops or manages a property) meant to help investors understand what kind of property they are looking at.

In general, Class A describes the newest buildings or heavily renovated older ones, in prime locations such as urban centers or desirable suburbs, with creditworthy tenants and higher rents. Class B describes more typical properties: somewhat older, with average floor plans and average rents. Class C describes the oldest vintages, which are more functional and may have fewer amenities. Each has merits, Jake noted. Realberry’s portfolio is not exclusively Class A.

Context matters too. Because the label rests on market research and broker and sponsor opinion, a Class A office building in Manhattan and one in Boise, Idaho, do not command the same price per square foot or serve the same market.

The Replacement Clock

Every commercial building, whatever its class, runs on a replacement clock. Roofs, HVAC systems, and elevators all have limited lifespans and can be expensive to replace. A newer building generally sits earlier in those cycles.

Tyler compared it to a water heater. A ten-year-old unit and a brand-new one may both work today, but likely only one needs replacing in the next few years. From the curb, two buildings can look alike while carrying very different risk profiles.

Why does this matter to a limited partner, an investor who contributes capital but does not manage the property? Limited partners do not handle the repairs. Still, replacement costs come out of the property’s cash flow or from reserves set aside in advance, and that money is then unavailable for distributions. Large unbudgeted expenses may reduce distributions over time, draw down reserves faster than expected, or in some cases prompt a capital call, a request that investors contribute additional money.

Tyler was clear that Class A does not remove the need. Every building eventually requires major systems to be replaced. What deserves more attention than age alone is how thoughtfully the sponsor underwrites and reserves for those costs from the start.

Where the Data Points

Tyler described a pattern across property types: performance has diverged by quality. Three recent data points illustrate it. They are snapshots, not predictions, and past performance does not guarantee future results.

In office, CBRE’s Q2 2026 report put prime office vacancy at 12.3 percent, against 18.3 percent for the overall market. That is a gap of six percentage points. Vacancy matters to investors because an empty space produces no rent, and rent is what supports distributions.

In multifamily, RealPage data reported by CRE Daily showed stabilized Class A apartment rents up 1.9 percent year over year, while Class B rents were roughly flat and Class C rents fell about 2 percent. Stabilized means a property that has finished its initial lease-up. In plain terms, quality tier separated rent growth from rent decline over that period.

In hospitality, CoStar reported that U.S. hotel rooms under construction fell 5.4 percent year over year in March 2026, the 15th consecutive monthly decline. Fewer new rooms may mean less new competition for existing hotels. Supply is not uniform, though. The same release noted that luxury had the largest share of rooms under construction relative to its existing supply, at 4.5 percent.

Who Buys at Exit

Any illiquid investment, one that cannot be sold quickly, raises the same question: when the sponsor sells, who buys? Jake explained that buyers tend to differ by class.

Class A properties command the highest price points, so buyers are often institutional investors, including REITs. A REIT, or real estate investment trust, is a company that owns or finances income-producing real estate. These are typically longer-term holders. Class B buyers are often local syndicators and private equity firms seeking a balance of income and appreciation, frequently through a value-add plan, which means improving a property to raise its income. Class C buyers are often smaller operators and individual investors focused on cash-on-cash return, the annual cash income relative to the cash invested.

Tyler framed the takeaway this way: how an asset performs tells only half the story. Who is willing to buy it matters just as much when it comes to realizing a return. A wider pool of potential buyers may help, though it does not guarantee a sale or a price.

A Moving Target

Because Class A is a market judgment and not a certificate, it can expire. Jake gave an example. A property built in 2015 may have been Class A when it opened. If newer buildings with better amenities and locations arrive nearby, that same property could slide into Class B.

For investors with a long hold period, that makes the surrounding market part of the analysis. Jake suggested watching what is being developed nearby and asking about a property’s staying power. Class A describes where a building stands today, not where it may stand in ten years.

Why Investors Choose Class B or C

If Class A has these features, why does anyone invest in Class B or C? Because each involves a different trade-off, and the right fit depends on the investor.

Class A properties are generally more expensive and sit at the upper end of their markets. When rents are already above average, it may be harder to grow net operating income, the income left after operating expenses. That often points to a steadier, more conservative return profile.

Class B moves up the risk curve. An older building may need updated amenities or finishes, which takes upfront capital that can reduce profits later. In exchange, the improvements may raise rents and the property’s value. Class C extends the curve further, with potentially greater reward but also higher maintenance and repair contingencies and more tenant turnover.

Jake’s summary was simple: it depends on the investor’s profile and tolerance for risk. Tyler added that the goal is matching each investor to the right class and the right investment, which starts with a conversation about goals.

How to Vet a Sponsor

The moderator asked what questions investors may want to put to a sponsor. The answers describe how Realberry approaches it, and they point to questions any investor may find useful.

Jake described an underwriting process, the work of evaluating a deal’s costs, revenues, and risks, that is deliberately unemotional. Initial underwriting goes through an investment committee before it becomes an opportunity for investors, and the team follows specific guidelines. The reason is practical: deep in the numbers, people can be tempted to make them work where they may not. Tyler added that the team says no to more deals than it says yes to. Jake noted that expectations vary by opportunity. A value-add property, for instance, may not produce the same cash income as a stabilized one, so the numbers have to fit the business plan.

Tyler also pointed to structure. Development, acquisitions, asset management, and investment management all sit in-house, so the people who source a property are often the same people who manage it and plan its eventual sale. The details live in the private placement memorandum, or PPM, the offering document that lays out an investment’s terms and risks.

Taken together, the conversation suggests a few questions to ask any sponsor. How does it underwrite and reserve for major system replacements? What happens to a property’s position if newer buildings arrive? Who are the likely buyers at exit? And what do the offering documents say about risk?

The Takeaway

Tyler closed with three points. Newer construction tends to bring fewer near-term surprises because its building systems sit earlier in the replacement cycle. Performance has diverged by quality across office, multifamily, and hospitality, and a pattern that repeats across property types starts to look like a signal, not a coincidence. And a wider pool of potential buyers at exit may matter as much as how the asset performs.

None of this makes any class right for every investor. The right fit depends on goals and tolerance for risk. At Realberry, the aim is places people genuinely love, not just occupy, and that begins with understanding exactly what you are looking at.