In the world of multifamily apartment community syndications, one very important distinction to understand is the difference between Class A apartments and Class B and C.
We asked Drew Kniffin, President of Nighthawk Equity, to shed some light on the differences between those asset classes.
Class A is going to be your highest best, most elite units. And we often break these down by age. Class A, are your newest apartment buildings, usually not much more than 10 years old. They're very nice. They have lots of amenities.
- rooftop decks and built-in propane
- grilling stations
- pools with waterfalls
Importantly, with Class A, those are tenants who choose to be renters, they don't want to own a home, they don't be burdened with the jobs of shoveling snow in their driveway.
When you switch to B and C, you're obviously going down the scale a little bit, rents are going to be a little bit lower, the property is going to be older and B and even older yet still in C class.
You're getting tenants who maybe have lower incomes, maybe they don't have a college education, or are hourly workers.
Once you get down to class C, they're more in what we would call workforce housing.
So those are your distinctions.
Newest and nicest is Class A, and then a little bit older is B and older still is class C.
Class B and C's have the highest potential for cash flow.
You're gonna pay less per unit and pay less per dollar of revenue in those properties.
As long as you have a solid renovation plan in place there's enormous upside in B's and C's.
That's why we've done these asset classes historically at Nighthawk is because it's the value add is better there.
Find properties that essentially have a problem that needs to be fixed. There's usually one of these problems:
- Rents are too low
- The units are too vacant, there's an occupancy issue
- Expenses are too high
Solve those and you can really push the value in class B and Class C.
That's how you can make money for yourself and for your investors.
Class A is pretty much optimized because it is new, you're usually buying it freshly leased up so there's less juice to squeeze in class A, whereas in B or C you're going to find more of that value-add strategy.
Nighthawk focuses on Class B and C. If you look back at our history of deals, usually we're finding properties that have the potential to be great and they're in great neighborhoods, but they've just been not cared for on some level by the owners.
We come in and inject millions of dollars to fix that problem and make it a fantastic place for the tenants and a fantastic place for the larger community.
One asset, Stone Crossing, in Huntsville, Alabama was a tired Class C+. We gave it a fresh face both on the exterior and interior. We added:
- a dog park
- corn-hole games
- cleaned up the pool area
- mail center
We used the same strategy with Sierra Place in the Sandy Springs neighborhood of northern Atlanta, Georgia. It was a tired asset as well but in a really strong location.
Adding these amenities, making the units nice can bring a Class C+ up to a B.
And that's when you really get to add value to the tenants and to the investors. So everyone wins in that scenario.