Want to start a friendly debate at a happy hour filled with multifamily owners? Ask them what they consider a class A apartment. 

“The question often leads to very heated discussion,” said David Reynolds, president of investment management at Boca Raton, Florida-based apartment developer and owner Mill Creek Residential.

Real differences of opinion exist about what constitutes a class A building — and class B and class C asset — among brokerage and ownership groups.

“It’s a loaded question because it's in the eye of the beholder,” said Daniel Lippman, president of Los Angeles–based real estate investment firm JRK Holdings. “Everybody's got a different opinion of an A, a B and a C. It’s predominantly dictated by the age of the property or rent level, but also varies based on the location and construction quality.”

Others mix age, rent or both with factors like location, amenities, construction quality and in-unit features. “There are a lot of ways to slice and dice it,” said Ben Kriegsman, vice president of acquisitions for Dallas-headquartered real estate investment and asset management firm Lion Real Estate Group.

A simple calculation by years

Mill Creek takes a very straightforward approach to defining asset classes by grouping apartment properties by age. “I think doing it by age keeps it simple,” Reynolds said.

If a building is 10 years old or newer, Mill Creek defines it as class A. If it's 10 to 35 years old, it’s a B. Properties older than 35 years are C’s. While simple, Reynolds admits the Mill Creek system doesn’t account for new workforce housing.

“It's new, but some people might say, because it's attainable or workforce, it can’t be an A,” Reynolds said. 

Though individual circumstances may vary, JRK generally considers A assets to be 2010 vintage or newer. Class B properties were usually built between the mid-1990s and 2010 and older assets fall into the B minus and C range.

Dallas-based apartment owner Knightvest designates properties as institutional or non-institutional quality, though age plays into that calculation, according to David Moore, Knightvest founder and CEO. 

“A C asset, to me, is 1980s and older in more generic-type locations,” Moore said. “A B asset is the mid-1980s to early 2000s, and then an A asset is in a great location and 20 years or newer.”

However, Jay Parsons, head of investment strategy at Lubbock, Texas-based owner and operator Madera Residential and economic advisor for Dallas-based developer JPI, points out that not all older buildings have had the same level of care over the years. “You get to projects that are 20, 30, 50 or 60 years old, and some of those have been gutted and renovated and others have not,” he said.

The rents charged approach

Designating properties by age may be the simplest way to group them, but categorizing them by rent could be a close second. The most difficult part of the exercise may be deciding what percentiles are class A, B and C. 

“The top 10% in rents could be class A, and then there’s some cascading out from there,” Reynolds said, providing one example.

Some firms designate a property by rent percentile within a submarket. For instance, the top 25th percentile is an A, the next percentile is a B and then the next percentile is a C.

Parsons also sees value in grouping properties by rents. “At the end of the day, you have to look at what the market will bear,” he said. “So you look at what the rents are, and you have to be able to adjust that for things like floor plans and unit sizes.”

The size of the unit may skew base rents or rent-per-square-foot calculations, which is something that has to be adjusted for, according to Parsons. “But ultimately, if you're a class A property, your rent should reflect that,” he said. “If you're a class C property, your rents should reflect that.”

Some observers say class C’s properties are most likely truly affordable with government subsidies, like the low-income housing tax credit attached. “In class C, you're going to see a lot more Section 8 vouchers and more income-restricted communities and things like that,” said Jay Remillard, co-head at New York City-based real estate investment manager CP Capital. 

Amenities and finishes matter

A pure focus on rents or age can simplify the process of grouping properties. However, some argue that it ignores key building features, like construction quality, amenities and finishes.

“From my perspective, a lot of it has to do with age and level of finishes,” said Alexander R. Westra, managing partner at Charleston, South Carolina-based apartment owner Lakeland Capital. “I think there's some gray area, but an A is probably built in the last 10 years with a high level of finishes and above-average market rents compared to the competitive set.”

David Nelson, a partner and the chief investment officer at San Francisco-based multifamily real estate investment firm Hamilton Zanze, says class A properties are more likely to have 9- or 10-foot ceilings and things like concierge services. “They'll also have higher-end amenities, like spaces where you can rent out workspace, a fitness center with a yoga room and a grill area and some cabanas,” he said.

For CP Capital, class A properties have been built in the past 10 years and would have luxury features. “Most of us have lived in a class B in the past,“ Remillard said. “You might have some of these amenities, but they're not going to be as ultra-modern as in a class A.”

Westra says a B property might have been built in the last 30 or 40 years and has older appliances and rents in line with averages of the comparable set for that submarket, “I think a C probably is within that 30- to 40-plus year vintage, lower quality of finishes, lower quality of building construction and really likely below average rents for that concept,” he said.

Class C properties may have dated infrastructure like aluminum windows, boiler and chiller systems and wall-mounted air conditioning units, according to Nelson. 

“You go from half-inch drywall in class C, and you move up to class A, and they still have things like two layers of five-eight drywall, or the studs are offset, so you don't have sound transfer between units,” Nelson said.

Factoring in location

When grouping properties by rent, age or amenities, it's also important to consider location. A top-of-the-line apartment in a tertiary market will likely fetch rents much lower than an older asset in a coastal city.

“What is class A in Washington, D.C., is going to be different from what's class A in Iowa,” Parsons said. “Those are things you have to be able to algorithmically adjust for. Ultimately, the market tells you what something's worth and, therefore, what its asset class is.”

Some believe location can elevate a property. Kriegsman believes a class A building must have modern amenities, top-of-the-line construction architecture and sit in a good location. For instance, that could include an older building in Manhattan where the property has been rehabbed and tenants are paying $4,000 a month in rent.

“Its amenity set really caters to a tenant who has a little bit more discretionary income to pay for the bells and whistles,” Kriegsman said. “That's what I would categorize as an A asset."

But judging by location by itself might be deceiving. In some cases, class B and older properties are in a better submarket than class A assets. 

“Some of the class B deals that are a little bit older, like 1990s and early 2000s products, actually tend to be in nicer locations than some of the class A deals just because they were built 15 years ago, when a city may have been a little bit smaller,” Nelson said.

Regardless of how apartment investors decide to group apartments, the debate will probably never be settled — another reason it’s always a great topic for the next multifamily happy hour.

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.