Thursday, July 31, 2008

Office Building Classifications

I was poking around for a definition of Class A buildings and had a hard time finding a solid definition.

In BOMA's Building Class Definitions, buildings are grouped into Class A, Class B and Class C. But BOMA does not recommend the publishing of a classification rating for individual properties.

Metropolitan Base Definitions
Class A. Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.

Class B. Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.

Class C. Buildings competing for tenants requiring functional space at rents below the average for the area.
BOMA goes further with International definitions:

International Base Definitions
Investment. Investment quality properties are those that are unique in their location in the best metropolitan markets in the world, their design and construction quality, the solidity of the tenants and the tenant markets that they serve and the outstanding building management that is responsible for operating and maintaining them. These properties stand out as leaders not only within their own metropolitan areas but also within the international investment community. Investment properties usually contain state of the art mechanical, electrical, life safety, elevator and communications systems. Their finishes are of the highest standards and they often provide the occupants with a mix of amenities - in variety and quality - that is exceptional. Often they house a lead tenant for whom the property is named and usually they are located in a premier metropolitan area. Investment grade properties need not be considered to be "trophy" material but trophy properties are usually investment grade.

Institutional. Institutional grade properties are those of sufficient size and stature that they merit attention by large national or international investors, hence the name. These properties are of good design and construction, although they are rarely monumental in design or the use of construction materials. They are typically large. They may be located in secondary metropolitan areas, but invariably they will have a very stable tenant base.

Speculative. Speculative properties usually will conform to popular design conventions (at the time that they are constructed), but without the use of exceptional materials or construction methods. The design and construction of these properties emphasizes functionality, in contrast with aesthetics or image and the design rarely reflects the image of any particular tenant or occupant. To attract national or international attention, speculative properties must be relatively large, although minimum size requirements are lower for properties located in premier office markets. They are often occupied by multiple tenants.
Of course, Wikipedia has an entry: Wikipedia's Class A Office Space

Although the US seems to be lacking objective classification of buildings, the Moscow office market has laid out some objective standards for classifying buildings: Office Building Classification. According to the Moscow Office of Jones Lang LaSalle:
The new classification aims to divide the office stock into three classes according to a number of objective criteria. The classification was developed with the participation of professionals from the Construction, Property Management and Office Service industries.  The principal difference of the new classification from the previous one is the division of stock into А, В+ and В- classes. The major difference is also in giving a more structured criteria for modern office building classification. Leading real estate consultants: CB Richard Ellis Noble Gibbons, Colliers International, Cushman and Wakefield, Stiles and Riabokobylko and Jones Lang LaSalle have prepared a new classification of office buildings, dividing modern quality office stock  into 3 classes: A, B+ and B-.
Square Feet started this with his (or her) Guide to Office Building Classifications.


Wednesday, July 30, 2008

Retail in Russia

In last week's Wall Street Journal, there was an article on Developers Diversified Realty Corp.'s plan to expand into Russia: Mall Developer Targets Russia.

I found the statistic on retail space to be really interesting.
In Russia, the volume of shopping space per 1,000 inhabitants makes up about 420 square feet, according to Maxim Karbasnikoff, European Director, Russia, at brokerage Jones Lang LaSalle. In contrast, there is 25,758 square feet of shopping space available for every 1,000 people in the U.S.
 It makes me want to head out to the Chestnut Hill Mall and mark off my own 5 feet square of space in the courtyard.


Thursday, July 24, 2008

Update for Recording Fees for Multiple Transactions in a Single Document

The Massachusetts Real Estate Bar Association sent me a notice that:
On July 13, 2008, Governor Patrick signed the FY 2009 budget which included outside sections amending Massachusetts General Laws Chapter 262, § 38 and Chapter 44B, § 8 to require additional recording fees for multifunctional documents. The Amendments provide that “when a document includes multiple references to a document or instrument intending or attempting to assign discharge, release, partially release, subordinate or notice any other document or instrument, each reference shall be separately indexed and separately assessed and additional recording fee.”

The intent of the Amendments is eliminate any confusion that may have arisen with respect to recording fees subsequent to the Patriots Resorts Corporation case [71 Mass. App. Ct. 114] and to codify the current practice of most Registries. The practical result is that if a single document discharges a Mortgage, an Assignment of Leases and Rents and a U.C.C., the recording fee will be $225.00, as if it were three separate discharges. The effect of the Amendments is retroactive to eliminate any potential claims for excess recording fees that may have been brought pursuant to the Patriots Resorts Case
 I previously posted on the Patriots Resorts Case [Recording Fees for Multiple Transactions in a Single Document]. After the case, the registries were still trying to charge multiple fees.  Now the legislature has sided with the Registrars.


Friday, July 11, 2008

Twitter and Real Estate

Dick Howe at the Middlesex North Registry of Deeds in Lowell has jumped into Twitter. You can see his page and follow him at You can also follow me at

Twitter is great way to stay connected people all around the world.

If you are not familiar with Twitter, here is a quick video from Common Craft:


Monday, July 7, 2008

Real Estate Opportunity Fund Performance

Stephane Fitch of put together a sensationalist piece on real estate opportunity funds: The Other Real Estate Disaster.

Fitch puts together some interesting numbers on the extent of holdings by private real estate funds:
They account for one-sixth of $2 trillion in total net assets in private equity, says the London firm Private Equity Intelligence, which tracks the industry. A year ago the most closely studied funds in the U.S. were holding $213 billion in commercial real estate equity, leveraged 70% on average.
Fitch also touches upon some interesting thoughts comparing the performance of private real estate funds against public REIT stocks.

Instead of focusing on these interesting thoughts, Fitch focuses on how the real estate fund performance is a black box revealing little about their current returns.


Fitch evidently does not understand the real estate market.

Real estate is a very illiquid asset. The equity value of the commercial real estate may have decreased. (If you compare your real estate to the sales of comparable real estate.) Few funds take on the expense of an annual valuation. But that valuation makes no difference until you sell the real estate. As long as the real estate is throwing off enough income to pay debt and expenses, you can just sit back and own the property.

That is exactly what is happening right now. There are very few commercial properties for sale and even fewer are actually selling. The exception is a property owner with liquidity concerns. Harry Macklowe being the most public case: Harry Macklowe Doesn't Own Those Seven Buildings Anymore.

The investors in private real estate funds are smart and know what they are getting into. They know they will have to pay fees to the sponsor/manager of the fund. They know their investment is illiquid and that it is investing in illiquid assets. They know some funds will perform well and some funds will perform poorly. They also know that the performance of the fund will not be known for years after they make their first investment in the fund.

That does not mean that private real estate funds are the next real estate disaster.

Thanks to the Deal Junkie for pointing out this story: The Other Real Estate Disaster