Suburban High Rise

Definition of a Suburban High Rise

In the context of commercial real estate and mortgage lending, a Suburban High Rise is a multi-story building located outside of a city's primary Central Business District (CBD). While definitions of "high rise" can vary by market, these structures generally exceed six to eight stories and are prominent features of suburban submarkets, "edge cities," or master-planned office parks. In commercial mortgages, these assets are categorized differently than urban skyscrapers due to their unique risk profiles, tenant bases, and land-use requirements.

Detailed Description and Characteristics

Suburban high rises serve as a middle ground between low-rise suburban office parks and dense urban towers. They are designed to offer the prestige and density of a downtown building while providing the accessibility and space typical of the suburbs. Key characteristics include:

• Strategic Location: These buildings are typically situated near major highway interchanges or arterial roads to ensure easy commutes for a workforce that relies primarily on personal vehicles.
• Parking Infrastructure: Unlike urban towers that may have limited or expensive parking, a suburban high rise usually features extensive surface parking lots or dedicated multi-level parking structures to accommodate a high volume of commuters.
• Tenant Profile: These buildings often house regional corporate headquarters, professional service firms (such as law or accounting), and medical offices that require significant square footage but prefer lower rents than those found in the city center.
• Modern Amenities: To compete with urban environments, many suburban high rises include "Class A" amenities such as on-site fitness centers, cafes, shared conference facilities, and landscaped outdoor spaces.

Commercial Mortgage Considerations

When underwriting a commercial mortgage for a suburban high rise, lenders and investors evaluate specific metrics to determine the viability of the loan. Because these assets are highly dependent on the local economic climate, the following factors are critical:

• Occupancy and Lease Terms: Lenders look for a diverse tenant mix with staggered lease expirations. A high concentration of a single tenant can be seen as a risk if that tenant decides to vacate or downsize at the end of their term.
• Debt Service Coverage Ratio (DSCR): This is a primary metric used to ensure the property generates enough net operating income to cover the mortgage payments. Suburban assets may require a higher DSCR to hedge against potential market volatility.
• Capital Expenditure (CapEx) Reserves: High-rise structures involve complex mechanical systems, including elevators, HVAC, and facade maintenance. Mortgage agreements often require significant reserves to ensure these systems are maintained to preserve the asset's value.
• Market Sub-Type: Lenders distinguish between Office Suburban High Rises and Residential (Multi-family) Suburban High Rises. Following shifts in remote work trends, residential high rises in the suburbs have often seen increased demand, while office high rises may face stricter lending requirements and lower Loan-to-Value (LTV) ratios.

Ultimately, a suburban high rise represents a significant investment that bridges the gap between urban density and suburban convenience. For mortgage professionals, the value lies in the building’s ability to attract "sticky" tenants who value location and professional amenities over a downtown presence.