Are Apartments Residential or Commercial Properties?

Commercial real estate versus residential real estate can be tricky. The classification of apartment buildings as either commercial or residential properties is a topic that often generates confusion and debate among property owners, investors, and even tenants. Understanding this classification is essential as it impacts various aspects of property management, legal considerations, and financial implications. In this blog post, our experts at 33 Realty will delve into the topic and explore the reasons behind the confusion surrounding the classification and its significance.

When it comes to real estate, it's important to distinguish between commercial and residential properties. Let's break it down in a friendly and informative way.

What Are Commercial Properties?

Commercial real estate properties are dedicated spaces used primarily for business activities. They encompass a variety of establishments, including office buildings, retail stores, restaurants, warehouses, and more. The defining characteristic of commercial properties is their emphasis on generating revenue and meeting customer or client needs.

Unlike residential real estate, commercial properties are subject to specific zoning and permit requirements to ensure compliance with regulations related to business operations. For example, lease agreements for commercial properties can be more intricate and tailored to the specific needs of businesses. The focus on revenue generation and customer service sets commercial real estate apart from residential real estate, which prioritizes providing comfortable and functional living spaces.

What Are Residential Properties?

Residential properties are homes specifically designed for people to live in. They encompass a wide range of housing options, such as single-family houses, apartment buildings, townhouses, and condominiums. The primary purpose of residential real estate is to provide a comfortable and private living space for individuals, couples, or families.

These properties are thoughtfully designed with amenities and features that cater to the needs of everyday living, ensuring residents have a safe and welcoming environment to call home. The focus on comfort, privacy, and suitable amenities distinguishes residential properties from other types of real estate that serve different purposes.

Difference Between Residential and Commercial Property

Residential Properties:

• Designed for individuals, couples, or families to live in.
• Provide living spaces with a focus on comfort, privacy, and amenities.
• Examples include single-family houses, apartments, townhouses, and condominiums.
• Zoning regulations often designate areas specifically for residential use.
• Lease agreements typically prioritize the tenant's residential rights and responsibilities.
• Aim to create a sense of home and community for residents.

Commercial Properties:

• Primarily used for business purposes and generating revenue.
• Include office buildings, retail stores, restaurants, warehouses, etc.
• Focus on serving the needs of customers or clients.
• Zoning regulations designate areas for commercial use, often separate from residential areas.
• Lease agreements may involve complex terms and negotiations.
• Emphasize functionality and efficiency for business operations.

Are Apartments Residential or Commercial Properties?

Apartments are generally considered residential properties. Residential real estate investors purchase them and design them to be used as living spaces for individuals, couples, or families. While there can be variations and exceptions based on specific zoning regulations and building configurations, the majority of apartments fall under the residential classification. It's important to consult local regulations and legal frameworks to understand the specific classifications and guidelines in your area.

Are Apartments Considered Residential or Commercial Property in Chicago, IL?

In Chicago, Illinois, apartments are typically classified as residential real estate. However, there may be certain exceptions or specific cases where apartments could have a mixed-use designation or be considered commercial real estate, especially if they incorporate commercial spaces or are located in areas with mixed-use zoning. We advise you to consult local regulations and legal guidelines to determine the specific classification of apartments in a given area within Chicago, Illinois.

To determine the classification of apartments in a specific area within Chicago, Illinois, you can follow these steps:

1. Research Local Zoning Regulations: Familiarize yourself with the zoning regulations and ordinances set by the city of Chicago. These regulations define the allowable uses of properties in different zones.
2. Review Zoning Designations: Identify the zoning designation for the area where the apartments are located. Residential areas are typically designated as R zones, while commercial areas have different designations like C zones. The City of Chicago provides resources such as the Chicago Zoning Map to reference. These resources offer information on the types of business activities allowed in different zoning districts.
3. Understand Mixed-Use Zoning: Check and understand mixed-use zoning, which allows for a combination of residential and commercial uses within the same property or building. This can impact the classification of apartments. You can refer to the Chicago Business Zoning Guide.
4. Consult with Local Authorities: Reach out to the local zoning department in Chicago to get specific information about the classification of apartments in the area of interest. They can provide guidance and clarification based on the local regulations and any specific zoning designations.

Why Is There Confusion?

The classification of apartment buildings can be a source of confusion due to several factors:

1. Zoning Complexity

What is zoning?

Zoning is like a rulebook for land use. It divides areas into different zones and sets specific regulations for what can be done in each zone. These rules determine things like what types of buildings can be constructed, how big they can be, and where they can be located. Zoning helps cities and towns control how land is developed, keep neighborhoods organized, and ensure different types of buildings and activities fit well together.

Zoning regulations may be complex and they can vary across different jurisdictions, making it challenging to determine the exact classification of an apartment building. Mixed-use zoning or transitional zones that combine residential and commercial uses further complicate the matter.

2. Building Design and Layout

The design and layout of an apartment building can influence its classification. Buildings with commercial spaces on the ground floor, such as retail stores or offices, may have mixed-use designations or be subject to different zoning requirements.

3. Evolving Perspectives

Perspectives on classifying apartment buildings can differ among individuals, real estate professionals, and local authorities. Some may emphasize primary residential usage, while others consider factors such as the presence of commercial units or the overall scale of the building.

4. Building Size and Number of Units

• Larger apartment buildings with a significant number of units may be more likely to be classified as commercial buildings and commercial real estate.
• Smaller apartment buildings, such as duplexes or triplexes, are often considered residential property.
• The specific thresholds or criteria for determining the classification based on size can vary by location.

5. The Presence of Commercial Spaces Within the Building

• Some apartment buildings may have commercial spaces on the ground floor, such as retail stores or offices.
• The presence of these commercial spaces can complicate the classification, as it could trigger a mixed-use designation or different zoning requirements.
• The ratio of residential to commercial space within the building can also impact the classification.

Understanding the Impact of Apartment Building Classification

Legal and Financial Considerations for Owners and Investors

Property classification as either residential or commercial has significant legal and financial implications for owners and residential and commercial real estate investors. Residential properties may be subject to different regulations and tax structures compared to commercial properties. Understanding the classification helps property owners and investors navigate legal obligations, such as obtaining the appropriate licenses, permits, and residential and commercial loans complying with zoning requirements, and ensuring proper taxation. The classification also impacts financing options, insurance coverage, and the real estate investors' potential for rental income or property value appreciation.

Impact on Property Management and Operational Aspects

The classification of property influences property management and operational considerations. Residential properties require management practices that cater to tenant needs, such as addressing maintenance requests, ensuring compliance with lease agreements, and creating a comfortable living environment. On the other hand, commercial properties require a focus on tenant satisfaction, attracting businesses, and maintaining functional spaces. The classification of a commercial building affects property management strategies, marketing approaches, tenant relations, and the allocation of resources for maintenance and repairs.

Potential Effects on Tenants and Leasing Agreements

The classification of a property can impact tenants and leasing agreements. Residential tenants have specific rights and protections under residential tenancy laws, such as regulations related to eviction processes, security deposits, and lease terms. Commercial tenants may have different lease structures, such as triple-net leases or longer-term agreements. The classification can also influence the availability of amenities, services, and the overall property's atmosphere, which attracts different types of tenants and influence leasing rates.

Conclusion

In conclusion, understanding the classification of apartment buildings is crucial for property owners, investors, tenants, and real estate agents. As a trusted Chicago property management and brokerage company, 33 Realty has the expertise and knowledge to help navigate the complexities of apartment building classification. Whether you're seeking leasing services, investment guidance, or property management services, our team is here to assist you in making informed decisions and ensuring compliance with applicable regulations. Contact us today to benefit from our expertise in Chicago's real estate market.