NEWPORT BEACH, CA—Solid economic drivers as well as depth of investors and critical mass of that product type are a few of the things lenders look for before underwriting loans in non-core markets, MetroGroup Realty Finance's VP Scott Botsford tells GlobeSt.com. A private commercial-mortgage banking firm based here, MetroGroup recently restructured the debt on an office building in Denver and an office/flex building in San Antonio for a total of $50.3 million, arranged by Botsford. We spoke with him about the secondary markets, discussing which are hot for financing and which are worrisome.

GlobeSt.com: Which secondary markets are hot for financing, and which are worrisome?

Botsford: The obvious answer there for me is the tech hubs—those markets that have some sort of tech driver—as well as other markets that have a definitive, stable employment driver. The office segment in secondary markets throughout the US continues to perform well, especially in Texas and Colorado, which we believe is due to population and job growth. Investors are reaching their investment objectives, but they're slightly different than core—there are higher cap rates in secondary markets and lower overall returns from rent growth and capital appreciation, so investors are achieving same result but through different routes. Core markets offer lower cash-on-cash return, but investors are anticipating more rent growth and capital appreciation for a similar total return; secondary markets are more cash-flow focused, and you really need to understand the employment drivers or what's going to continue that cash flow. It's such a critical component to getting to the total-return threshold on what they're underwriting.