NEW YORK CITY-Secondary and tertiary markets can be a major payoff for well positioned investors, but patience, local market knowledge and a good team are key. So said panelists during a recent GlobeSt.com webinar titled: Secondary Markets—There is Life After Core. The webinar, presented by Zurich, covered specific opportunities within those often-overlooked markets, which panelists agree offer some surprising opportunities both in terms of pricing and asset quality.
But regardless of where on the map you set your targets, rewards won’t come easy. Richard Walter, president of Faris Lee Investments, said that there is still some rough going in some of these markets, but “there are gems, especially those where there are some driving reasons.” Some of the “driving reasons” or typologies mentioned by panelists include state capitals, or university areas, where multifamily has been successful.
In terms of defining a secondary market, panelists say they know it when they see it. “We like to think of secondary markets as cities that are off the beaten path… but not too far,” said Whitney Greaves, co-head of US apartment strategy at Paladin Realty Partners.
According to James Halliwel, managing director of Principal Real Estate Investors, the appeal to any market are the employment drivers and growth in population. “Our investment strategy is less about the size of the market but more about the drivers.”
According to Steve Mauldin, group VP of fund management at CNL, capital helps define how you rank markets and how you rank opportunities. “Liquidity is a big part of that appetite for your capital partners.”
What is important to keep in mind, according to Greaves, is to “check your perception.” She said that an investor has to look beyond the general and average statistics to get the whole picture of a smaller and maybe less familiar market. “Look at supply and demand. Look at the age and quality at the existing stock. Look at comparable data on sales,” she said. “Look at everything on a relative basis.”
Warren Dahlstrom, president of Colliers International’s investment services group, pointed out that in a recent global investor survey conducted by his firm, one of the bright spots in the results was that US investors are more likely than investors in other parts of the world to move out on the risk scale. “They are more likely to take on riskier projects or properties and that certainly means secondary markets because of their volatility and size,” he said. “Secondary markets do require more risk, but the good news is that you can get higher yields there. It requires local market knowledge and more time and attention than a trophy office building in London or Manhattan, but the yields can be more than core yields.”
When webcast moderator, John Salustri, content director of ALM’s Real Estate Media Group, polled the audience on what the biggest challenge is in working in secondary markets, 43.6% said slower recovery, 19% said lower valuations and ROIs, and 37.2% said less robust employment base.
The panelists also discuss, among many other topics:
* Hold periods in primary versus secondary markets
* How to originate investment opportunities
* New projects and ground up construction
* Which secondary markets are sanctioned by institutions
* Which product types are the best bets and which to shy away from
* What the evolving—and increasingly shaky—economy has in store for all investors
* Who is lending
You can view the free video webinar here.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
