With Risk Comes Reward

Investors spent much of 2011 crowding into top-tier cities in search of the perfect distressed opportunity. And although prime assets continue to draw significant interest, many investors are turning to the often-overlooked secondary and tertiary locations, despite turbulence in the global financial markets and worries surrounding the eurozone debt crisis. Those lower-tier markets, experts say, can offer surprising opportunities in both pricing and asset quality.

Moving toward the mid-part of 2011, investors began to shift their focus from the core, well-located primary assets-where cap rates had dropped to the low 5s and 4s in the best markets- to more secondary markets or assets with more fundamental risk, explains New York City-based Jay Koster, Jones Lang LaSalle’s Americas capital markets president. “However, given the recent worldwide market volatility, investors’ overall desire for risk has become muted and they remain very price sensitive for any additional market or fundamental risk they are undertaking outside of those prime markets.”