Multifamily Property Buyers Take Interest in Smaller Cities

In real estate markets where multifamily prices are on the rise in big cities, some investors are looking to secondary and tertiary markets. In these smaller markets, prices are lower while returns are higher. Vice president at Colliers International in Atlanta, Will Mathews, explains how competition discourages smaller investors away from primary markets. “Primary markets are becoming more difficult to actively acquire because of the sheer flood of fresh capital, and investors are finding greater yield opportunities and less competition in secondary and tertiary markets.” Looking at Cap rates alone, it is clear to see why firms are buying into smaller markets.

Average cap rates are higher in secondary and tertiary markets, but are riskier than primary markets. According to Real Capital Analytics Incorporated, the national average cap rate for multifamily properties in March was 4.29% for primary markets like New York, 6.41% for secondary markets like Houston, and 7.09% for tertiary markets such as Buffalo, N.Y. While larger investors continue to seek out primary market investments, small investors are focusing more on these smaller markets. Even though large investors’ focus lies in primary markets, they are starting to diversify with some secondary and tertiary market investments.

When examining smaller markets, investors still look for the same basic characteristics: good location, great schools, easy access to retail, and strong employment opportunities. The risk in secondary and tertiary markets comes from liquidity. But some say that as long as investors know and are comfortable with the risk that comes with higher cap rates, these smaller markets are the right place to be.

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Nick Banks

Nick created Front Street Commercial Real Estate Group in 2002 and spent the first eight years developing and acquiring office and retail projects in South Florida as well as North Central Florida. In 2010 the focus of the firm was shifted to primarily serve third party clients and perform brokerage, property management and mortgage banking functions. Nick has personally developed and acquired nearly 200,000 square feet of office and retail properties in markets throughout Florida. Prior to founding Front Street, Nick was the Director of Finance and Dispositions for Stiles Corporation in Fort Lauderdale where he financed and sold over $500 million in commercial real estate. Before joining Stiles, Nick was an Associate Director at GE Capital Real Estate where he sourced over $200 million in financing throughout Florida. Nick is a graduate of the University of Florida with a degree in Finance and a concentration in Real Estate. He serves as a board member and current vice-chair for the United Way of North Central Florida where he also chairs the Development Committee. Nick is actively involved with the Gainesville Area Chamber of Commerce where he serves as a board member and committee member for the Council for Economic Outreach. He is also a recent graduate of Leadership Gainesville which is a year long leadership program hosted by the Chamber. He is a member of Grace United Methodist Church where he has served as finance chair and as a member of the leadership council. Nick serves as an advisory board member of the University of Florida Bergstrom Center for Real Estate Studies. Nick was recently named chair of the Gainesville committee for the North Florida chapter of Urban Land Institute (ULI). He is a licensed real estate broker in the State of Florida and is a long time member of the International Council of Shopping Centers.

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