LAGUNA BEACH, CA-Deciding which markets are primary, secondary and tertiary can seem rather arbitrary, but defining those markets was part of the panel “Secondary vs. Tertiary Markets: Where Will the Prime Investment Opportunities be in 2014?” at the IMN Winter Forum on Opportunity and Real Estate Investing here last week. Moderator Jan Brzeski, managing director and chief investment officer for Los Angeles-based Arixa Capital Advisors, tells GlobeSt.com that several defining principles were discussed at the panel session.

“There were some people on the panel that viewed primary markets as the only place they wanted to be,” says Brzeski. “There were some CBRE investors who viewed Atlanta as a secondary market. Others are more focused on the income of a property and are more interested in secondary markets. I think the area of consensus is, what would cause you to say no to a market?”

Brzeski says one of his firm's funds has been aggregating properties for income and appreciation and has avoided the Chicago market—usually considered a primary market—but has invested in the Indianapolis market—usually considered a secondary market. “Here's an example of where I'd rather be in a secondary market that has its act together than in a primary market that's screwing things up.”

Some investors define a primary market as one that has a strong university and caters to student housing, such as the Notre Dame market. Patrick Nelson of Nelson Bros. Professional Real Estate said during the panel that because the university is so wealthy and has a lot of loyalty, many executives wouldn't mind owning a house in that market, even though it's not a primary market.

On the other hand, just because a market is defined as primary doesn't mean that there aren't secondary or even tertiary areas to that market. Edward Ratinoff from James Investment Partners pointed out that Orange County, considered by many to be a primary market, has Yorba Linda and Santa Ana, which are arguably not primary areas. Similarly, Los Angeles has Palmdale and Lancaster, which have much more tertiary-market characteristics.

Another way of looking at it is to see where foreign capital is going. “If international investors are going to plunk down a lot of cash as a way of restoring value and preserving their wealth, it's a primary market,” says Brzeski. “Other people say anything with a 5 cap or lower is a primary market.”

From the conservative viewpoint, primary markets could be as narrowly defined as the top five metro areas in the US: L.A., San Francisco, New York, Chicago and Washington, DC. “One definition that was tossed around was markets with a professional sports team, but that would have to be 40 of them and they're not all primary,” says Brzeski. “But anything that doesn't have a sports team would be tertiary.”

Something as seemingly unrelated as whether a market has a non-stop flight from a major city could move it from tertiary to secondary, Brzeski adds. “We started accumulating a portfolio a year and a half ago, and then there suddenly was a non-stop flight from L.A. to Indianapolis. I don't know if this is causation, but some of the top sellers in our space started accumulating assets in Indianapolis. I think it really makes a difference. If it's just local money that's investing there and not institutional money, the prices will be lower and the cap rates higher. It's like a stock entering the S&P.”

Ultimately, it's people who decide where they want to invest, so some of these common-sense reasons apply, even at the highest levels, Brzeski points out. “They're just people and they don't want to be away from their family for three days closing real estate deals if they can help it.”