The Second-Tier Market Challenge-- Slim Pickings

 Money finally seeps back into secondary and tertiary markets now that prized properties in the 24-hour gateways seem over-priced, except that is to foreign buyers looking to park cash in the U.S. and not willing to entertain investments in unfamiliar places.

But that doesn’t mean secondary markets have a lot to offer for sidelined domestic capital searching for higher yields. Most apartment properties have been picked over and bid up—no bargains there. The quantity is generally thin for high-quality core commercial properties and rent levels tend to grow anemically even in the best of times, especially in places with low barriers to entry where an easily built new office building or strip mall can soften overall tenant demand quickly.  If a single major employer downsizes or moves out, an entire market can take a hit. As a result, it’s hard to count on dramatically higher values in any given short-to-medium term investment holding period—you basically must count on buying at high cap rates and securing decent income flow for returns.