In the search for higher yield, investors have started going further outside of the 4 major Texas MSAs of Houston, DFW, San Antonio, and Austin.
In 2007, there was a 50bps average apartment cap rate spread between primary (6.0%), secondary (6.5%), and tertiary markets (7.0%). In 2008 and 2009, the spread between primary and tertiary markets widened to almost 300 bps as investors flocked to core primary markets. In recent years, the spread between primary and tertiary markets have started compressing closer to the 100 bps we saw in 2007. Is this the new normal or is this foreshadowing of an upcoming correction?
In this post, I am going to discuss some of the advantages and disadvantages of secondary and tertiary market investing and some recent market activity.
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