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As the president of a development company and co-manager of a private equity real estate fund, I’ve had the unique opportunity to spend hours analyzing market trends in pursuit of good real estate deals. Much of that time has been spent looking at secondary and tertiary markets. Over the last 20 years we have successfully purchased, entitled and developed projects in nearly every asset class in secondary and tertiary markets across New Mexico, Texas, Florida, South Carolina and Arizona.

When there is so much focus put on primary and gateway markets, what’s the draw of secondary and tertiary markets?

Defining Markets

Before we can answer that question, let’s talk about what makes a secondary or tertiary market. Real estate experts define markets in many ways, which causes infinite confusion for real estate investors. Opinions on market classification vary depending on who is asked and the criteria by which they measure, because there is no concise definition or standard practice across the industry. One expert offers this definition: “A primary market has 5 million or more people. A secondary market has 2 million to 5 million people. And a tertiary market is under 2 million people.” Narrow views like these are very common. Under this assumption, Austin — one of the most robust real estate markets in the nation — is considered a tertiary market. But I consider Austin a gateway market, similar to Seattle.

Instead of focusing on a single indicator, we create a matrix of information, including population, job growth, traditional and alternative economic drivers, and cap rate analysis. Tertiary markets can truly be defined by synthesizing a wealth of information. More specifically, I believe a tertiary market has steady but controlled job growth, population…