want to focus capital, we look at deal flow and the ownership story
behind it, first and foremost. We are picky about the story.”
Rollins says if he was pressed to define a “middle market” oppor-
tunity, it would be assets of $50 million or less that are owned by
individuals, not institutions, and uncorrelated to geography.
For purposes of unmuddying the water, CBRE Research developed a methodology for determining how to group metro markets
for further analysis of trends. The model’s fundamental goal was to
rank the US metros and then divide them into three tiers, using the
term “tier” to avoid the ambiguity and overuse of primary, secondary and tertiary. However, the model’s Tier I markets are analogous
to primary, Tier II to secondary and Tier III to tertiary.
Four principal variables formed the statistical basis of the tier
ranking model: historical property investment, size of the real
estate market (inventory), population size and economic size.
The metros were ranked by each variable and different weights
were applied to compute a combined weighted average rank. The
largest weights, by far, were given to investment total volume and
market inventory, says CBRE.
When discussing middle market categories by geography,
Michael Weiser, president of GFI Realty, gave some insight into
areas that are no longer in the investor orbit. He points to Nashville
as being a multifamily darling at one point, but that has changed.
“Now it’s a little bloody there and we’re glad we were overbid,” he
says. “Otherwise, we’d be licking our wounds from an amputation
now. Once upon a time, you could make predictions but things
are moving faster now with a new set of rules and investors are
looking for safety in today’s market, which is not a bad thing.”
Many second- and third-tier markets are exhibiting growing
populations, above-average job growth, emerging technology sec-
tors and high levels of educational attainment. For instance, Dallas-Ft.
Worth’s growing tech hub routinely ranks among the top 10 office
markets and has been known as a corporate magnet for decades.
With 21 of the 51 Fortune 500 Texas corporate headquarters
located in DFW, recent employment figures from December 2016
show DFW as the second highest job growth market in the US
(behind New York City) adding 112,800 payrolls year-over-year
and translating to a growth rate of 3.3%. This pace is higher than
the top 10 largest metro areas in the country and is more typical
for a market one-third the size of DFW, according to CBRE.
As the fourth most populated US metro area, DFW has the demo-
graphics in place to be a major contender for tier-one site selection
decisions, based on population volume alone, which translates to
jobs and investment. Weiser called out Dallas as one of those safe
investment zones, with low- to mid-teen IRRs of 10% to 12%.
By 2028, the DFW region is expected to be home to about nine
million people, a 27% increase from Census data reported in 2015.
That year, DFW added people at a rate equivalent to completely
filling an Airbus A330 jetliner loaded with 400 passengers per day,
every day, for a full year, says CBRE in an apt analogy.
JCR Capital facilitated the acquisition of three class-B office buildings in Houston last year (left). The seller was a bank, which was managing the foreclosed-upon assets as REO. The business plan is to lease the properties to 80% and sell. In Austin, TX, JCR bought a 95% occupied multifamily property
(right) comprised of 249 units in 24 garden-style buildings. The firm plans to collect cash flow, make capital improvements and raise rents to market.