by John Wilhoit

Prior to analyzing financials for a potential multifamily acquisition, there are two things we must know about a property; what and where.   What type of property, in terms of quality, and where it is located?  Without first distinguishing some characteristics about what and where there is no reason to devote time to a review of income and expenses.   In this article we will look at the where.

The Where – People

Markets are distinguished by size and quality (size does not always equate to quality, of course). When it comes to demographics, the objective is to know as much as we can about the people that live in an area.

Using public information, we can identify a number of data points that assist in determining the relative financial strength of an area based on who lives there; such as average age, income and educational attainment.    These three factors provide very good baseline information about a neighborhood or sub-market.

Block Group  

Block Groups generally contain between 600 and 3,000 people, with an optimum size of 1,500 people.  The census block is the smallest unit of geography tabulated for Census 2000 data.

Census Tract

A census tract is a small geographic area. The primary purpose of census tracts is to provide a nationwide set of geographic units that have stable boundaries.  Census tract numbers are unique within a county.  A census tract will have from 1,500 to 8,000 persons with the optimal number being 4,000 persons.

Metropolitan Statistical Area (MSA)

Careful selection of MSA’s can greatly decrease the probability of making an inferior investment.  A metro area contains a core urban area of 50,000 or more population, and a micro area contains an urban core of at least 10,000 (but less than 50,000) population.

Each metro or micro area consists of one or more counties and includes the counties containing the core urban area, as well as any adjacent counties that have a high degree of social and economic integration (as measured by commuting to work) with the urban core (from www.census.gov/).

The Where – Markets and Cities

Primary Market

These are markets with over one million people in the MSA with all the amenities of a big city from airports (usually plural) to cultural access and cross-industry jobs.  They are well-defined, well known and have a cultural identity.  These are big cities with big city sports teams, fourteen Olive Garden restaurants and multiple freeways and job centers.  Examples include Philadelphia, Boston, New York, Chicago and Los Angeles.

Twenty-four Hour Cities

Primary markets with thriving down towns and never-say-sleep districts.  Examples include New Orleans, Atlanta, Chicago, Miami, San Francisco.  Many 24-hour cities are known by their airport code: SFO, MIA, and ATL.

Secondary Market

Secondary markets are smaller than primary markets but with similar synergy’s sized to the population.  They are usually self-sustaining, but without the expansiveness and do not possess the cultural heritage of primary cities.  They may have a single professional sports team, or multiple farm teams.  They will have a single primary commercial airport.  Examples: Omaha, Nebraska, Birmingham, Alabama, Little Rock, AR, Oklahoma City, OK, Nashville, TN.

Tertiary Market

These markets may be in the sphere of influence of a primary or secondary market, but based on size and distance, they are…. tertiary.  Many have small airports, but it is common for people to fly into the “larger” airport in a close -by city and drive  to the tertiary locale.  Examples include Waco, TX, Savannah, GA, and Topeka, KS.

Frontier Market

These markets are further from primary and secondary cities than tertiary markets.  Reviewing property in frontier markets requires local market expertise as they are excluded from industry reporting data.  These places are just “not on the map” from an institutional buyers perspective.  They are the job center for their area, they possess solid community endeavors and will likely have a small commercial airport.   Examples include Dubuque, IA, College Station, TX and Bloomington, IL.

John Wilhoit, Jr. is President of Wilhoit Investment Network, LLC,  (WIN LLC) an owner and asset manager of apartments, condominiums and town homes.  Mr. Wilhoit’s career has focused on high volume, large-scale multifamily communities including market rate and mixed-finance developments.  He has previously held positions with HUD, AIMCO and the Maryland Housing fund. Mr. Wilhoit holds an undergraduate degree in Business from Pepperdine University and a Masters in Urban & Regional Planning from Alabama A&M University. WIN LLC provides consulting, asset management and market analysis services  for multifamily property owners.