ENCINO, CALIF.–BASED Marcus & Millichap Real Estate Investment Services is one of the largest brokerage firms in the multifamily space: Last year, the company did $6.53 billion in total apartment sales volume, comprising 1,926 apartment property sales. During the past five years, the firm has done $35.1 billion in volume.

A major part of the company's operation is Marcus & Millichap Capital Corp. (MMCC), which is ranked as one of the largest financial intermediaries in the United States. In 2010, MMCC successfully sourced and closed nearly $1 billion in commercial real estate debt and equity structures. William E. Hughes , MMCC's senior vice president and managing director, is responsible for the company's daily operations on a national basis. Hughes took some time to chat with Apartment Finance Today about how the firm defines markets and property types.

Does anyone really have a handle on what primary, secondary, and tertiary markets are?

Everybody talks about primary, secondary, and tertiary markets and major MSAs and so forth. Quite frankly, no one has come up with an exact formula to define them. They're a little bit fuzzy. Most of us have a sense of what these markets are, [but] they vary based on different criteria.

Are there any general rules of thumb?

Generally, it's volume of sales, transaction volume amount, and population, among other things. 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. But you have to look at a number of different factors. You can't apply [ just] one factor and be able to get there.

For example, Detroit has a population of more than 5 million, but it's considered a secondary market because investment activity there is on the low side, particularly over the last couple of years. Austin, [Texas], on the other hand, has a population of under 2 million, which would classify it as a tertiary market, but generally the investment activity there is much greater and more emblematic of a larger primary market.

How do you make distinctions between asset classes?

When you're talking about a Class A property, it's generally a very desirable, investment-grade property. It's the bestquality construction, workmanship, materials, and systems. Class As tend to have all the bells and whistles and the full amenity packages, lots of architectural features, and high-quality finishes. They're typically always in excellent locations, and the management is very professional.

Class B s are good architecturally and have some of the same features as As. They don't have as high-quality interior finishes or systems, but the floor plans and overall property conditions are still pretty strong. A [Class B] won't have the full amenity package, and maybe it's not going to be in quite the same location the Class A property will be in.

What about the properties farther down the chain?

A Class C –quality asset typically has architectural issues. It won't be the best-designed property. It can still be in a relatively good location, but it will be older and the floor plans will be outdated. The landscaping and amenity package will be a little outdated as well.

The Class D s are not maintained well and are older, and certainly need to be updated. They could be updated to a B. Their floor plans and systems are too old. You'd almost have to rip them down and start from scratch to make them livable.