There's a drive for yield in secondary markets, but their lowered liquidity brings on another set of investor risks, we learned from the national outlook panel at Bisnow's 5th Annual Chicago State of the Market last Thursday at the Swissotel. CohnReznick Chicago office managing partner George Klenovich moderated, grilling tenants on where capital's flowing, surprise cities, and why some asset classes are seeing stellar performance despite political gridlock, a relatively weak economy, and middling job growth. (Surpisingly, the answer was not "magic.") And what happens to interest rates when quantitative easing comes to an end?

Principal Dennis Kracik tells us global alternative asset manager Ares Management had $68B of committed capital under management as of September 30, with approximately $8B of real estate under management. While US 2% GDP growth should be at 4-5%, at least it's not negative and continues to see slow and steady gains, he says. (That's the power of positive thinking.) He believes rising interest rates won't be a catastrophe and could even be a positive thing if accompanied by economic growth, as there's a decent cushion right now between cap rates and the 10-year Treasury. But the rising tide hasn't lifted all boats, with markets like gateway city multifamily and high-end retail emerging as the big winners, he says.

HSA Commercial Real Estate CEO Bob Smietana ($1B portfolio of office, healthcare, retail, and industrial assets) says Class-A assets and locations around the country are being priced out of the realm of sanity, spurring a quest for yield in markets like St. Louis and Indianapolis. (Though markets like Chicago will weather the storm better, he says.) And the world continues to spin, even when macroeconomics don't seem to justify it, Bob laughs, citing the local trend toward paying top dollar at high-end specialty grocery stores. (Bye-bye, Dominicks. Hello, organically fed hand-caught salmon from Whole Foods.) His city to watch: Nashville, for its education system, healthcare, and country music (plus Nissan just moved there).

It's important to remember that "secondary markets" means different things to different people, Singerman Real Estate prez and managing partner Seth Singerman says. (We read phonetically, so to us it means "Second Dairy Market.") International investors used to gateway markets would call Chicago secondary, while US-based investors would look toward Indianapolis or Milwaukee as secondary markets. A diversified investment firm, Singerman has acquired, with partners, over $700M across all asset classes (most recently the Yarrow Hotel in Park City, UT)) since its inception in 2010, investing on behalf of a fully discretionary fund capitalized by institutional investors. Seth says secondary markets can be less liquid and if you're a short-term investor you need to be careful and have a conservative exit strategy. More pics from our event here.