"The apartment market is very interesting now," Colin Whittier,VP of KeyBank Real Estate Capital tells GlobeSt.com. "A lot oflenders are very busy doing agency deals and these are still goingstrong. But when you look at more recent data you see that some ofit is a little scary."

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Namely, he says, there is a danger that oversupply could erodeprojected cash flow in some deals if vacancies start to rise andrents fall. "Builders are still developing (multifamily projects)as quickly as they can," Whittier says. Transparency into vacancyrates may not be as clear as some expect either, he adds, as theshadow market becomes more active in the downturn.

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Whittier says the trend is so new it is difficult to quantify –and of course, there are always variations of this larger trend inthe individual submarkets. "But I would say that in the last threeto six months, rents have been decreasing and vacanciesincreasing," he says. Another worrisome sign—the market expected tosee multifamily cap rates start to rise, but that hasn't happenedyet to any significant degree, he says.

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Matthew A. Texler, VP of Meridian Capital Group's Bethesda, MDoffice, has also been watching multifamily supply trends in hismarket. He was very worried about a glut of condos coming to the DCmarket several months ago(http://www.globest.com/news/1005_1005/washington/164646-1.html)for this very reason. He's since scaled down his concerns a bit asvacancies do not seem to be rising. Still, though, he says, heremains very bearish on new multifamily development in the DC area."If I were a lender I would be taking a hard look at some of thesurrounding properties before I underwrote a sale or development."Indeed, as lenders tighten up underwriting in general -- evaluatinga project based on current cash flow instead of future cash flow isnow commonplace for multifamily, for instance -– such supplydynamics are sure to hold greater weight.

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One project in nearby Falls Church that recently delivered wasable to obtain strong financing in part because it was the onlyapartment building to deliver in that submarket for the last 20years. Developer Atlantic RealtyPearson Square sold Pearson Square,a 230-unit luxury building, to Transwestern Investment Co. It wasfinanced by a $61 million loan from Allied Irish Bank. Jones LangLaSalle managing director Wes Boatwright tells GlobeSt.com thatplacing the loan was not difficult because of the limited luxuryhousing options there. "Most of the apartment buildings in FallsChurch are class C, and the lender took that into account."(http://www.globest.com/news/1077_1077/washington/167603-1.html).

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