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

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

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

Matthew A. Texler, VP of Meridian Capital Group's Bethesda, MD office, has also been watching multifamily supply trends in his market. He was very worried about a glut of condos coming to the DC market 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 as vacancies do not seem to be rising. Still, though, he says, he remains 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 the surrounding properties before I underwrote a sale or development." Indeed, as lenders tighten up underwriting in general -- evaluating a project based on current cash flow instead of future cash flow is now commonplace for multifamily, for instance -– such supply dynamics are sure to hold greater weight.

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