Yet toward the end of the year and into 2010, transactionactivity began to pick up. Driven by the availability of GSEfinancing, low interest rates and relatively good fundamentals inmost major markets, coupled with the need to place capital, buyersbegan to come into the market to snap up select properties. Theonly problem, at least in the final three months of last year, wasthat sellers were reluctant to give up their assets. Yet thisactually turned out to be a positive for the sector as fiercecompetition for the few quality properties that were put on theblock worked to drive prices up. CBRE notes that it seemed likevalues bottomed out in November 2009, when Moody's reported thefirst positive returns; Moody's originally estimated thatmultifamily prices would decline between 25% and 40% from the 2007peak. By the end of last year, cap rates for class A assets intop-tier markets even saw a bit of a decrease.

While that did entice some sellers to put their assets up forsale, most are still holding tight to their properties, resultingin a significant imbalance between the demand for, and supply of,class A assets. "Private, public, domestic and foreign capitalalike have all identified US apartment properties as the best andsafest bet for the foreseeable future. Property operations in mostmarkets are stabilizing with a general belief that there will bereal rent increases in 2011 and significant rent increases insubsequent years," says Peter Donovan, senior managing director ofCBRE's multi-housing group here. "Cap rates for core multifamilyproperties have declined 75 to 150 basis points at a speed thatwould have been unthinkable a year ago."

The wealth of capital versus a dearth of supply will most likelyexist for the balance of the year, he adds, and cap rates shouldcontinue to decrease modestly through the first half of this year.Once more product enters the market, cap rates should start torise, probably in the latter half.