Sule Aygoren Carranzais managing editor ofReal Estate Forum and editor of MultiHousing forum, from which this article is excerpted.

Denver—Apartments are again the number one sector toinvest in for return potential, according toPricewaterhouseCoopers LLP and the Urban LandInstitute. In their Emerging Trends in Real Estate 2007report, unveiled at ULI's fall meeting here last month, the firmsnote that expensive housing prices and rising mortgage interestrates are pushing more people into the rental market, which is alsoexperiencing heightened demand from young adults. Moreover, jobgrowth is making it less likely that people will share units orlive with parents.

All of these bullish trends are allowing owners of multifamilyproduct to increase rents along with occupancies. Further,homeowners with adjustable-rate mortgages may default on theirpayments and return to the rental pool. For buyers, cap rates willbegin to rise slightly, since condo converters will no longer pushprices up and eventually compress cap rates to unsustainablelevels.