If you thought the multifamily industry bottomed out in 2009, hold on to your hats. The murky depths of the Great Recession are still to come. It could be another few quarters before the industry reaches the bottom of the current cycle, according to The Emerging Trends in Real Estate report, recently released by the Urban Land Institute and PricewaterhouseCoopers.

More overleveraged developers and owners, surviving on loan extensions, will be forced to turn in the keys in 2010 as fundamentals continue to fall before the market hits bottom around the end of the year. Once there, value declines will approach about 40 percent, on average, from the mid-2007 peak—the worst decline since the Great Depression and worse than seen in the early 1990s. Those are just some of the sobering conclusions of the report.

While there have been much fewer firesales than in the RTC days, “the quickness at which fundamentals have declined, and the pace at which values have deteriorated, is the difference between now and then,” says Susan Smith, director of real estate advisory practice at New York-based PricewaterhouseCoopers.

Additionally, multifamily cap rates are expected to rise at least another 30 basis points, on average, ending 2010 at around 8 percent nationally, forecasts the report. The report also predicts that another 100 banks could fail this year, as consensus grows that “amending and extending” has reached the point of diminishing returns.

The good news is that multifamily will be the first commercial asset class to recover, based on demographic demand and constrained supply. “It’s the most preferred investment class right now for most investors,” Smith says. “It’s the one property sector where you’re still able to get relatively-decent financing.” The top markets for multifamily investment, according to the report, include Washington, D.C.; San Francisco; Los Angeles; Seattle; and San Diego (with Boston and New York close behind).