Sure, you can find real estate financing pundits aplenty who say that the subprime lending crisis and subsequent credit crunch is overblown. Just don't look for them in the offices of New York City-based banking titans Merrill Lynch or Citigroup, both of which were on the search for new CEOs in the fourth quarter of 2007 after respective write downs of $8.4 billion and $11 billion due to losses in subprime portfolios.

That kind of cash drain tightens all the valves on Wall Street—and multi-family lending has not been immune to the squeeze. Particularly for smaller firms bereft of strong banking relationships or players keen on highly leveraged deals, financing is becoming more difficult as money moves to players with established market experience and success.

“You will see very little pressure on the quality A players in the market,” says Rick Cavenaugh, president of Chicago-based Fifield Cos. “We have a great reputation and an excellent track record, and that is true of most of the good players. Is it going to be tougher for the local guy? Yes.”

But even at marquee firms, financial partners demand greater accountability. “Underwriting is undoubtedly tougher,” says Jennifer Stull-Wise, vice president and residential asset manager for Palm Beach Gardens, Fla.-based Ram Realty Services. “More than ever, you've got to show that you have done your homework.”

Despite the uptick in risk aversion in the lending community, most industry observers expect cap rates to stay relatively flat, a prediction largely shared by respondents to the 2008 Strategies Survey, approximately one third (32 percent) of which expected no cap rate movement (see Figure 8, below). An additional 31 percent expected cap rates to trend slightly higher and 28 percent expected rates to dip slightly lower. Few expected a significant change.

“In Washington, D.C., California, Chicago, you'll see very little cap rate movement,” Cavenaugh says. “Where you are going to see cap rates move up are on properties that are 20 to 30 years old that were hot for awhile with condo conversions. There will be less demand for those assets moving forward, and you'll see cap rates start sneaking up again for that type of product.”

Indeed, Cavenaugh may be right. Of all the product types 2008 Strategies Survey respondents plan to pursue next year, Class B and Class C properties were selected by only 21 percent and 13 percent, respectively.

It could be precisely in those non-core asset markets where multifamily stalwarts with solid reputations stand to grab some additional market share. “The credit problem took out of the market a lot of players that did not have the banking relationships and the experience to make financing relationships work,” says Matt Papunen, managing principal of Alterra Capital Group. “If you have good relationships and you are a good operator ... there is definitely still opportunity. The lenders still want to lend the money. It's just a little bit harder to get it.”