The housing crisis has finally caught up with the multifamily sector, which faces a decline in new development and the values of rental income properties that will last until at least 2010, according to industry leaders speaking at the co-located Multifamily Executive Conference and Developer Conference in Las Vegas this week.

At the moment, multifamily firms are cutting back on construction and development. "We have plenty of apartments in most major markets in America right now," said Tom Bozzuto, chairman and CEO of The Bozzuto Group, a Greenbelt, Md.-based company that builds and operates apartment buildings in addition to building single-family homes. Bozzuto said that he had reduced his apartment development staff and was focused on their fee-management business to drive growth for the next year or two.

"We're going to cut starts dramatically," added Ric Campo, chairman and CEO of Houston-based REIT Camden Property Trust, adding that he'll probably stretch out the $1.5 billion worth of multifamily projects in the public apartment owner's development pipeline. As developers restrict supply, this will create firmer pricing in the future, Campo predicted. "In 2010 or 2011, we'll have an incredibly robust multifamily market."

Both firms are not alone. JPI East, a division of JPI, also recently slashed its development division in response to the credit crunch, according to an article in the Washington Business Journal.

"We probably wouldn't have an overbuilt apartment market if it weren't for condo conversions," added Tom Toomey, the CEO of UDR, an apartment REIT based in Colorado. "By 2011, we'll probably be talking about a shortage of apartments."

Toomey, whose company closed a $1.7 billion sale of 25,000 apartments earlier this spring, said that UDR will do little development in the coming year. Instead, the company will be concentrating on improved operations and improving the company's green footprint. "We're going to hoard our cash, improve our position, and sit in 2009," he said.

Toomey noted that the industry will undoubtedly face new players and rules in the banking sector next year, making it difficult to compare deal terms to those of years past. He suggested that developers not lament about the deals they used to get, but instead "take the deal you can get and move on."

Meanwhile, the credit crunch is negatively affecting deal valuations in the multifamily market as buyers and sellers disagree over the value of apartment projects. Sellers would rather hold onto their properties than sell them today for a discount. "The only reason that someone would sell today is that they are highly leveraged and have a gun at their head," Campo said.

What's more, buyers today are looking for cap rates higher than the 4 percent to 6 percent that has been the norm for the past several years; they are looking for something more like 7 percent or 8 percent. Only in recent years have sellers been able to command the lower cap rates, Bozzuto added. He characterized the recent time period as "aberrational."

Boyce Thompson is editorial director for the Multifamily Group at Hanley Wood.