In his third-quarter earnings call, David Neithercut, CEO of Chicago-based REIT Equity Residential, indicated that the company may ramp up its development activity in 2012. And for people who are expecting a big surge in multifamily development next year, the reason for it may be surprising. “In the core sites that we'd like to build on, we think there was a reasonable amount of competition this past year and we may not have as much competition next year,” Neithercut said in a transcript from

Others echo these sentiments. Part of the reason for the slowdown is that outside sources of capital have pulled back since the financial issues of the late summer. “It’s the uncertainty about the economy and feeling good about the investments they made so far, but it's also the acknowledgment that there’s more risk and uncertainty going forward than there was six months ago,” says Ron Witten, president of Dallas-based Witten Advisors.

Even though Mill Creek Residential Trust, also based in Dallas, is on pace to start 3,000 units this year and another 5,000 units next year, CEO Charlie Brindell has also seen capital sources slow their allocation across the industry. "Amidst renewed economic and political uncertainties capital (both debt and equity) is, essentially, taking a more cautious approach to new investment commitments – the spigot hasn’t been turned off, but the flow has slowed," Brindell says. "To me, this is a normal reaction to macro uncertainties and as soon there is more clarity I expect that the pace of capital investment in the multifamily asset class will increase because the fundamentals of the apartment business remain very compelling."

Brindell notes that the drawback in capital contributions hasn’t forced his company to postpone any projects yet. And he says capital is still in the market; it’s just that the pace of investment slowed in the third quarter, forcing some developers to delay their plans for starts.

“Quality communities in the multifamily asset class with high-quality sponsorship and a compelling investment thesis are still getting financed,” he says. “I think anything at the margin is much tougher to finance today.”

With four projects closing across 30 days this fall and another similar cycle coming in 2012, Toby Bozzuto, president of Greenbelt, Md.–based Bozzuto Development Co., is also busy. In the span of about 15 months, the company is slated to start 3,500 units. But the pipeline has now hit a point that Bozzuto is no longer focusing on collecting land.

“It makes sense to pull back a little bit at this point and focus on the execution of the current deals that we have and make them excellent,” Bozzuto says.

And, as he gazes into his crystal ball, oversupply is becoming a factor in long-term projections, especially in the crowded Washington, D.C., market.

“The fact that we have a robust pipeline and seemingly everyone else does indicates that we were all building on the thesis that there was going to be a supply–demand imbalance,” Bozzuto says. “Logic would dictate that if all of us are building a lot of supply, we’ll be oversupplied.”

The return for taking on development risk isn’t what it once was either. Though he declined to provide company specifics, Bozzuto says deals that may have been underwritten with 7 percent returns are now penciling out at 6 percent. The problem is, exit cap rates may not be falling enough to keep pace with these compressed yields.

“In a perfect world, to maintain the spread over exit cap rates, cap rates would have had to have gone down 100 basis points,” Bozzuto says. “I’m not entirely convinced that they have.”

One of the primary pressures of returns has been land costs, which Bozzuto says in some cases have doubled in his Mid-Atlantic market since 2010.

“We don’t think [buying land at those prices] is prudent,” Bozzuto says. “So we're not pursuing diminishing returns. So many people have flooded into [Washington, D.C.] that there’s limited demand, and people have pushed up pricing and returns have gone down.”