National Association of Home Builders (NAHB) senior staff vice president of multifamily Sharon Dworkin Bell didn't mince words when it came to analyzing the state of multifamily markets here at the International Builders Show in Las Vegas this week. "In the past, we've had exciting multifamily news," Dworkin Bell said at the IBS' annual multifamily news conference. "But the story this year is that the turmoil you are hearing about in the capital markets that has been affecting single-family housing is now starting to affect the multifamily industry."

While Dworkin Bell pointed out that multifamily property fundamentals remain strong and emphasized that the market has not been overbuilt to the extent that excess inventory plagues single-family markets, she nevertheless reiterated a forecast by NAHB staff vice president of forecasting and analysis Bernard Markstein that puts 2009 multifamily starts at 188,000. That's a significant cut into the 350,000 units the industry has been dependably churning out for the past several years.

"There is demand for apartments both market-rate and affordable; there is a need," Dworkin Bell said. "But because of a lack of financing, this much needed rental housing is not going to be built."

Likewise, Steve Lawson of Virginia Beach, Va.-based Lawson Cos., a developer of single-family and multifamily housing (both market-rate and affordable), didn't offer IBS attendees any good multifamily news. Lawson reported that equity requirements for debt qualifications are making construction impossible. In addition to losing sector employment critical to improving the national economy, Lawson says the kink in development pipelines could create additional crises as Gen Y renters enter a market plagued by a lack of supply.

"I think everybody in the [real estate] industry was hoping that multifamily would continue to be the bright spot, but unfortunately, that is just not what is happening," Lawson said. "The credit markets have turned upside down on us, and with equity requirements going up so much, we are having a hard time attracting investors who are not willing to take on additional risk at lower potential yields."

Meanwhile, affordable housing developer Bob Greer of Philadelphia-based Michaels Development reported that some major banks are beginning to "inquire" about the availability of low-income housing tax credits. Nevertheless, he painted an industry picture of projects, players, and syndicators unable to either profitably operate communities or make deals pencil out to LIHTC pricing scenarios in the low 70 cents to the dollar. "Tax credits still work, but the investors have gone away," Greer said.

As a result, Greer's firm is actively seeking to acquire distressed affordable portfolios. "Consolidation is certainly a trend that we are embracing," he said. "We are seeing a lot of activity among former syndicators with nonperforming communities [as well as] others who can't find a buyer of credits and financially cannot keep their deal going."

Lawson praised Fannie Mae and Freddie Mac for staying in the multifamily debt business but remained concerned that lending terms and underwriting at the agencies will not be enough to buoy the industry at a time when creating supply will be critical to the health of future markets.

"On the market-rate side, CMBS and conduit lenders are out of business, the life companies are still on the sidelines, and I don't know how we go through this crisis if Fannie and Freddie are whittled down," he said. "If that happens, I don't know where our debt is going to come from. I'm extremely worried. This industry needs a stable secondary market for mortgages."