Given the perceived risks of investing in California due to the dot-com bust, a bankruptcy filing by the state's largest utility and the reduction of earnings and employees at some of the Bay Area's largest tech employers, higher cap rate adjustments are as likely as not, says William Huberty, vice president of the Multi-Housing Properties Group at CB Richard Ellis. Most investors will increase yield requirements in response to these conditions while a few could view this as a time to "finally get into this high barrier to entry market," concludes the report.

"Clearly, the entire Bay Area, including Oakland, is feeling the impact of the slowing area economy," says Huberty. "On the heels of nearly 30% multifamily rental growth in the year 2000, affordability has become an issue despite some owners' wishful thinking that trees can grow to the sky. Large amounts of new housing supply has not been the disruptive force in Oakland or the Bay Area like most other parts of the county--our current re-pricing is all about a softening demand side."

Once large housing developments like the Landing, Allegro and Lake Merritt Tower are fully built out and absorbed... cap rates may look dramatically different in a year to 18 months, Huberty says. According to other Oakland brokers, prices have not yet come down, but investors aren't overbidding as they were only a few short months ago.