Construction starts for 2001 totaled 1,600 units, a sign that 2002 will be another year of short supply in the multifamily market. Completions totaled 2,100 units in 2001. Current economic conditions slowed new construction as many developers put projects on hold.

"Construction financing is available for good quality, well-located projects, but banks and insurance companies continue to tighten underwriting standards, especially in markets with economies deemed susceptible to the recession, such as Detroit's," he says. "Several developers have instead shifted their focus to condominium conversions in some of the older apartment communities."

Meanwhile, values of apartment communities are on the rise due to the low vacancies, increased rents and the chronic short supply of new product, Carter notes.

"Median sales prices in 2002 are expected to climb by about 3% over 2001 levels. As rental rates continue to increase and vacancies remain low, Detroit is seen as a hot-spot for investor activity," he says.

The current median sales price stands at $40,000 per unit.

"As Detroit's apartment investors wait to see what will transpire in the economy over the next several months, they can reflect on a strong 2001 showing, with expectations that 2002 will provide similar returns," he says. "Developers are expected to provide only as many units as the market can readily absorb, a difficult calculation given the volatility in the local employment situation."

He says the limited new supply will drive vacancies down and allow owners to raise rents, but only up to inflation.