At Value Cos.' 10-property New Jersey portfolio, the multifamily owner/developer is offering a month's free rent for a 13-month lease, and "at one property we're offering two months' free for an 18-month lease," says vice president of business development Jon Moore. "We're also allowing residents to lock in longer-term leases, 18 to 24 months."

He adds that the multifamily business is still strong, though it's admittedly not as healthy as it was several years ago. "Our occupancies in Northern New Jersey are off about 2% to 4% from where they were at the end of 2007, but they are still in the 92% to 100% range." From a rental rate perspective, the company is not seeing much growth. "Our market rates are increasing slightly, while our net effective rents--when you factor in concessions--are probably flat to off 1% to 2% from the last year or so."

But the best thing about multifamily "is that we can mark-to-market our rents every year," says Peter Porraro, senior managing director of Trammell Crow Residential, "so we just need to work hard to keep our asset class operational and maintain cash flow to meet our debt service."

Scott believes that rents will remain stagnant until mid-2010, at the earliest. "At that point in time, you will start seeing effective rents begin to grow," he predicts. "Not top-line rents, not the headlines you see advertised, but the effective rents. The concessions will start to decrease and the effective rent will grow."

Porraro agrees that rent hikes will happen in 2010. "It's a supply and demand issue right now, but once we get through the supply, by mid- to late-2010, you will definitely start to see rent increases." He adds that Trammell plans to start pushing rents at its properties next year.

While tighter lending requirements and easing investment demand continue to dampen multifamily deal flow, "Community and regional banks are funding deals throughout New Jersey, creating a level of stability to support this reduced flow," says Michael Fasano, vice president of Marcus & Millichap Real Estate Investment Services and regional manager of the New Jersey office.

And in Northern New Jersey, proximity to large employers and double-digit declines in prices have maintained buyer interest, finds the firm's report. In Union City, for example, the median price has dipped approximately 12% year-over-year, but velocity remains steady, as the area's discounted assets and closeness to New York City are attracting investors.

In Central and Southern New Jersey, buyers are waiting for clearer signs of job and rental market stabilization before deploying capital. Nevertheless, some investors are staying active, spurred by cap rates in the high-7% range in Middlesex County and initial yields near 9% in Camden County.

According to Ken Uranowitz, managing director at Gebroe-Hammer in Livingston, which closed four separate deals for a total of 130 units and $10 million during a one-week period in October, deals are starting to accelerate. In early November, the firm closed another four deals for 153 units and a total of $8 million, in addition to two in mid-November in Elizabeth and Hackensack for more than $12.5 million and 107 units.

"These are your typical, meat-and-potatoes deals, without any stress," says Uranowitz. "In Montclair, we sold a 30-family property that was last traded 62 years ago, and we just closed on a 43-unit property in Bellville that has been in the same family for 40 years."

Although Uranowitz is starting to see some distressed situations, they have yet to get to the marketplace. "I do see some distress sales--real estate asset and notes--but not to the voluminous level that most investors were waiting on the sidelines to see. Those opportunities are few and far between, especially when compared to the normal transactional volume that occurs in the marketplace."

For Value's Moore, this should be a prime time to purchase apartment properties. In fact, the company bought a number of its assets during periods of down pricing, including REO and distressed buildings in foreclosure, many of which it still owns and manages. "Our strategy is to do the same during this cycle," Moore says. "But while opportunities are starting to trickle in, there is still a dearth of investment opportunities at valuations that make sense.

Marcus & Millichap's Fasano believes that an uptick in foreclosure initiations will yield investment opportunities in distressed assets in Hudson, Essex and Union counties. Fire-sale expectations are unrealistic, though, as many of these sales will be due to overextended owners, rather than negative cash flows.

According to Scott, new FDIC regulations should reduce the level of condominiums being classified negatively and rushed into foreclosure. "Even with that being said, you can expect rising levels of condominium development auctions taking place because banks do not want to advance additional monies to complete properties that will have difficulty selling and because these properties present the greatest loss potential to banks."

He adds that "condominiums will be the first assets banks offer up for sale in order to clear their balance sheets so many owners are shifting them to rental properties."Still, compared to other core property sectors, apartments have fared best due to the availability of financing through government-sponsored enterprises Fannie Mae and Freddie Mac. However, recent modifications to GSE guidelines will impact lender decisions since borrower requirements include more substantial apartment ownership experience, says William E. Hughes, senior vice president of Marcus & Millichap Capital Corp.

He adds that loan-to-value requirements range from 55% to 75%. "Portfolio lenders are issuing loans at all-in rates of 6% to 6.75% for a five-year term and 6.9% to 8% for a 10-year term. Rates among agency lenders are roughly 100 basis points to 150 basis points lower," says Hughes. "The government's creation of a conservatorship for Fannie Mae and Freddie Mac has most likely boosted confidence in the two GSEs, putting downward pressure on rates, but it also creates several near-term uncertainties since the conservatorship is due to expire at the end of the year."

More worrisome are signs that the GSEs' current model is not sustainable: Fannie Mae is asking for $15 billion in emergency Treasury aid for the fourth time since it, along with Freddie Mac, has gone into conservatorship. Fannie Mae made the request in an SEC filing, along with a request to sell $2.6 billion of the $5.2 billon in Low Income Housing Tax credits that it has accumulated, but has been unable to use since it is no longer profitable. Goldman Sachs Group, according to news reports, is one of the potential buyers, but Treasury has yet to approve the deal. Speculation is that, at least in part, Treasury is hesitating over the move because it might be portrayed as yet another government handout to a Wall Street investment bank.