In an attempt to offset costs and sell-out properties, builders are starting to shy away from the old way of selling condominiums to active adults. Many previously established buildings are being converted to rental units due to a lack of available funding in the current economy. Luckily, rental units are becoming more desirable among this age group, say Becker and Feinberg. "And many communities have experienced an increase in occupancy after switching to rental units."

To be sure, condo conversions are not just happening in active-adult communities, but across the board. According to Mark Scott, president of Commercial Mortgage Capital, multifamily financing is only being entertained for rental construction. Sponsors are converting condo plans into "for rent" proposed developments.

But according to Scott, new FDIC regulations should reduce the level of condominiums being classified negatively and rushed into foreclosure. "Even with that 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."

Companies are clearly feeling pressure due to capital issues, adds Ronald Ladell, vice president of development at apartment REIT Avalon Bay, which owns 170 rental communities from Virginia to Boston and Seattle to Southern California. "Multifamily developers that build for-sale product are being hurt the most, but at the end of the day both for-sale and rental assets are pressured by the lack of employment." He predicts that things should begin to turn around by mid- to late 2010. "GDP growth is up slightly and most economists say that jobs follow three to four quarters after this increase."