He explains, “Once we see the gap between cap rates and the 10-year treasury dip below the historical average of around 150 basis points, that's when the market begins to feel overheated. We would need a major swing in the market for that to happen.”

Adds R. Ramin Kamfar, founder, chairman and CEO of Bluerock Real Estate, a private equity real estate firm that sponsors Bluerock Residential Growth REIT, “We're in the fifth or sixth inning and the game is a double header.

“The Millennial generation is coming into the prime rental age of 21 to 34 and that generation of 80 million is larger than the baby boomer population,” he states. “Over the next 15 years, it will form another 30 million households. Further, 70% of Millennials will rent for 10 years or longer, so we're in a good demographic cycle.”

Kevin Finkel, EVP, Resource Real Estate, notes that we're starting to see middle-class baby boomers “bubble back into rentals because they're selling their homes. It used to be that, when you were 65, you just talked about the next 10 years, but now people are saying they may be around for a while. I see silver-haired people—in velour sweat suits—walking around our property all of the time now.”

Economic and industry research supports their claims. Marcus and Millichap's national multifamily forecast for 2016, which ranks 46 markets, reports, “In 2016, GDP will grow from 1.5% to 2.5%. Job openings hovered near all-time highs in the second half of 2015, signaling that employers see additional expansion opportunities that will require more workers on the horizon.”

Further, MMI's analysis reports that not only were new rentals absorbed in substantial numbers last year, but an expansion of US payrolls—along with the aforementioned demographic trends—will also generate new households, supporting a 5% jump in the average effective rent this year, and continued new demand and solid asset operations.

However, the firm had some bitter news on apartment development. “Elevated completions will exceed demand and underpin a nominal increase in the US vacancy rate in 2016. Multifamily starts remained elevated nationwide, pointing to additional supply pressures over the near term. Several metros will record supply-induced vacancy increases this year.”

Marcus & Millichap is not alone in that sentiment. “The market may be overheating,” observes David Schwartz, co-founder and CEO, Waterton. “Valuations are very high and when you see them so much above their prior peak while cap rates are at historic lows, it raises your antenna.

“There's good demand,” he admits, “but we might have overshot it so rents may taper or flatten. When you have tremendous supply deliveries you likely will see concessions, vacancies and rent drops.”

Cautions Capital One multifamily finance's SVP, Kristen Croxton, “If apartments continue to perform well, we may see people step aside because cap rates will keep compressing and it will no longer make sense for some investors. I wouldn't be surprised if we saw smaller portfolios of 10 to 15 properties change hands. If they feel they got in at the right time, the smaller investor will likely want to get out before things get too heated.”

Others see growth ahead but in less popular markets and product types. Arbor Commercial Mortgage chairman and CEO Ivan Kaufman, for instance, has only seen deliveries in the luxury segment due to the increased costs of land and labor.

“New supply is disproportionately downtown, partly because that's where Millennials want to be,” he suggests. “So there's huge opportunity in the affluent suburbs where existing apartments need significant renovation and the barriers to entry are blocking new projects. This is really the sweet spot. For lower income, there are government programs but if you're a workforce person in the middle, no one is building for you.”

Schwartz agrees. “Everything being built is being designed for the highest level renter; it's an arms raise for amenities. The market could get overbuilt within that niche.”

Even the bulls are eyeing slightly off-the-beaten-path markets.

“We evaluate opportunities on a deal-by-deal basis and try not to rule out certain locations due to stigmas,” concedes Gillis. “We will continue to evaluate all class A opportunities across both the primary and secondary markets of the Southeast.”

But while Gillis sees pockets of opportunity, he has concerns, too. “We are exercising an extreme amount of caution toward specific submarkets with high concentrations of development of homogenous product as opposed to blackballing an entire market.”

As examples, he cites midrise assets in the Buckhead area of Atlanta; the Downtown-West-End-Midtown section of Nashville; Charlotte CBD; garden assets along the International Drive corridor in Orlando; and garden assets in the Southside/Bay Meadows submarket of Jacksonville. Those are some submarkets, and product types, in which a lot of similar developments are chasing the same tenants, leveraging off of the same employment drivers and underwriting the same rents.

For BlueRock's part, says Kamfar, the REIT is in the top 40 markets below the leading coastal cities, such as New York City, San Francisco and Washington, DC. “In those gateway cities we find a lot of capital chasing deals, and valuations to be expensive, at cap rates of 3.5% to 4%,” he says. “Geographically, we're not in the Midwest, because they lack strong job growth on a percentage basis.” In short, the firm looks for markets that will deliver high disposable-income jobs—such as in the fields of healthcare, education, technology, finance, trade, entertainment and high value manufacturing—for the foreseeable future.

The peril of larger markets is also clear to Matt Nix, principal of REVA Development Partners. “In Chicago, the Downtown class A rental market could be on the brink of overheating with approximately 8,000 units scheduled to deliver through 2017. That is one of the main reasons our focus is on the inner-ring suburbs.”

Nevertheless, urban communities are where most multifamily investors and developers are putting their efforts. “The number of apartment units inside CBDs jumped 19.5% from about 1.4 million units in 2005 to 1.6 million units in 2015,” according to MPF Research. “This increase marks a rate of more than double that of unit growth in the suburbs.”

During a panel discussion at the National Multi Housing Council's 2016 Apartment Strategies Conference, Holland Partner Group chairman and CEO Clyde Holland said, “We only want to build in absolutely high-quality living environments in the urban core—and that's it. As traffic gets worse and more expensive in terms of time and cost, there's more demand for urban core product.”

High Street Residential, a subsidiary of Trammell Crow Co., sees the appeal of cities too, principal Josh Dix tells Real Estate Forum. “In Dallas/Ft. Worth, twice as many jobs are being created during the current economic cycle compared to last. With population growth exceeding 160,000 per year, the supply of new units is not meeting the demand.”

In Washington, DC, he continues, “The media declared that the area had a glut of apartments in 2013. However, concern of an overheated market at the time failed to take into account many of the fundamental changes that continue to benefit the multifamily industry. DC experienced record absorption in 2013, '14 and '15.”

Adds Kaufman, “The highest concentration of multifamily development over the next four years is projected to occur in New York, Nashville, Seattle, San Francisco, Washington, DC, and Charlotte. So far, apartment demand and household formation in these markets has kept pace with development, and demographics for continued strong absorption remain favorable.”