Apartment building owners could see tough lending conditions ease as a result of the Financial Stability Plan signed by President Obama this month. It adds commercial mortgage-backed securities to the types of assets the government can buy (including bundles of landlord loans).

The goal is to lubricate banks' lending ability and the packaging of loans to be sold as securities.

The plan should restore investor confidence, plus restart trading and help set prices in the frozen CMBS market, according to Doug Bibby, president of the National Multi Housing Council.

It's critical because "unless liquidity is restored to the commercial real estate sector, we face a serious risk of waves of defaults and bankruptcies of otherwise-performing apartment properties," he said in a Feb. 10 press release.

Owners Face Challenge

Over the next two years $80 billion-$100 billion in multifamily mortgages will mature and need to be refinanced. But with credit markets virtually collapsed, Bibby says, even owners meeting their obligations could face foreclosure this year and next, unable to refinance.

The apartment niche and other commercial real estate sectors, he says, have like other industries become collateral victims of the global financial meltdown.

The numbers back that up. According to Reis, a commercial real estate research firm, the average selling price of a multifamily unit in the 169 metro areas it studies fell 10.7% from 2007 to 2008.

Unemployment hits the rental business quickly, industry observers say. It's a key factor to watch, and is expected to rise.

Without a long-term commitment to their housing, laid-off workers move back in with their parents or double up with friends. Some young people may put off moving out of their parents' homes.

The ranks of the U.S. unemployed surged to 11.6 million in January, up 4.1 million from 12 months prior. Unemployment rose 2.7 percentage points to 7.6%, Department of Labor data show. The Fed's Open Market Committee sees unemployment hitting 8%-9.2% this year and 7%-9.2% in 2010, before ebbing in 2011.

Big Players Cautious

Not surprisingly, a lot of property owners are cutting back on their holdings. For instance, Equity Residential , a real estate investment trust specializing in apartment buildings, sold $900 million worth of property last year. It plans to unload another $450 million this year.

With all this going on, some property investors might smell a value-buying opportunity. While a big, fancy apartment complex could seem like too big a bite to take, a smaller apartment building, duplex or triplex, could be more manageable.

"They tend to do better during downturns," said Hessam Nadji, managing director of research at real estate brokerage Marcus & Millichap. "Smaller units are typically older ... and during a downturn people prefer lower-quality properties with fewer amenities."

Another advantage to older, cheaper units is that they tend to be inhabited by young people. The 20-to-34 age bracket has one of the highest unemployment rates, 12%. But they're likely to be the first hired as the economy improves, says Reis Research Director Victor Calanog.

This segment is "really more likely to rent an apartment than buy a unit," he said. "We expect a rapid recovery, in which case 2009 may well be the year for investors to jump in."

It helps that there are a lot of folks in this age group. The baby boom peaked in the late 1950s, so those boomers' children, mostly born in the 1980s, are getting out of college and moving out on their own.

Still, industry watchers say don't expect a quick payoff. Reis anticipates overall rents will drop 1.7% this year and vacancy rates will climb from 6.6% to around 7.4%. Nadji and Calanog say the second half of 2009 might be a better time for buying than now, giving credit markets a chance to settle.

Reis expects average rents to recover next year, but by a modest 0.2%.

Hot Spots And Not

In addition to building size, geography also matters. Last year, the Midwest saw the biggest drop in average multifamily-property sale price, 22.5%. The South Atlantic also suffered, with prices falling 18%. But prices in the Northeast rose 5%.

Nationwide, prices fell most in the last quarter of 2008, Calanog says, when the financial crisis drove housing markets off a cliff. Still, Reis expects some cities to recover quickly with rents and occupancy.

Some of the strongest markets are in California. Reis points to San Diego and Sacramento as spots to expect higher-than-average growth.

"Relatively restricted supply from the past business cycle and favorable demographics in terms of projected employment growth and household formation drive these estimates," Calanog said.

One sign that institutional investors are interested in Golden State real estate: the California State Teachers' Retirement System recently formed a $200 million-plus fund to invest in multifamily housing.

San Antonio has a strong outlook, Reis says. So does Fairfield County, Conn., home to some of New York City's poshest suburbs.

The risk is that no one really knows where the bottom is. Every bit of economic data coming out seems to herald caution. The trick, as always, is neither acting too early nor waiting until it's too late.

"There is a good chance that if an investor waits for a recovery to materialize, they'll see prices go up again," Nadji said.