Multifamily housing is where commercial and residential real estate cross paths. So it should come as no surprise that the same financing problems that office- and retail-property owners struggle with are being faced by developers of rental apartments and condo buildings.

"No city has gone unscathed in the last 18 to 20 months," said New York developer Don Monti, who focuses on downtown revitalization.

But he said he believed that financing for rental properties was available to "aggressive" developers, "since rental is the last market to go and the first to come back."

When demand shrinks, as it has over the course of the current recession, there is a danger that too many units will be built. Rising unemployment remains the main cause of vacancies in the Philadelphia region.

At the end of the third quarter, the metro Philadelphia apartment-vacancy rate was 6.2 percent, compared with 4.1 percent a year earlier, according to the real estate consulting firm Delta Associates.

Thirty-four hundred more units are to be completed in the next 36 months, and that may help boost the vacancy rate, Delta's report said.

There have been signs lately of a thaw in financing for multifamily projects. In the last three months, said Mark Obrinsky, chief economist for the National Multifamily Housing Council, there have been improvements in equity-financing and debt-financing segments.

Still, Obrinsky said, "the employment market continues to sag [and] demand for apartment residences continues to slip."

Exacerbating the situation in the city are high building costs, said Sam Sherman, president of the Building Industry Association of Philadelphia.

"The cost to build new construction is out of sync with the buyer's ability to afford it," Sherman said. "For that reason, the private market fails to provide middle-class housing, and we have a bifurcated market that provides housing for the poor and the wealthy."

Condos present an even more complicated picture. This region is estimated to have 8.6 years' worth either currently for sale or in the pipeline, so lenders balk at advancing financing for more.

The city's landscape is littered with signs for projects that never materialized, and others that were begun and ended up in foreclosure and sheriff's sale.

Foreclosure, however, does not mean the end. A project at 257 N. Second St. in Old City, first called Blu and now known as CU257, was taken back by Wilmington Trust Corp., which gave developer David Grasso the task of completing and marketing the condos.

Units start at $649,000.

Multifamily properties will have a direct connection to the anticipated meltdown of commercial real estate. Already, Moody's reports, property values have dropped 35 percent since the economic downturn began.

"As soon as commercial real estate distress hits the banks in full force, solvent banks will need to dispose of residential assets to concentrate on commercial," said real estate analyst John Burns. "This will create land-buying opportunities in the next several months, and builders acquiring land for cheap means the beginning of a recovery."

On the down side, Burns said, "banks with high commercial real estate exposure are unlikely to lend to the residential sector. Many of these will be lucky to survive at all."