The main decision-maker for lending millions of dollars to commercial real estate firms at one of the country's largest banks says apartment oversupply may be a reality in some parts of the country.

In a wide-ranging interview, SunTrust Bank's Kathy Farrell—just named head of CRE this summer—tells us multifamily developers could very well be getting ahead of themselves, particularly in some areas of Washington, DC, Nashville, Charlotte and even SunTrust's home turf of Atlanta.

“Do we think there are pockets of potential oversupply in market-rate multifamily? Possibly," she says. "So we're paying attention to that.”

And that means SunTrust—regularly ranked among the 20 largest banks in the US with nearly $200B in assets—will pull back even more on construction loans for apartments next year.

“It's got to be a top, proven developer” with a solid performance history, and in a market that is still in growth mode. “We're not stretched in our underwriting.”

Kathy did not disclose numbers—such as how much SunTrust has allocated for multifamily lending as a whole—but says the bank still views the product type as a priority, especially those wrapped into walkable, mixed-use projects in urban settings.

SunTrust certainly has made bets in mixed-use, recently with a $115M mortgage in Atlanta to North American Properties for its purchase of Colony Square, a 955k SF, twin-skyscraper, mixed-use redevelopment project in Midtown, and an $80M loan to developers of a former Sears warehouse in Memphis. The warehouse is being transformed into a 1.1M SF mixed-use project with apartments, retail and offices called Crosstown Concourse (above).

But urban, Class-A projects are the same ones scrambling for top-of-the-market rents, the stratum being watched closely for near-term performance as the projects deliver in the next few months. For instance, in the Atlanta region alone in the third quarter, more than 11,400 apartment units were under construction with average monthly rents of $1.82/SF.

Those rents vary depending on Atlanta's submarket, with the priciest units (more than $1.92/SF) seen in the tony submarkets of Midtown—quickly becoming the Southeast's tech mecca—and Buckhead, according to industry watcher Haddow & Co.

On a property-by-property basis, rents can surpass $2.50/SF. Add on top of that another 10,000 units that developers hope to start in Atlanta in the near future, according to Haddow, and you can see why the financing world is waving the caution flag.

SunTrust isn't alone in its caution. Earlier this week, Wells Fargo SVP Melissa Frawley (center)—also based out of Atlanta—says her bank's multifamily construction financing was down by 65% from the previous year, and that she was closely watching the next wave of apartment deliveries hitting the area.

“I don't think that the floodgates will open in the first quarter in multifamily construction,” Melissa said.

Hunt Mortgage Group director Marc Suarez echoes those sentiments. "For the most part, unless you have a core, core, core site, it's gotten a lot tougher to capitalize" on multifamily, Marc says.

Kathy says SunTrust will focus more in the next year on the permanent financing side, especially transitioning its collection of construction loans into long-term holdings.

That has become a priority since SunTrust agreed to acquire Pillar Financial, which will give SunTrust access to permanent lending through Fannie Mae, Freddie Mac and the Federal Housing Administration. The deal is expected to close in the next few weeks. It also means SunTrust will be able to invest in affordable housing projects more, Kathy says.

Despite the concerns, Kathy says there has been a noticeable uptick in optimism—which can't necessarily be quantified—since the election of Donald Trump, fueling hopes, she says, that the US's 2% GDP growth will begin to grow in the near future. If that happens, paired with more jobs, then another 11,000 Class-A apartment units in Atlanta won't likely affect the market negatively.