John Stone (pictured) is a principal with Colliers and has been with the company since 1989. He specializes in selling and buying cash flow driven investment properties and mortgages with a focus on multifamily related investments and performing and non-performing debt. Stone also helps placement of direct foreign capital in the U.S.He updates MHN Online News Editor Anuradha Kher about the kinds of properties developers are investing in in these tough times, growth in foreign capital entering the U.S. and why he thinks the housing legislation will not help the multifamily industry.MHN: Apartment sales volumes are down and there is difficulty in getting debt and equity financing. What does this mean for multi-housing developers? Stone: Sales volume has fallen from its peak in 2005 and is now at or near historical norms in terms of sales volume. While a lot of the capital marketplace is still in upheaval, the apartment market is largely still a bright spot. Financing of 80 percent Loan to Value (LTV) is readily available for the acquisition or refinancing of stabilized assets. Developers of new product are however facing far more difficulties as banks—the most common lender—de-leverage and tighten credit requirements. The demand study is given far more scrutiny and more equity is required for those who can show a need in the particular submarket.Sample of Apartment sales volume for Tampa Bay.MHN: Will small developers survive this downturn?Stone: This is not the first nor will it be the last downturn and small developers have always been affected more than the larger developers and this time will be no exception. Most will survive and some won’t just as in the past. The fact is that fewer and fewer developers are building small properties (under 100 units). That is just a function of economics so it may not have much to do with the downturn.MHN: The New York rental market remains unaffected. How is that? Will things be different at the end of the year?Stone: New York has one distinct advantage and that is that the foreign market considers New York as one of the best investment cities in the world and thus they tend to go there first. Additionally most of New York has rent controls which makes the rental income much more predictable and thus regulates pricing as well. I do believe that we will see a dip in all markets, including New York, by end of the year because many deals that happened in the first quarter were carry-overs from 2007. At least this has been true in the rest of the U.S.MHN: What kind of projects are investors showing interest in? Stone: While each market can vary, the majority of activity seems to be focused on B and C class properties that have a “value-add” story. Using Tampa Bay as an example, the average price per unit is $60,827 for the 17 sales during the first half of 2008. There were only two sales in excess of $100,000 a unit, which is a big change from the past several years. MHN: What happens when the economy starts doing well again? Will there be enough multifamily supply in the market?Stone: Yes, with most markets standing at or near 92 percent occupancy, there are ample vacant units to take up the slack. In addition to traditional rental units, there is also a substantial supply of rental condominium units and homes that are available. Additionally the development industry is very quick to provide additional supply if and when the need shows itself.MHN: What kind of foreign direct investment is coming into the U.S. real estate market right now?Stone:Stone: There has been an increased interest in U.S. real estate in recent months. How does that affect the multifamily housing market? Stone:MHN: How will the housing legislation help your company and the multifamily industry in general?Stone: I don’t expect the housing legislation to help the commercial multifamily investment or development industry much, if at all, because the legislation was focused on helping the single-family market.MHN: How is Colliers managing the economic downturn? Stone: These are painful times and like most large companies, some personnel changes are being made to adjust to the new economic times. But in general, Colliers is a commercial brokerage firm and experienced brokers made a living before 2005 and we will make a living during and this “adjustment” period though in some cases the client may change. What I mean by that is that more work will be done on behalf of the lender as they clean up their balance sheets and once that is done we will all go back to the way we did business before the 2005/2006 bubble. MHN: What is your forecast for the multi-housing industry for the year ahead?Stone: Most predict that development will become extremely slow, historically speaking, due in part to the difficulty in getting financing. Sale of existing properties may slow a bit more and look more like historic norms through 2009. So much is dependent upon how quickly the residential market recovers, as well as the financial industry. 2009 may prove to be challenging for many.