The executive's "day job" is as president and CEO of ZOM USA in Orlando. During his 27-year career in the industry, Patterson has overseen the development of more than 15,000 apartments and condos throughout the Southeast and created a company portfolio valued at more than $2 billion.

Recently, Patterson had a candid conversation with GlobeSt.com, in which he shared his views on the current condition of the multifamily market for both apartments and condominiums, his outlook for the future, his plans for NAHB Multifamily and the biggest issues on the group's agenda for his term.

GlobeSt.com: The economy is in a downturn, the condo market has gone bust in a number of areas and observers report an increase in demand for traditional units as a result. What's your take?

Patterson: Generally, the condominium market is as slow as it's been for quite some time. That's a function of available financing and concerns about values in the market, though the economy certainly isn't helping right now. We expect that there's going to be some excess inventory in the market for a couple of years as a result of all of that. The for-sale side right now is difficult for most. Markets like Florida, Nevada and some parts of California overheated and need to cool down. It requires a market correction. Things were actually abnormal before. Sales were abnormal, the prices became over-inflated to a certain degree and quite frankly, it was time for a correction.

But now, it does appear that there are some interesting opportunities for buyers out there because owners of condominium buildings have gotten very competitive with their pricing and terms. I think that will spur sales in the second half of the year.

As far as the rental segment goes, it looks as though it will be a fairly flat year in terms of rent growth, primarily because of the economy and oversupply in the other housing segments. Even though rental housing doesn't directly compete with for-sale housing, it does compete indirectly. So you take an oversupply of condos, an excess inventory of single-family homes, and combine that with a recession, I guarantee you rents will not grow anywhere near the long-term average. Some markets will do better than others, but it's hard to avoid the impact of a recession.

The one thing that I think is going to have a positive influence on the inventory is the current credit crunch. I'm finding a lot of our members are having a very difficult time putting together financing that works for projects right now. Primarily on the equity side of the market, I think investors just don't know how to price the risk in real estate. So I expect starts this year will be below what most people would expect, primarily because of this capital situation. And hopefully that's something that will be resolved later in the year.

GlobeSt.com: So where do you see the market for the rest of the year, and beyond?

Patterson: This year is probably a time where a lot of us are going to need to focus on operations because we all are experiencing higher costs. I don't think the rent growth will be there to absorb all of that.

But longer term, we've got this Gen X group who will bring with them a swell of demand for apartments. Multifamily housing is basically affordable housing. That's going to be important to his generation, which is coming into the sector in the next five to 10 years. That's going to bode well not just for rentals but also for the for-sale side.

And once the condo market absorbs its excess inventory, we expect things to return to normal--not 2005's absorption levels, but rather, pre-2004 and 2003. I think we'll have to be careful as an industry not to overbuild the market and not saturate the market with large, luxury units because I don't hear many people saying that's where the demand growth is coming from.

GlobeSt.com: Your main focus at NAHB Multifamily will be on the group's advocacy efforts. What are the most pressing issues on your agenda?

Patterson: One of the most important things to me is that we make sure we have a clear understanding of what issues are important to our membership. We're aggressively canvassing them right now and the preliminary information we have leads us to believe the availability of capital is at the top of their list. So we hope to formulate some things we feel the Fed and Congress can help us with in terms of keeping the flow of affordable housing coming on line at a pace that allows people to find decent places to live at prices they can afford. So, capital is certainly a big deal.

There are also some taxation issues that are going to be very important to our membership that Congress is likely to deal with. One of the biggest is the carried interest issue, where the general partnership interest would be taxed at a higher rate than it currently is. If you're eroding potential profits on the business with taxation, it's always going to make the situation more difficult. That's something we'll be studying as it evolves in Congress and certainly making sure that our position is presented to our Congressmen so they can make an educated decision.

We're also continuing to modify or promote a voluntary green program. It's something our membership can use as a tool or guide to help them be greener, primarily in their development efforts, but on the operational side as well. Green building is certainly a hot item, but I think what's most important to us is that we learn how to do it in a way that's responsible and affordable and not necessarily put ourselves in a position that it becomes mandated universally with a program that might not be feasible. That's important long term and it's certainly something we'll probably be promoting for a long period of time.

We certainly want to make sure the federal programs for affordable housing--the LIHTC program and the federally insured loan programs are kept intact and delivered in a fashion that is market worthy. Those were the highest-ranking issues in our preliminary inquiry.

GlobeSt.com: What are some other important issues that may be on the back burner for now, but would be addressed at a later time?

Patterson: Anything that's operation- and development-cost related is certainly a big issue. There isn't a lot we can do about construction costs, because it's all related to global demand. Operating costs are certainly going up. It seems like the price of oil influences everything. Certain permitting issues are also important. We certainly understand the need for regulations that are in place. We find some to be more easily followed than others.

One ongoing issue that will not be put on the backburner is the area of Fair Housing. Government guidance on complying with this law has been extremely complicated. And, we are supporting every effort that will clarify existing regulations in such a way that they can be reasonably complied with and enforced. We will also educate our members to help them navigate these rules and produce the accessible housing people need. Building a large multifamily building is not like manufacturing an automobile--it's not cookie-cutter. Multifamily housing is custom tailored on an individual project basis in response to a multitude of regulations, product constraints and existing conditions. We recognize that it is important that everyone--from the designers to the subcontractors--needs to understand the importance of this issue, as well as the consequences of making changes that don't comply with the legal requirements.

GlobeSt.com: What impact do you think the upcoming election will have on the industry?

Patterson: That's a horse race I'd hate to forecast, but I would expect that housing would be a major point on the industry's agenda. There are certainly some significant concerns on Capitol Hill about the default rates on mortgages, bankruptcies and the like. I think we'll see legislation regardless of who wins that will address those issues in some fashion or another. To a certain degree, you've got to let the market solve its own problems, but there are things the government can do to assist.

GlobeSt.com: Every leader brings certain things to the table that are unique. What do you think you contribute to NAHB's leadership?

Patterson: I've been in this industry a long time, just about 30 years now, so certainly I've had the opportunity to see at least four different economic cycles. I've seen intervention in the business at the federal level do a lot of good and do a lot of harm. Most importantly, what I plan to bring to the table is a very clear understanding of what's important to our membership, focusing on those things and keeping tabs on those issues they're interested in. And, I hope to encourage and promote the communication of a message that's articulate and clearly understood and isn't self-serving, but is something that's good for the industry and our country's housing as a whole.

Instant Insights /

Steve Patterson, NAHB's Multifamily Leadership Board

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