Mid-Atlantic Master

Thomas S. Bozzuto apparently is not worried about spreading himself too thin. He is the president and CEO of The Bozzuto Group, based in Greenbelt, Md. Created in 1988, the company specializes in single- and multifamily development, construction and management. It also does commercial landscaping.

Bozzuto also taps his vast energy reserves to serve a strong social conscience. He serves on the boards of the Maryland Science Center, The Catholic Charities, and Hobart College, among other volunteer efforts.

Bozzuto received his undergraduate degree in English from Hobart College, then earned a master's in urban affairs from Syracuse University. He then worked for the U.S. Department of Housing and Urban Development (HUD) for two years and as a finance officer for The Rouse Mortgage Co. in Columbia, Md., for another two years. After Rouse, Bozzuto joined Bethesda, Md.-based Oxford Development Corp. When he left Oxford in 1988, he was the regional partner responsible for the Mid-Atlantic region.

Bozzuto recently spoke to NREI about, among other things, how the apartment industry has changed and why he thinks civic involvement is important.

NREI: How did you get started in the industry?

BOZZUTO: I graduated from college in the spring of 1968. There were riots in the cities, and I decided I wanted to get a master's degree in urban affairs. With that, I thought I could try and deal with urban issues, particularly housing, by working for HUD. After being there a fairly short while, I realized that if one was going to have any real impact, one would have it in the private sector.

NREI: What has been the most important change in the industry since you started?

BOZZUTO: The change in the apartment industry is the customer is far more sophisticated than the customer who occupied apartments in the 1970s and 1980s. They're more affluent. They're somewhat older. They're clearly better-educated, and they have far greater demands. I think that's probably the most significant change I've seen in the apartment business in the past 25 years.

NREI: What are the unique characteristics of the mid-Atlantic multifamily market?

BOZZUTO: The job creation machine that exists in the Washington metropolitan area is probably the most extraordinary fact governing our life in this region. We are in a region that generates somewhere in the range of 70,000 new jobs a year. The equivalent of a good-sized city is being created every year, and that continues to have a major impact on housing demand. I think that makes Washington different than almost any metropolitan area in the country, or at least different than most major metropolitan areas in the country.

There are several other factors. While we have this tremendous demand that continues to increase, we also have a very difficult public approval process, so that one can start working on a project today and not be able to actually break ground for four years. The result is a very healthy and strong rental market.

NREI: Do you intend for the company to branch out of the region? If so, what regions would you look to move into and which ones would you avoid?

BOZZUTO: Over the past few years, we have begun to put our toes into the water around the Philadelphia metropolitan area. We have a completed project in Westchester, Pa. We have worked on several other sites in that area. That's clearly a market we like. We're also looking at some multifamily property activity in Connecticut. While Connecticut hasn't had the job growth that the Washington, D.C. area has, we do like the difficult approval process that's up there.

We generally try and stay away from areas where public approvals are too easily obtained. We have lots of friends who are very happy building in the Carolinas. Those are probably areas that we would avoid because it seems very hard to differentiate what you do down there from what everybody else is doing.

NREI: When your company puts a site together and builds, do you seek equity partners? How much loan to value do you receive?

BOZZUTO: On almost all of our projects, we have third-party equity partners. They are frequently institutions, but not always. We have some properties where we have co-invested with some of our friends. Typically, debt financing ranges between 75% and 85% loan to value. We have done a lot of joint ventures with CIGNA and Northwestern Mutual. They are probably two of our principal partners.

NREI: What income level does your company aim to serve? What is your ideal demographic?

BOZZUTO: Our typical renter probably has an income of about $75,000. These are people who are high-energy, very active people who are willing to pay a little extra to live in a community that provides a lot of service. We define ourselves not only by the product we provide, but also by the level of service we provide to our customers.

NREI: Have you ever considered going public? Why or why not?

BOZZUTO: When everybody else was looking at going public, we too looked at it and basically concluded it was a long-term solution to what we felt was going to be a short-term problem, which was the lack of capital in the markets in 1992 and 1993. In fact, I think that's proven to be correct. We've had no difficulty obtaining capital. Frankly, I expect that will change again. I think that we will go through periods when private capital is tougher to get than it has been, but we have no intention of going public.

NREI: What trends do you see in the apartment industry, and how is your company seizing those opportunities?

BOZZUTO: One of the trends is closer-in living environments. Like many of our counterparts in the business, we are working on several high-rise properties, whereas we had never done that before. I expect that the renter will continue to become more sophisticated, continue to become more demanding, continue to look for more services, including better access to the Internet and technology in general. I think we're spending a fair amount of energy and time looking at ways to participate in that and make sure we can provide those services to our customers.

We think that with the pressure nationally and particularly in this region for what is called "smart growth," that multifamily housing can be positioned as at least a major part of the answer to the desire for smart growth. By building probably more than anybody else in this area, certainly in traditional neighborhood communities, we've positioned ourselves to make the case for building apartments as an answer to smart growth.

NREI: How important is it to be highly involved in the communities in which you build?

BOZZUTO: I think that's the difference between the private builder and the national REITs. The REITs that really need participation across a great geographical area find it impossible by definition to be actively involved in the community. The regional builder has a major advantage: the ability to be involved in the community. I think that's particularly important in a world where one of the greatest and most important commodities is land. The ability to get public approval for land is often dependent upon how one is perceived in the community. We try to be very active in the community. I'm on a number of boards, as are my partners. We think that it is critically important for a variety of reasons, but we think it's particularly important from a business point of view.

NREI: Do you have a certain core philosophy or theme to which you adhere to in regards to your apartments? Do you believe in branding?

BOZZUTO: Our core philosophy is that we are not in the housing business, per se. We are in the business of providing extraordinary services to customers who have residential needs.

I do believe in branding, but not on a national level. I think it is very difficult to own or manage enough properties across the country to have a brand that is at all meaningful. I think in a local area, one can absolutely have a brand. I think we have a brand in this market. I think Post has a brand in Atlanta. So, yes I do believe in branding.

NREI: Roughly, what percentage of your business comes from development, construction and development? Do you see your company concentrating on one in the future?

BOZZUTO: I'd say development and home building provides about 50% of our revenue. Management provides about 30%, and construction about 20%. I think our goal is to continue to grow all three disciplines, both jointly and independently. One of the things we do that I think is different from many of the people with whom we compete is that our construction company, our development company and our management company all provide services not only to the parent, but also to other people. We have developed projects for others, built projects for others, and probably two-thirds of the properties we manage, we're managing for other people.

Headquarters: Greenbelt, Md.

Founded: 1988

CEO: Thomas S. Bozzuto

Main market: Mid-Atlantic

Overview: The Bozzuto Group specializes in single- and multi-family development, construction and management. This company also does commercial landscaping.

History: Since its founding, The Bozzuto Group has developed and built more than 10,000 housing units and apartments in the Mid-Atlantic.

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