Baltimore Business Journal: Bozzuto Expands in Philadelphia With $120M Apartment Plan
June 01, 2012
Bozzuto Group found its niche building high-end apartments that cater to upscale yuppies in the Greater Baltimore and Washington, D.C., markets.
Now, the $1.1 billion company, known for building the Fitzgerald near the University of Baltimore, is looking north to the Philadelphia area to help fuel its growth.
“We think it’s a great market,” said Toby Bozzuto, president of Bozzuto Group’s development division. Bozzuto, 38, and his father, Bozzuto Group CEO Thomas S. Bozzuto, 65, revealed the company’s expansion strategy during an interview with the Baltimore Business Journal.
The firm will start construction later this year on the first of two apartment projects in the Philadelphia suburbs.
The projects in Newtown Square and West Chester, Pa., will cost a combined $120 million and add more than 500 apartments to a region where job growth is strong, demand for apartments is high and landlords can command prime rents.
The Philadelphia suburban market is competitive with more than 3,100 apartments — including Bozzuto Group’s 500 — planned or under construction.
Bozzuto Group’s efforts are not limited to the Philadelphia suburbs. The company, which also builds for-sale townhouse projects, is also looking for a location to construct an apartment building in Center City Philadelphia, the first project Bozzuto Group would own in the city. The company already manages several Center City apartment buildings for other owners.
Bozzuto Group has been riding the wave of an apartment boom in Baltimore and Washington. Thomas Bozzuto doesn’t see demand for the company’s apartments as having peaked.
“Our apartment business has been extraordinarily strong both in Washington and Baltimore and in between,” he said. The company is pushing further into Philadelphia at a time when demand for apartments there is rising.
Apartment vacancy rates in the Philadelphia metro area dropped to 3.9 percent in first quarter 2012, down from 4.3 percent in first quarter 2011, according to a report from real estate firm Marcus & Millichap.
What makes Philadelphia so attractive for Bozzuto Group is that it has so many of the young urban professionals that fill the company’s buildings. Employment growth is strong and the region’s colleges and universities turn out graduates who find jobs in the area and look for housing, Toby Bozzuto said. The area is also less overbuilt with apartments than is the Washington, D.C., area, he said.
Bozzuto Group’s interest in Philadelphia comes as the company works on several major projects in the Baltimore-Washington area.
Perhaps the most high-profile is Union Wharf, a 281-unit apartment complex on the water in Fells Point, on which Bozzuto Group is partnering with Chicago’s Pritzker Realty Group. The $72 million project is scheduled to open in fall 2013.
As for Greater Philadelphia, Bozzuto Group expects to break ground on a 250-unit apartment project off Route 252 in Newtown Square by the end of 2012. It plans on starting construction in early 2013 on a 270-unit apartment project in West Chester, the second phase of a project the company built there several years ago.
These new projects will also spark additional hiring at Bozzuto Group. The company has 1,200 employees and expects to add another 350 people this year.
Some will be replacements for people who leave the company through turnover, but about 100 will be new positions fueled by the company’s growth, Toby Bozzuto said.
Toby Bozzuto said it was the success of the downtown Philadelphia apartment buildings Bozzuto manages for other companies that got the firm thinking of building its own project there.
That Bozzuto Group was able to spot an opportunity in Philadelphia is no surprise to the company. Thomas Bozzuto keeps a close watch on industry trends and visits his properties each Friday, paying attention to details, say those who know him.
“Tom is a very academic person,” said Ron Creamer, who has invested in many of Bozzuto Group’s projects. “He goes to real estate conferences at Harvard. He sees studies of what people are buying. He’s a very studious guy.”
Unlike some other developers who look at the short-term, Bozzuto Group comes up with one-year, three-year and five-year plans for where it wants to take its business, said Mindy Fang, a senior vice president for commercial real estate lending at Bank of America. The bank has financed between 15 and 20 Bozzuto Group projects since 1997.
The company competes with national apartment developers like Archstone, Gables and Avalon Bay.
“They win business from national companies because of the quality of the work they do,” said Doug Bibby, president of the National Multi Housing Council, a Washington, D.C., trade association for the apartment industry, of which Thomas Bozzuto is the chairman this year.
In addition to Philadelphia, Bozzuto Group also has its eye on building more apartments in Baltimore City.
The company’s Fitzgerald building in Midtown near the University of Baltimore leased up quickly. And Bozzuto Group already manages several buildings in the city for other owners, including the Munsey and the apartments at McHenry Row.
Ask Toby Bozzuto which neighborhoods in Baltimore most interest him for possible development and he names Mount Vernon and the area around Johns Hopkins University’s Homewood campus,
As for downtown, with so many apartment projects slated for the central business district, the company wants to see how those buildings do before tackling its own, Toby Bozzuto said.
“We want to be patient, and pounce when appropriate,” he said.
The downtown vacancy rate was at 2.8 percent at the end of 2011, according to a report from the Downtown Partnership of Baltimore Inc. That is before projects planned for downtown come online. Developers are expected to complete 612 apartments in the city in 2012, up from 80 in 2011.
The Baltimore area’s overall vacancy rate was 4.3 percent in 2011, which is expected to drop to 4 percent this year, according to CBRE Group Inc., a national real estate brokerage.
Bozzuto Group has attracted a $75 million investment from Pritzker Realty Group. Pritzker, which is headed by Penny Pritzker, daughter of a cofounder of the Hyatt hotel chain, has so far backed three Bozzuto Group projects.
The projects include Union Wharf; a 298-unit, $57 million apartment complex at Waugh Chapel Towne Centre in Odenton; and Monroe Street Market, a $200 million residential and retail project at the Catholic University of America in Washington, D.C.
Pritzker Group chose Bozzuto Group out of a dozen companies to partner with on projects in the Mid-Atlantic, said Seth Martin, managing director at Pritzker.
“What separates Tom and Toby and their team are their integrity and their discipline,” Martin said. “They’re not in it to make a quick buck. For them, relationship is not a buzz word. It’s something that matters to them more than anything.”