Washington Post: In Forming Joint Venture, Bozzuto Shows He's Bullish on Apartments

August 02, 2010

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Is Tom Bozzuto betting against the housing market?  His Bozzuto Group, based in Greenbelt, announced last week the formation of its newest fund, a $75 million joint venture with Chicago-based Pritzker Realty Group, which will allow the company to acquire or develop hundreds of apartments in the mid-Atlantic region, particularly in the Washington area.

Bozzuto, the company's chief executive, plans to focus mainly on development of new homes, filling a gap in production with new units as early as 2013 or 2014.

He says the move is largely driven by demographics; a record 18.4 million estimated students attended colleges and universities in the fall of 2009, according to the National Center for Education Statistics, and they will need apartments to rent as graduates. "Those people were going to rent," Bozzuto said. "They would have rented even absent the housing bust."

He is also bullish on the local economy. "I think there's no doubt that this economy both because of the policies of the current administration and because of BRAC [the military base realignment and closure process] is being revitalized faster than and creating jobs at a rate that is greater than almost any other place in America," he said of the Washington area.

But Bozzuto is not afraid to acknowledge that a slow return for condos and other home sales would likely accentuate his bet, saying that "to some degree the bloom is off the rose of the homeownership myth in America."

"We went through a period where the percentage of Americans who owned homes increased to a level to which it had never been," he said. "It is rapidly receding from that level. I believe that level was unrealistic and that with a more rational mortgage policy, it will be a very, very long time before we will ever get to that level again."

Penny Pritzker, chief executive of Pritzker Realty Group, said in a press release that the deal "allows us to tap into Bozzuto's market expertise to invest in multifamily developments."

"We look forward to a long-term relationship with The Bozzuto Group to develop and own multifamily assets that are extraordinary living environments," she said.

Through its six companies, the Bozzuto Group has built its name on building and managing popular apartments, operating nearly every aspect of the life of a multifamily building from land acquisition to construction to management. Scott Melnick, a multifamily investment broker at Jones Lang LaSalle, said the company "has a long and solid history."

"In general, the Bozzuto properties that have been developed have all done very, very, very well," he said.

Most recently, Bozzuto created two funds with the New York State Teachers' Retirement System that produced four multifamily projects in the Washington area and Baltimore. The first fund led to the 243-unit Montgomery at Wheaton Metro, on which Bozzuto Group also partnered with TimesSquare Real Estate Investor, and the Delancey, a 241-unit project in Shirlington. Bozzuto called both "extraordinarily successful." The Delancey, for instance, cost about $53 million to develop and sold for $85 million in 2008.

The jury is still out to a degree on the second New York State Teachers' fund, a $100 million deal that produced Monroe Place at Woodland Park Crossing, in Herndon, and the Fitzgerald, a 280-unit project in Baltimore, which opened this summer.

Bozzuto is also still awaiting returns on another company he founded last year, SalesMark, created to manage residential properties for small developers or financial institutions that have had to foreclose on commercial buyers. SalesMark has yet to sign a client, but Bozzuto said it is close to getting its first one. "When you start a business, you don't expect to make money on it right away," he said.