Successful real estate executives will tell you that a major factor in their success is the relationships that they have formed. But Tom Bozzuto, president and CEO of The Bozzuto Group, takes his business relationships to a higher level.
Over the past 30 years, Bozzuto has built many long-term and trustworthy relationships. His relationships are so strong that one of the reasons he formed his own company in 1988 was because Copley Real Estate Advisors – a financial institution with whom he had done several deals – wanted to work with him personally as the general manager instead of with Oxford Development Corp., his former company where he was Mid-Atlantic regional partner.
"When we started our company, we had the good fortune to have an existing relationship that we took over from Oxford," says Bozzuto. "At the time, The Bozzuto Group was the only apartment developer in the greater Washington area with which Copley would do business."
Like Bozzuto, Copley believed in relationships. "Copley believed that you could save yourself a lot of grief and aggravation by doing repeat business with people you knew and trusted, and with whom you become friends," says Bozzuto. "Having that relationship gave our young company instant credibility, not to mention capital. And, we were able to get projects started throughout the recessionary years of the early '90s because the relationship with them gave us an aura which made us attractive for other institutions to invest with us."
Primary Goals While Bozzuto's name is on the door, three additional partners – John Slidell, Rick Mostyn and the late Bernie Lubcher – all of whom helped shape the direction of The Bozzuto Group, founded the company. They bought out the region where they worked while at Oxford, which encompassed Virginia to Maine. These men had been most responsible for the operation of that region with Bozzuto.
"Tom, John and Rick are the most gracious people with whom I have ever worked," says Liz Paulson, vice president at Branch Banking & Trust. "They have a high integrity. Every time I do a deal with them, I always come away learning something new about real estate finance." Paulson has worked with The Bozzuto Group since '88. She established the company's first banking relationship and has continued to work with the company at various banks for which she has worked.
Together, the partners came up with three goals. First, the company would do only residential development. Second, it would develop only within the greater Washington metropolitan area. And finally, all deals would be joint ventures to ensure that the company didn't over-leverage its projects, says Slidell, partner in charge of development operations. "I have never in my career seen anyone as good at dealing with community groups, homeowners and public officials," says Bozzuto about Slidell.
In the early years, Lubcher helped the company say no to risky deals, says Bozzuto. "For instance, at the end of the '80s, land for apartment deals was reaching astronomical prices. And Lubcher, who was 15 years my senior, kept saying 'don't worry about it, it's not the end of the world if you miss this opportunity, it will come around again.' And, of course, we thought he was crazy in 1989, but we listened to him. And, by 1992, when half the industry was upside down, he turned out to be right," says Bozzuto. The deals came back on the market at cheaper prices.
When the company was formed, Mostyn, partner and CFO, engineered much of the financing, particularly the debt financing of the company. "Mostyn is the guy who, if I come up with a half-baked idea at 8 a.m., he will turn it into a million dollar idea by 3 p.m.," says Bozzuto. "He does all the stuff that keeps the juices of the company going."
The combination of these men's skills and Bozzuto's reputation as an honest and fair partner has enabled the company to build more than 10,000 apartments and have a successful home building division, which includes single-family homes, condominiums and townhomes.
Almost all of The Bozzuto Group's projects have been built in planned communities. One of the reasons The Bozzuto Group participates in these types of projects is because the Washington, D.C., metropolitan area has tried to control growth by requiring it to occur within planned communities rather than scattered in a helter-skelter fashion along the roadside, says Bozzuto. "People should live in communities, not in projects stretched out along the side of the road," he says. Plus, the company likes to build its homes near stores, where there are employment opportunities for its residents.
"People think of us when doing planned communities because we're willing to come up with a product that will fit in and we have a track record of doing so," says Bozzuto.
The majority of the company's product is class A garden-style and high-rise multifamily housing, says Julie Smith, president of Bozzuto Management Co. and a partner at The Bozzuto Group. The company is known for developing high-quality product that complements the existing environment.
It's the little things that make the properties stand out. For instance, at every Bozzuto community there is a courtesy shelf by the front door of every unit. It gives residents a place to put their bags down so they can open up their door, says Smith. Other touches include having at least a 14-foot wall in every bedroom to accommodate any size bed and a linen closet in every unit.
A Constant Attitude The company was built on successful joint venture deals. These deals have enabled the company to be flexible and respond to market changes. "When you take 100 percent of the rewards, you also take 100 percent of the risk," explains Slidell. "We are more comfortable sharing the risk and giving up some reward. It's a conservative strategy to build business over the long term. If one or two things go wrong in a big way, they can't kill us."
This conservative attitude extends to other aspects of the company's business. In fact, the company uses a limited number of suppliers. It stems from the company's philosophy of relationships. Both The Bozzuto Group and the suppliers depend on each other.
"They know that when we're in a recession, we're here, we're still building and they become dependent on us and so they provide us extraordinary service, generally better pricing and good quality," explains Bozzuto. "In turn, we provide them a reliable source of future business."
And, during these uncertain times, many real estate companies are trying to figure out how they can obtain capital to do future business. But, The Bozzuto Group doesn't have those worries because the company established a fund that has allocated $130 million for real estate transactions.
In the fall of 2000, the company anticipated a recession, because the partners thought the good times had gone on too long and a recession was possible. "We didn't know what would happen in the capital markets as it relates to availability of equity money for apartment joint ventures," says Bozzuto. "So, we talked to a few of the institutions with whom we had existing relationships and ultimately entered into an agreement with a company that's a subsidiary of CIGNA Corp. but operates under the name of TimesSquare Real Estate Investors (TSREI)."
The Bozzuto Group has had a relationship with CIGNA for more than 18 years. CIGNA chose The Bozzuto Group to work with because of its successful past experiences with the company, says Ivy Freedman, senior vice president of TSREI. "They have demonstrated the expertise and relationship orientation that we look for in a partner. The culture and leadership at The Bozzuto Group is very focused on achieving superior results for their partners. All of our projects with them have been very successful and well conceived."
Essentially, TSREI will work closely with The Bozzuto Group to identify projects which fits within its program. TSREI is interested in development and repositioning opportunities in high-barrier-to-entry markets with a significant premium to spot market purchases. Deal sizes have been targeted at $20 million to $100 million.
"Having the money available for real estate transactions gives you an edge," says Mostyn. "This gives you an advantage when dealing with land sellers and other people who control product." Having the money readily available gives the company a leg up over other companies that don't have the money and it puts The Bozzuto Group on a level playing field with real estate investment trusts (REIT) who have access to money, he says.
Having a committed, knowledgeable money source alleviates some of the risks associated with development, says Bozzuto. "One of the benefits that (TSREI) brings us is they give us a commitment before we start spending all this money," he says. In addition to development deals, the company also plans to do repositioning deals.
The plan is to purchase well-located B-grade properties that will be repositioned to class A. The Bozzuto Group has been able to set up deals like the TSREI agreement because Bozzuto and the rest of his team work very hard to preserve established relationships, says Paulson. "Bozzuto is very diplomatic in dealing with the people. He knows what he can give and what's important to the deal."
Community Involvement The company also built its reputation by being active in the community. "Bozzuto is not just a leader in business but in the community as well," says Ron Creamer, a private investor who has done several deals with the company. "It's terrific to be able to tie together the business and civic relationships that you establish ... not to mention that it's good for business."
Among Bozzuto's activities, he's actively involved with the Millennial Housing Commission, the National Multi Housing Council, the National Association of Home Builders, the Maryland National Capital Building Industry Association, Maryland Science Center and Hobart College.
"Bozzuto thinks beyond himself and the impact on his own business when it comes to industry issues," says Susan Matlick, executive vice president at the Maryland National Capital Building Industry Association. "He's a superb representative of the industry and an outstanding businessman."
Living and working in the Maryland area gave the partners at The Bozzuto Group an advantage over its competitors, says Mostyn. Not only did they know the people with whom they were conducting business, but also more often than not, they were friends.
"Every one of us has been involved in community affairs," says Bozzuto. "We have been involved in building affordable housing as well as high-end housing. So, when we go to community meetings, we don't go as complete strangers; we go as people who have a good reputation who have built complexes in this market for more than 30 years.
"At one point, I used to tease Slidell about having an affair with the planning director in Gaithersburg, Md., because he used to spend every Wednesday night at planning meetings," he says. "We have worked hard to cultivate a reputation in this community as people who do what they say they're going to do, as people who are members of the community and as people who give back to the community."
The Bozzuto Group's reputation and dedication to quality has not only brought it repeat business but it has also brought the company new business. Creamer did two years of due diligence before deciding on a company in which to invest. "Their reputation was impeccable," says Creamer. "Everyone from the bankers to the lawyers said they were really high quality people.
I saw the work that they did. They are not just good at what they do, they are very flexible as well. If the market changes, they can change quickly with the market."
Says Bozzuto, "I don't think there's a single partner who we've had who would hesitate to give us a good reference."