Greenbelt’s Bozzuto sees down economy as an opportunity, raises $50M fund
By: Tristan Navera, Staff Reporter
One of Warren Buffett’s famous quotes — “Only when the tide goes out do you learn who has been swimming naked” — aligns with the sage advice of Bozzuto Group CEO Toby Bozzuto‘s father, company founder Tom Bozzuto. If you think long term, the best opportunities come out of recessions.
The current times call for “intestinal fortitude” as opposed to panic, the Bozzuto CEO said. “Real estate, as you know, is a very long-term business. … So many people, particularly the capital markets, respond understandably to the current state of affairs and not the future state of affairs.
“We’ve seen this movie before,” he said of the company, which has weathered a few storms since its 1988 founding. “In that 35 years, we’ve seen three or four recessions, and-or a pandemic, and we have found our most explosive moments of growth came from those troughs, those down moments.”
The $2.79 billion private company, the region’s 10th largest, doesn’t consider the current economic uncertainty as a time to sit on the sidelines. Bozzuto said. In fact, it is charting a course to grow the 3,038-employee development and property management firm’s reach, stating with a new fund aimed at more residential construction.
The company has raised a fund of a little more than $50 million that will be used to develop or acquire $300 million in new apartments in “high barrier to entry” markets from Florida to Massachusetts. A Form D filing shows about 120 investors brought $40.42 million of equity to the table, and “friends and family” investors made up the rest, Bozzuto said.
The developer has at least one project on the precipice for the fund — a joint venture with Kimco Realty in Ardmore, Pennsylvania, just outside of Philadelphia. There, it’s planning a mixed-use development of 131 apartments and 19,800 square feet of retail, called Coulter Place. Another project is in the works in Sarasota, Florida, Bozzuto said, though the company did not offer additional details on that effort.
The $50 million fund is expected to cover only a few deals, so Bozzuto could launch another before the end of the year — amount undetermined, but it’s likely to be larger. And more successive funds will follow.
“We want to take it slow, but then … if great opportunities come, we’ll quickly raise a second fund of larger size,” Bozzuto said. “The current lending environment is more conservative in nature, which is just fine with us because that’s where we want to be anyway. We’d rather put more equity in than have more onerous debt terms.”
Bozzuto already has 90,000 units under management nationally, and another $1 billion in the development pipeline, with 90% of it as a third-party manager. It typically enters new markets on the management side, spending a few years learning before launching its own developments. It’s in the process of doing so on the West Coast, markets the CEO said are faring well.
Higher interest rates, which have already slowed the housing market, will keep more young people renting and older people downsizing. Interest rates could sink again in 2025 and 2026 — and that lines up well with Bozzuto’s strategy given development projects that start this year and next wouldn’t finish until then, anyway.
“If we’re able to start something that others don’t, then we’ll be delivering, theoretically, into a supply-constrained, heavy-demand market,” he said.