Property Play: CEO of Bozzuto Group on his latest apartment strategy

Multifamily Market Insights with Toby Bazudo – A Detailed Summary

Key Concepts:

• Multifamily Oversupply: Current market conditions characterized by a significant increase in apartment supply.
• Value-Add Strategy: Investment approach focused on acquiring and improving existing properties to increase value.
• Nimism (Not In My Backyard): Local opposition to new development projects, particularly housing.
• Regulatory Impediments: Bureaucratic processes and regulations that increase the cost and time of development.
• Speed to Market: The advantage of acquiring existing buildings over new construction due to faster occupancy.
• Replacement Cost: The current cost to construct a similar building.
• Freddy & Fanny: Government-sponsored enterprises that provide liquidity to the mortgage market, including multifamily.
• AI Integration: Utilizing Artificial Intelligence to improve efficiency in property management and development.

I. Market Overview & Investment Paradox

Toby Bazudo, CEO of Bazudo Group, a major player in the multifamily sector with over 62,000 homes/apartments built and $4 billion in development, acknowledges a current disconnect in the market. Despite rising vacancies and decreasing rents due to a proliferation of new supply – an oversupply in many markets – investor interest remains high. This paradox stems from the ability to purchase existing buildings at 10-20% below replacement cost, a significant advantage given rising construction costs. Furthermore, acquiring existing properties offers a “speed to market” advantage, bypassing the increasingly complex and time-consuming regulatory processes hindering new construction. Bazudo anticipates supply will be truncated in 2026-2027, positioning current investments for future gains. He emphasizes that the current oversupply is expected to be short-lived, presenting a “massive opportunity” for investors.

II. Distress & Opportunity in Multifamily

While the office market faces significant distress, Bazudo believes the multifamily sector will experience relatively minimal distress, particularly compared to other asset classes. He frames the current situation as a “blip” offering substantial investment opportunities. This is underscored by the launch of a new investment vehicle in partnership with Invesco, targeting value-add multifamily assets along the East Coast and potentially extending to Chicago. The fund’s strategy focuses on acquiring undermanaged or unrenovated properties, leveraging Bazudo’s management and construction expertise to enhance resident experience and drive rent growth.

III. Affordability & Responsible Development

Addressing the critical issue of housing affordability, Bazudo acknowledges the tension between increasing property value (and rents) and providing accessible housing. He argues that investment in buildings, coupled with effective management and renovation, ultimately benefits residents through improved living conditions. He firmly believes that increasing housing supply is the primary solution to affordability challenges, providing more choices for renters. He stresses the importance of both rental and for-sale supply increases.

IV. Regulatory Hurdles & Government Intervention

Bazudo identifies regulatory burdens as a major contributor to high development costs, citing that approximately 40% of costs are attributable to regulation. He advocates for greater collaboration between the public and private sectors to streamline the development process and reduce barriers to supply. He suggests reducing permit times and costs as key areas for improvement. He also highlights the detrimental impact of “Nimism” (Not In My Backyard) on housing development, emphasizing the need to overcome local opposition to increase housing density. Regarding government intervention, Bazudo supports maintaining the current structure of Freddy and Fanny, arguing that privatization would likely increase borrowing costs for builders. He anticipates potential rate cuts (50-75 basis points by year-end) will further stimulate housing investment.

V. The Role of Technology & Workforce Dynamics

Bazudo acknowledges the growing influence of Artificial Intelligence (AI) in the real estate sector, particularly in enhancing efficiency and reducing friction for residents (e.g., online rent payment, maintenance requests). However, he cautions against overestimating its immediate impact, stating that AI has not yet led to significant job displacement within Bazudo Group. Instead, AI is being used to augment existing staff, freeing them up for more complex and customer-focused tasks. He anticipates that future graduates with AI expertise will play a crucial role in maximizing the technology’s potential. He notes a trend of reduced entry-level hiring as AI tools automate some tasks. He also suggests that some companies may be using AI as a pretext for workforce reductions.

VI. Bazudo Group’s Vision & Core Values

As a second-generation leader, Bazudo emphasizes the importance of company culture and people. He believes that prioritizing resident experience and fostering a sense of community are key differentiators. He highlights Bazudo Group’s commitment to diversity and inclusion, viewing it as both a moral imperative and a sound business strategy. He also underscores the company’s dedication to giving back to the communities it serves through charitable activities.

VII. Tariffs & Construction Costs

Bazudo reports that tariffs have had a relatively limited impact on construction costs (approximately 1-2% increase), largely due to proactive material purchasing by subcontractors. However, he cautions that ongoing uncertainty surrounding tariffs remains a concern, as it adds to overall project costs.

Notable Quotes:

• “Capital doesn't care. Capital flows to the path of least resistance.” – Toby Bazudo, on the impact of regulation.
• “Nimiism is perpetuating the lack of affordable housing. Couldn't be more obvious.” – Toby Bazudo, on the challenges of local opposition to development.
• “We meet people where they are.” – Toby Bazudo, on catering to diverse resident preferences.
• “The larger Bazudo becomes, the more impact we can make on the communities we serve.” – Toby Bazudo, on the company’s commitment to social responsibility.

Conclusion:

Toby Bazudo presents a nuanced view of the multifamily market, acknowledging current challenges while highlighting significant investment opportunities. He emphasizes the importance of strategic acquisitions, value-add improvements, and a commitment to responsible development. His perspective underscores the need for regulatory reform, increased housing supply, and a balanced approach to technology integration. Ultimately, Bazudo envisions a future where Bazudo Group continues to grow, not only as a successful business but also as a positive force in the communities it serves.