Not so long ago, Washington's 14th Street corridor was not a place you'd want to take the family during a summer vacation to the nation's capital. Despite a location less than two miles from the White House, the once-bopping neighborhood had gone from being home to jazz greats like Duke Ellington to serving as a playground for prostitutes, crack dealers, and panhandlers.
But the landscape around 14th Street has changed considerably once again. When you walk up the street, there are people of all colors and races everywhere you look. Urban mothers push their babies in strollers. Singles and couples walk to shop at Whole Foods or enjoy a latte at Caribou Coffee on the corner. Sure, some rough-looking buildings and people remain, but the neighborhood looks nothing like it did a decade ago. One of the most influential factors: the potential that Monty Hoffman, CEO of PN Hoffman, a D.C.-based apartment and condo developer, saw in the area.
DRIVING AHEAD: Monty Hoffman stands in Hudson Apartments, which helped revitalize the P Street area of Washington. The area's automotive history provided the inspiration for the building's name.James Kegley "My sense is that Monty likes going in, reinventing an area, and helping enliven the city," says Rick Denecke, vice president of real estate banking at Chevy Chase Bank, a Bethesda, Md., bank that is one of PN Hoffman's lenders. "Five years ago, [the corner of] 14th and P streets was in a pretty rundown, rough part of town. Now it's a beautiful area. He was there before a lot of other people. He sees potential in a lot of places that others don't."
So does his firm, which has become known for recognizing and then capitalizing on the opportunity of an area. Whether it's sleek design, an in-depth knowledge of customer preferences, or partnerships with both small landowners and big REITs, like Cleveland-based Forest City and Atlanta-based Post Properties, there isn't a lot of wasted motion at PN Hoffman. Its CEO, who studied civil and structural engineering, set up his company much like he designs a sturdy building: Each part serves a valuable, necessary function.
Humble Beginnings
Monty Hoffman traveled a long road to become CEO of what many consider Washington's preeminent boutique condo developer. The son of a contractor, Hoffman grew up mixing mortar and shoveling dirt. He continued working in construction (and even put in time at a coal mine) to put himself through the University of Pittsburgh at Johnstown. After graduating in 1983, Hoffman took a job building industrial smoke stacks around the country.
As soon as he paid off his college loans, the future leader set out for Fairfax, Va., with $400 and a van. He moved in with some college buddies and took a job as a project engineer at Donohoe Construction Co. After 10 years with the general contractor in Washington, D.C., he wasn't happy.
"In the early '90s, construction was a terrible business to be in," he says.
"I thought I had one shot [to start my own company]. It was desperation."
Sometimes, desperation plants the seeds for inspiration. Hoffman and a friend from Donohoe, Pete Nazelrod (the PN in the company's name), bought an old rowhouse on 16th Street in Washington and converted it into six condos. At the time, with many residents leaving the District because of crime and other city problems, people told Hoffman and Nazelrod they were crazy. But despite a sewer backup the night before, their first open house drew 150 people. Hoffman was relieved. "We used all of our savings, I put a second mortgage on my home, and [I] borrowed money from my parents," he says.
The entrepreneurial duo took their profits from their first success and bought properties in the Logan Circle area, just east of 14th Street. The two friends officially formed the company in 1993 and stayed together until 2004, when Nazelrod retired and moved to Montana.
At first the company stayed under the radar, but its for-sale product soon gained fans. "[PN Hoffman] started this condo craze in Washington five or six years ago," says Sami Kirkdil, president of Bethesda, Md.-based SK&I Architectural Design Group, which has worked on a number of PN Hoffman projects. William Rich, who studies the Washington market as vice president of research firm Delta Associates in Alexandria, Va., agrees. "They are probably one of the first mainstream developers to do luxury product in the District," he says.
Typically, when a developer brings high-end product to formerly blighted areas, critics often aren't far behind pointing to the residents who were displaced and accusing the builder of gentrification. Hoffman, who can get a little prickly on this topic, says these charges don't apply to his company. "We've never displaced anyone," he says. "Our projects have been on derelict and dysfunctional properties, and many times they're on properties with crime. We've gone in and cleaned that up, and I'm proud of it."
Design Structure
Monty Hoffman didn't just invest in transitioning neighborhoods–he persuaded customers to follow him into these areas. Most people familiar with PN Hoffman agree that the firm's quality product is the attraction. "He has very good taste in what he does, and he builds a very good building," says Jon Gerstenfeld, owner of SJG Properties, a D.C.-based apartment owner and manager who partners with PN Hoffman.
While PN Hoffman's designs are contemporary and compelling, they're not simply done for aesthetic reasons–they're based on form and function. For example, the company encountered a challenge when designing Metro, a condo building on P Street. In the initial design, condo owners in the back of the building would have found themselves staring directly across the alley into an apartment building. Based on the suggestion of a junior architect, the company rotated the back of the building 30 degrees so that windows now look down the alley, toward Dupont Circle, giving owners a better view and the building a distinct angled rear profile.
Such awareness of the building's surroundings didn't end with Metro's exterior. The developer drew influence from the neighborhood for interior designs, too. "Church Street was historically a place for auto repair garages," says Shawn Seaman, vice president of acquisitions and development for PN Hoffman. "For us, that meant providing exposed concrete ceilings. In the apartments, we had stained and polished concrete floors, which gave them a more industrial look."
Exposed concrete was definitely something new for the conservative Washington market. "If you look at the quality of his product, it's very modern and very cutting edge," Denecke says. "As opposed to four white walls and beige carpeting, he's gone for the exposed ceiling and exposed ductwork."
Architects who work with PN Hoffman attest to the thought that Monty Hoffman and his colleagues put into the company's buildings. "He cares about trying to develop a large concept throughout construction documents and see it through to the smaller details so that all of those smaller details enforce the big idea," says Chris Morrison, principal with Washington-based Cunningham + Quill Architects, which has worked on a number of PN Hoffman properties.
In fact, small details may be most important to the CEO. Walk a unit with Hoffman, and he's apt to point out the slick number panels beside the door, its space-saving kitchen cabinets, or even the door to the bedroom. The idea for the white, sliding barn door came about in one of the company's design meetings. "It's an industrial door product mounted sideways," Seaman says.
Funky hardware and exposed concrete and ducts do present some construction challenges, though, especially when the subcontractors in your market aren't accustomed to them. That's why PN Hoffman has its own construction company: It's easier for the company to control the quality of the product being built. Still, construction can be a hurdle. "For us, it's hard to get the subs to understand that the plywood they're walking on will give us a finished product," says Dave Tapparo, senior vice president of operations for PN Hoffman. "They have to understand that will be in somebody's unit. You can't let them make any mistakes."
Pulse of the Market
Designing and building appealing properties is one thing. But a real estate deal won't be successful if those buildings don't suit their target markets. "Monty is able to respond to what a particular area or market wants," says Doug Firstenberg, a principal of Stonebridge Associates, a Bethesda, Md.-based developer that has partnered with PN Hoffman. "There isn't a singular design style for the PN Hoffman projects that I see."
That's intentional. "They do a lot of market studies and analysis," banker Denecke says. "They gather a lot of feedback through their Web site and interviews in the sales trailer."
The centerpiece of PN Hoffman's information-gathering missions? The Internet, which has helped the firm create a database with the names of 25,000 interested customers, which the company surveys regularly.
To encourage customers to take its surveys, PN Hoffman offers to put respondents on a preferred list for receiving information about a new project. "When we need information, we can get several thousand responses immediately," Hoffman says. "We ask them about their preferences on finishes and size of units. We often will adjust our design based on the information we get."
Case in point: The research showed that a number of people wanted to live downtown, but property prices of more than $500,000 per unit at many condo buildings were unaffordable for many Washingtonians. So, in PN Hoffman's Alta project, the company decided to trim unit sizes so that they could sell for less–$300,000 to $500,000. "If we made units bigger, we had to charge more," Hoffman says.
When PN Hoffman does do something to adjust its design, having stats to back up decisions make things easier. "They do a good job of selling it [a project] to the bank," says Denecke. "They'll tell us why it's going to be selling at the price points it will sell it for and why it's being built in such a way."
PN Hoffman will even survey the members of their Internet database before they decide on a piece of dirt. "In some cases, we've gone to our customers and said we're interested in getting their input to see if we're building in a desirable area," Monty Hoffman says. "If it is, we ask what kind of residences they would be looking for."
Land Rush
Jim Abdo, president and CEO of Abdo Development in Washington, remembers walking D.C. properties for sale in the 1990s, often running into just one other person: Monty Hoffman. "There were times he and I would bump into each other walking through some old building," Abdo says. "He knew why I was there and I knew why he was there. We both saw the potential."
Today, both Monty Hoffman and Jim Abdo have a lot more company, much of it from out-of-town, when they search for deals. "The national home builders are paying too much," Monty Hoffman says. "They're inflating the wholesale pricing."
Despite the new level of competition, PN Hoffman has no plans to transplant its urban roots. "Our challenge is to continue to find unique opportunities," says Tapparo, the company's senior vice president of operations. "We're not looking to fill a field full of condos."
Instead, the company has continued to prosper by partnering with landowners or large multifamily firms on deals in the District and close-in suburbs. "People do approach us because of our reputation, not only in terms of our design, but our ability to execute," says Josh Dix, vice president of acquisitions and development for PN Hoffman. Among the company's deals: a joint development with Atlanta-based apartment REIT Post Properties, which is working with PN Hoffman on The Condominiums at Carlyle Square in Alexandria, Va.
When SJG Properties wanted someone to develop its land, a prominent local architect, Eric Colbert, sent Gerstenfeld to PN Hoffman. This is another instance where the firm's construction arm was an asset. "We needed someone to do the construction, and that's one reason that we partnered with them," says Ashley Gerstenfeld, principal with SJG.
PN Hoffman has also worked with local governments. At Mather Studios, an extensive rehab project in Washington, it included low-cost artist lofts in its proposal to the District, which owned the land. In Bethesda, it agreed to build a public parking garage below grade and fix a vehicular intersection in exchange for the air rights to build retail, market-rate condos, and affordable housing. "We have relationships and a track record with different jurisdictions where we've purchased or contracted to purchase future projects," says Steve Earle, president of PN Hoffman. "In exchange for a reduction in price, we agree to provide an affordable housing component."
Monty Hoffman wants to do more of these projects in the future, which would develop his reputation as a neighborhood builder and protect his business from a slump in high-end condos.
"We're working on a couple of projects that have an affordable component," the former structural engineer says. "That's a hedge against [a downturn with] the luxury condo product." Still, he says the Washington's expected job growth and high barriers to entry should keep the market steady.
Despite widespread concerns about the condo market in the national press and elsewhere, Joe Bonner, a managing director for Prudential in Parsippany, N.J., thinks his joint venture with Monty Hoffman will be fine. "He's very cautious about what he does, he's very selective about the sites he works, and he targets a product for a market," he says. "Everyone is subject to potential downturns in the market, but I think his product, given the quality of what he does, can weather the storm."
PN Hoffman
- What: Boutique multifamily developer
- Founded: 1993
- Headquarters: Washington, D.C.
- Employees: 80
- 2005 Revenue: $100 million
- Units owned/managed in 2005: 1,000 rentals plus retail
- Units started for 2005: 650
- Geographic coverage: Washington metro area
- Top goal for 2006: Grow the company via diversification. "We've added a new brokerage division, we're pursuing larger complex redevelopment opportunities, and we're continuing development and construction of our pipeline of mixed-use projects," CEO Monty Hoffman says.
Leadership Lessons - Monty Hoffman
- Age: 44
- First Job: Construction worker
- Desired Company Impression: "That we made a difference in the city and helped lift up neighborhoods."
- Favorite Quote: "My most recent is, 'Pain is temporary, but glory is forever.' It's on my son's wrestling t-shirt, but I think it's a good long-term business strategy, too."
- Biggest Challenge: "Finding good deals is our biggest challenge right now. Some developers are willing to pay too much for smaller deals with the anticipation they can pass it off to their customers. I'm not as confident in their ability to do that."
Three Rules For Retail
The Hudson and DeSoto apartments on P Street in Washington present exactly the kind of mixed-use Mecca all developers and residents seem to want. You can go to downstairs to the ATM for cash and spend it on a sandwich and a soda next door at Logan Tavern. If you crave something more unusual, you can go for Latin cuisine at Merkado or pick up sesame noodles from the Whole Foods across the street. And, except for the grocery store, all of these urban amenities sit below PN Hoffman's DeSoto and Hudson apartment complexes in street-level retail space. Here's Monty Hoffman's advice for setting up your mixed-use project for similar success:
1. Vary the lease terms. A key to long-term success with any mixed-use project: keeping the project as full as possible. "We have leases that go 10 years and some that go three and an option for two," Hoffman says. "We do that intentionally so the building isn't vulnerable to all of the tenants leaving or negotiating at the same time."
2. Vary the retail occupants. Restaurants and coffee shops are the best retail customers because they can become meeting spots–but a developer can't be closed-minded. "Logan Tavern, Merkado, and Starbucks are the [retail customers] you need," Monty Hoffman says. "Wachovia is the least desirable neighborhood amenity there, but you need banks."
3. Vary the sizes. The debate over large chains versus a local business plays out all the time, and it's something Monty Hoffman considers in his retail space. Large chains offer stability but aren't always the best choice. "Starbucks is a national chain and has a much better credit rating than a smaller shop," he says. "But if you have the uniqueness and character of a local business, everybody loves that. We're looking for a combination of unique retail and financial strength that can stay for the long term."