Anyone who encounters Jonathan Holtzman can attest that one thing he clearly doesn’t lack is passion. It started with his childhood dream to become a professional race car driver and has since evolved into a 40-year mission to transform the multifamily industry, first at the helm of his family’s nearly 100-year-old company, Village Green, and now as the co-chairman & CEO of his new venture, City Club Apartments (CCA). Believing in the values of customer service, high-quality amenities and brand recognition, Holtzman successfully turned around his family’s once-floundering apartment business—amassing a portfolio of 45,000 units valued at nearly $4.5 billion along the way—and now maintains these same standards at CCA, which in just under two years has grown from two to more than 250 employees, 10,000 units under ownership and a $500 million development pipeline.
But Holtzman’s rise to the top was no easy feat, as he learned early on that family businesses come with their own challenges. His grandfather, Joseph, founded the firm in 1919 as Joseph Holtzman Homes, a single-family homebuilder in Detroit. The firm became Holtzman & Silverman in 1934, when Joseph partnered with his brother-in-law, Nathan Silverman, and the next generation, Irwin “Toby” Holtzman and Gilbert Silverman, took over in 1966. The second generation branched out into office, industrial, retail and apartments, establishing the Village Green name for its garden-style apartment communities and property management arm. When Jonathan Holtzman joined the business in 1978, as a recent Michigan State University graduate making $1,000 a month, he immediately recognized the lack of sophistication in the apartment side of the company.
“My grandfather and father made all their money from building single-family homes, condos and land development, so apartments were secondary,” Holtzman expounded. “But I had the understanding that the person who pays you rent is a customer. The person who services that customer is a professional. … I don’t know one successful business today that spends so little time understanding what the customer wants, where they want to live and what they will pay a premium for.”
Holtzman has always believed the apartment industry should emulate the hospitality sector, and while Holtzman & Silverman was one of the first companies to brand their apartments, he found it difficult to execute his vision as a 23-year-old with little direction or responsibility in the company.
“The apartment side was the least profitable, the least important and nobody else was interested in it,” Holtzman recalled. “But that was an excellent opportunity for me.”
To bring Village Green to the next level, Holtzman knew he’d have to improve the company’s property management and customer service. He remembered the shock he felt the first time he visited a Village Green community, which was losing $300,000 per year.
“The leasing agent would give the keys to a prospect and say, ‘The model is down the hall if you want to look at it,’” he recalled. “The people were untrained, unsupervised, undercompensated, and so the result was an economic disaster.”
He set out to grow the company’s third-party management business and partner with institutional investors to acquire and develop communities, building up enough capital by the mid-1980s to buy out eight partners, including the second Holtzman & Silverman generation. Over that time, the company’s sole focus became multifamily with mixed-use components and its name transitioned to Village Green Cos. As a 50 percent owner alongside third-generation Gilbert ”Buzz” Silverman, Holtzman realized not all residents could afford the rents of newly developed apartments, so the firm began repositioning older communities with upgraded amenities, finishes and services. He created Village Green’s second brand, Village Park, for these projects.
He also expanded development throughout the Midwest, and created an in-house marketing and public relations firm, Village Green Communications; a corporate furnished apartments business called Village Suites; and a professional training and recruitment program, the University of Village Green.
“From the late 1960s to the early 1990s, apartments were generally suburban garden and the management of apartments was not a profession,” Holtzman recollected. “When I looked at how apartment employees were trained and compensated, it became clear that was the biggest opportunity” to achieve higher rents and occupancies and lower operating expenses.
By the early 1990s, Silverman had branched off to create Silverman Cos.—which sold its homebuilding business to Toll Bros. Inc. in 1999—leaving Holtzman to search for a new partner. Wanting to bring in a Chicago-based company as Village Green was expanding in the Midwest, Holtzman interviewed several prominent firms in 1994 before deciding on Ronald Benach and Wayne Moretti of Concord Homes—a Chicago-headquartered firm that Benach sold to Lennar Corp. in 2002. At the height of REIT growth in the 1990s, Holtzman also considered going public by merging with former REITs Avalon Properties and Bay Communities—which became AvalonBay Communities in 1998—but the combination fell through due to “economics and philosophy,” Holtzman noted. The company remained private and continued partnering with capital sources such as life insurance companies, pension funds and wealthy families and individuals.
Over the next 17 years, as the apartment industry became more sophisticated and segmented, and renters began migrating to cities, the trio created two more brands: Regents Park, targeted to older adults and offering higher-quality amenities and finishes, followed by City Apartments, for young professionals and empty nesters in urban markets.
“I emulated the hotel industry in terms of creating brands and market segments,” Holtzman noted. “Hotels are famous for their flags. The apartment industry, for whatever reason, doesn’t embrace this idea that a brand name means something.”
To give residents a hotel-like experience, Village Green’s communities offered luxury amenities including rooftop decks and ground-floor retail and dining, as well as a variety of customized floor plans and concierge services.
“We can’t continue to say the apartment industry is just made up of a few floor plans and what’s the average rent and cap rate. … We have to start embracing that there’s a premium for doing things for the customer,” Holtzman declared.
The firm’s unique designs often helped Village Green win competitive contracts, noted Jack Boarman, partner at Minneapolis-based architectural firm BKV Group, who has worked with Holtzman for more than a decade on projects in Cincinnati, Minneapolis, Chicago, Pittsburgh and Ann Arbor, Mich.
“He’s probably one of the strongest design-oriented developers we’ve ever worked with,” Boarman admitted. “Every project has a boutique uniqueness about it, and he builds a very strong brand that relates to that particular site. But underlying the uniqueness is a constant focus on the resident and the value of what’s included in the project.”
One such project was Eitel Building City Apartments, constructed in 2011 as an historic adaptive reuse of the 1912 Eitel Hospital in Minneapolis. Village Green won out against four other firms, all of which were local developers. While BKV was not the original architect on the project, Holtzman’s design and historic preservation experience convinced Boarman to come on board.
The development was a challenge, involving the repurposing of a 1960s elevator core in a six-story historic building and a five-story wood frame construction with rooftop penthouse units and an amenity deck. Holtzman used historic tax credits to finance the work.
The fact that he works on such complex projects, or “goodies,” as he calls them, “differentiates him from many other developers in that he will always work on the difficult deals, and that creates enormous opportunity,” noted Don Pafford, central regional manager of U.S. Bank’s REIT banking group, who has provided capital for several Village Green and CCA projects, with loans ranging from $30 million to $60 million.
Developing a reputation as a leading multifamily developer with more than 40,000 apartments under management, Village Green in 2010 attracted the attention of a large capital partner, Sammons Enterprises. The firm proposed that its real estate arm, Compatriot Capital (CCI), buy a 50 percent stake in Village Green’s operating companies and provide institutional joint venture equity on its development deals.
Coming out of the Great Recession, “it was a unique opportunity for Village Green to have a long-term capital partner to grow our management business and provide the capital as we bought and developed our four brands,” Holtzman said. Looking to be bought out, Moretti and Benach sold their interest to CCI for $15 million in December 2011.
Five years later, however, Holtzman realized he and CCI had differing views on the future of the company. While Holtzman believed that holding properties for the long term allowed him to invest in high-quality management and services, he found that institutional investors often see apartments “as being a commodity that is bought and sold,” he said. “There’s this continuing trend of institutionalizing apartments … the driving decisions are based on the investor and the capital, and apartments are built to be sold to a buyer, not like communities that will be owned and operated for a customer long term.”
Fortuitously, he found a kindred spirit in Canadian investor Alan Greenberg, former president & COO of second-generation family business MintoUrban Communities Inc., which focused on high-rise condo and rental development. The two became friends some 17 years ago, when Village Green was looking to open a Toronto office, and while that didn’t pan out, they stayed in contact.
Bonding over the “good and bad about a family business,” Holtzman and Greenberg discussed a vision for creating a new venture, CCA, with the goal of becoming an international luxury brand focused on customer service and hospitality.
In June 2016, CCI bought out Holtzman’s 50 percent interest in all of Village Green’s operating companies. Holtzman retained ownership of the 10,000-unit, 30-community portfolio valued at $2 billion; Village Green continued to manage it, but began phasing out a year ago. Holtzman gave up the Village Green brand names, but took with him the company’s $500 million pipeline, which included properties in various stages of development in Cincinnati, Detroit, Kansas City, Louisville, Pittsburgh and Chicago, with plans for the East Coast.
“The challenge with partners is agreeing on a business plan and a philosophy, and when you have a good and a bad economy, it shouldn’t take away from the core principles,” Holtzman observed.
Coming full circle
While CCA has been operational for just under two years, the company has grown substantially. Having dropped from 1,200 employees to two, CCA is expected to have a staff of 300 by June 2018. To fulfill its vision of being customer-focused, the company has brought on the majority of its employees from the hospitality industry. This included the May 2017 hire of Don Gillette, a former MGM Resorts and Four Seasons executive, as vice president of people and culture. Property managers’ compensation is performance-based, and executives are awarded a stake in the company and its real estate, ensuring that “everybody’s interest is exactly aligned. What’s good for the renter flows all the way up to everybody in the company,” Holtzman said.
CCA has also streamlined its business, rebranding all prior Village Green communities to its new brands, Village Club and Regents Club, exiting the corporate furnished apartment and third-party management businesses, but keeping an in-house advertising and PR company called City Club Design.
The firm’s business plan is to develop three communities per year from the Midwest to the East Coast, with nine projects underway or planned in Cincinnati, Detroit, Minneapolis, Kansas City and Chicago.
BKV Group is working with CCA on the Cincinnati project, dubbed City Club Apartments—CBD Cincinnati, a nearly $70 million transformation of the historic 309 Vine building from offices into 294 luxury apartments, Class A creative office space, street-level retail and restaurants.
“Everything Jonathan does is trendy, edgy, high amenity and well thought out,” observed Pafford, whose firm provided debt capital for the project.
Over the next few months, CCA will also be completing the buyout of CCI’s interest in two final communities, located in Pittsburgh, and it expects to be fully separated from Village Green when CCA takes over management of all 30 properties.
Eventually, Holtzman hopes to expand CCA to Europe and Asia. And with all his employees’ interests aligned, he’s confident the company will carry out this vision as he is ready to give up the CEO title on Jan. 1, 2019. He and Greenberg are set to become executive chairmen of the company, with the new CEO being announced later this year.
“We can now take this business in a similar direction of other family businesses that have transitioned from a family member starting, creating and driving the business, but then at a certain point if that family business doesn’t have siblings or children or philosophically thinks it’s time to shift toward professional management, that’s what we’re doing,” Holtzman said. “But the philosophy hasn’t changed, because it’s all been based on customer service.”
You’ll find more on this topic in the May 2018 issue of MHN.