Feeling right at home as chief executive

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Edward Pettinella is about to fulfill a dream 30 years in the making.
On Jan. 1, Pettinella, executive vice president of Home Properties Inc., will become CEO of the Rochester-based real estate investment trust, replacing outgoing co-CEOs and company founders Nelson and Norman Leenhouts.
For Pettinella, 52, taking over as top executive of one of the most well-respected firms-not to mention one of the top publicly traded companies-in Greater Rochester is the culmination of years of hard work, patience and quiet determination.
“My goal had always been to work in a corporate environment-in a public-company environment,” he says. “I felt that was my first love and matched up best to my background and talent.”
The move completes a succession plan that began when Pettinella joined Home Properties, a multi-family apartment
REIT, three years ago. But it also tops off three decades in which he rose steadily through the ranks locally of banking, finance and, finally, real estate.
“I feel like I’ve been here 20 years,” he says of his work at Home Properties. “I feel very comfortable.”
Since Pettinella joined the company in 2001, the national economy has suffered a downturn followed by weak growth, hurting REITs across the board. Home Properties’ funds from operations, the best performance measure for a REIT, fell from $136.6 million in 2001 to $121.7 million in 2002, a 10.8 percent drop, Securities and Exchange Commission filings show. Net income fell from $64.5 million to $44.9 million.
But Home Properties is holding its own, ranking at the top in its sector for same-store net operating income growth. NOI grew from $183.3 million in 2001 to $189.9 million in 2002. Rental revenues also increased, from $308.2 million to $320.8 million-a 4.1 percent rise.
And shareholders have fared well since Pettinella joined the firm. The annual dividend increased from $2.31 a share in 2001 to $2.41 a share in 2002. Meanwhile, Home Properties’ stock (NYSE: HME) has increased from less than $30 a share to more than $40 a share during his tenure. Its shares were trading at $40.85 midweek, near the 52-week high of $40.98 registered Dec. 8.
“The three years he’s been with us have been very difficult because of the economy,” co-CEO Norman Leenhouts says. “But compared to others, we’ve had our best three years. It’s no coincidence that he’s been here during that period.”

Modest beginnings

Reaching that comfort level was no easy task, however. Pettinella grew up in a modest, working-class family of four in Batavia, Genesee County. His father, Charles, was a television and radio repairman; his mother, Margaret, worked as a telephone operator.
Pettinella’s first job was as a stock boy at the local Star Market. Around the same time, he worked as a short-order cook at Checkerboard Restaurant. A third job involved painting transmission towers for Niagara Mohawk Power Corp.
The last was a job few people wanted, but Pettinella did it in large part to save money for college.
“I was fearless back then,” he says, chuckling. “I’d walk across the beam, 120 feet up in the air, sometimes not holding on, with two buckets of paint. I have trouble going up 10 feet now.”
The hard work paid off. In 1973, Pettinella graduated from SUNY College at Geneseo with a bachelor’s degree in finance and management. He was president of the senior class and delivered the commencement speech at graduation.
“That was kind of an honor back then,” he says.
Kevin Gavagan, a longtime friend who first met him in college, says Pettinella is a natural leader. He describes him as a people-person with an engaging-and self-effacing-sense of humor.
He credits Pettinella for recruiting him to join a Geneseo business-school advisory council and later the college’s foundation board. Gavagan still is involved with both.
Pettinella does the same for others, helping their careers and plugging them into the community network, Gavagan says.
“It doesn’t necessarily require 30 years of friendship for him to do that,” Gavagan says. “He’s a very approachable and giving guy.”
Pettinella is generous with his time, too. This year, he is serving as chairman of the annual campaign for United Way of Greater Rochester Inc.
“I like to give back to the community, both with my time and my money,” he says.

Up the ranks in banking

After college, Pettinella became a management trainee at Community Savings Bank, the predecessor of Rochester Community Savings Bank. He quickly worked his way up to bank branch manager, but soon knew he wanted to work on the financial side of banking.
He took two years off and earned his MBA degree at Syracuse University in 1976, specializing in finance, organization and management.
Upon graduation, Pettinella became the first investment analyst officer at CSB. He wrote economic reports, analyzed stocks and bonds, and researched new investment programs.
“It was a lot of work, but it gave me a great base,” he recalls.
By the late 1970s, Pettinella longed for more. An ad in the Wall Street Journal prompted him to apply to Ford Motor Credit Co., where he became a financial sales manager in Detroit. The position offered him a chance to work for the credit arm of a major auto company, and an opportunity to get out from behind a desk.
“I can sit in a room and analyze things, but I also like going out and talking,” he says. “This job offered that.”
Pettinella probably would have stayed with Ford for much of his career, but a year after taking the job, his boss left. Pettinella returned home-and returned to CSB, becoming vice president for investments.
Five years later, in 1986, he led the bank’s initial public offering, raising nearly $200 million in capital. He managed a $3.8 billion asset and investment portfolio.
Over the next decade, he worked his way up to senior vice president, president, chief financial officer and treasurer, and ultimately executive vice president and chief operating officer of Rochester Community Savings Bank. In 1997, he was part of the team that managed the sale of the restructured RCSB Financial Inc. to Cleveland-based Charter One Bank.
In a little more than 10 years, the bank’s stock price went from $14 a share to $70 a share at the time of the sale, Pettinella recalls.
“That was a huge success for the shareholders,” he says, matter-of-factly.
Pettinella stayed on as president of the New York Division of Charter One, helping the bank acquire Albany-based Albank Financial Corp. in 1998.
But once again he longed for more. Pettinella was ready to be a CEO.

A new challenge

Pettinella began to look for opportunities in 2000, along the way considering moves out of town, including positions in Cincinnati and New York City. But his family-wife, Elaine, and sons, Ryan and Cory-did not want to leave Rochester. He decided to stay.
Around the same time, a friend told him the Leenhouts brothers at Home Properties were looking for a successor.
He met with Norman Leenhouts first, who says he was attracted to Pettinella’s strong capital-market experience. Here was someone who had led a company’s IPO, had spent years working on mergers and acquisitions, including the sale of the bank where he had worked for nearly 25 years, and who was tapped into Wall Street investors.
It was exactly the kind of experience Home Properties sought, Leenhouts says.
“He’s used to dealing with Wall Street, he’s used to dealing with investors,” Leenhouts says. “He knows their language.”
The company already had plenty of hands-on, entrepreneurial types, he adds. What it needed was someone who could be a strong corporate leader.
Pettinella’s lack of experience in real estate did not dissuade Leenhouts.
“We’ve got plenty of hands-on; we need a leader,” he recalls thinking at the time.
Pettinella was attracted to Home Properties for several reasons. It was an established public company, it had the potential to grow and it had a big financial need-Home Properties needed someone like him to help it win Wall Street financing so it could proceed with its acquisition plans.
The company expects to make acquisitions totaling $130 million to $150 million by the end of this year and is looking to make $250 million in acquisitions next year.
“It looked like a huge growth company that was already on the fast track,” Pettinella says. “I saw the ability to use my talents, manage an operation that’s in 13 states (with) 2,000 people, utilize my finance and public-company operating experience, and learn simultaneously from the two gurus, Norm and Nelson.”

Honing the strategy

Pettinella joined Home Properties in 2001. One of his first goals was refocusing the apartment REIT’s strategy to target seven geographic markets: suburban New York City; Washington, D.C.; Baltimore; Philadelphia; Detroit; Chicago; and Boston.
The idea, he explains, was to enter built-out, high-barrier-to-entry markets with little competition from new housing developments. Home Properties’ strategy is
to look for an older, low-rent apartment complex-“it looks a little tired,” he says-in a good, high-rent neighborhood.
“Low- to middle-income is our sweet spot,” Pettinella adds.
The company invests $15,000 to $20,000 per unit, updating kitchens, bathrooms, common areas and the like over a seven-year period. That investment pays off in the higher rents tenants are willing to pay, Pettinella says.
In addition, turnover is less of a problem because there is little competition and the cost of buying a single-family home in suburban New York or Washington is exorbitant. The fact that the average age for a tenant is 38, and generally not looking to start families and move out, helps, too.
“These are some of the reasons our performance has been at the top,” he says.
Toronto and Southern Florida are two other markets that Home Properties has its eye on. Pettinella declines to disclose details-“We’re doing our homework as we speak,” he says.
The company’s forays into major metro markets does not mean Home Properties will abandon Rochester, Pettinella says. No money will be spent acquiring new apartment complexes in Upstate New York, but the Flower City will remain the company’s home for years to come.
Besides, Home Properties needs a little diversity and stability in its portfolio. Markets like Upstate New York and Detroit provide that.
“No one market can rock us,” he says.
Pettinella’s other major goal upon joining the company was to discontinue three of the REIT’s businesses: commercial property management, land development and affordable housing.
Home Properties will exit the first two on Jan. 1, when commercial property management and development are transferred to Home Leasing LLC, a company owned by the Leenhouts brothers. As for affordable housing, Home Properties plans to sell off all of its assets by the end of the first quarter of 2004, including interest in 14 apartment complexes in Greater Rochester.
When he is not working, Pettinella enjoys running, tennis and golf. He ran on teams, competing in national meets, up until age 35.
“I’ve run pretty much my whole life,” he says. “I believe it keeps me healthy.”
He resides with his family in Pittsford. Son Ryan is a freshman at the Wharton School of Business at the University of Pennsylvania, while son Cory is a junior at McQuaid Jesuit High School in Brighton.
Ryan Pettinella, who also attended McQuaid, helped lead his high school basketball team to section, regional and, ultimately, state championships. The team was ranked No. 3 in the national USA Today poll last season.
“That’s what I do in my spare time,” Pettinella says. “I travel and watch him.”

The road ahead

Looking ahead to his first year as CEO, Pettinella anticipates a seamless transition. He expects to form an eight-member management team in January that will outline goals for the coming year.
Among those are $250 million in acquisitions, $50 million in divestitures, enhanced marketing and sales, shored-up customer service, upgraded technology and a move to aggressively recruit new blood.
His ultimate goal is to make Home Properties a dominant player-a household name so to speak-in the seven markets it does business in.
“We’re in a unique niche,” Pettinella says. “My role is to exploit that niche.”
([email protected] / 585-546-8303)

12/12/03 (C) Rochester Business Journal