Tag Archives: Toll Brothers

Toll Brothers experiences strong growth

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Toll Brothers, known for their construction of large homes (McMansions to critics), recently reported strong growth:

The company hasn’t figured out some amazing new way to build houses more efficiently and get more money out of every house built; instead, it is just building more. A lot more. Compared with a year ago, revenues were up 48 percent, and the number of homes built rose 44 percent to 1,088. Toll Brothers’ gross margin—which measures revenue from sales—was 24.6 percent in this quarter compared with 24.2 percent in the fourth quarter of 2011.

The full year was successful for the company as well. Its net income was $478.1 million compared with $39.8 million last year. Pre-tax net income shows a more stark story of decline and recovery: for this year it came in at $112.9 million versus a pre-tax loss of $29.4 million in 2011.

One figure that most directly shows this significant increase in building activity is the company’s “net contracts per community,” which is comparable to what retailers report as “same-store sales.” This measure shows how much Toll Brothers is building in the areas in which it already operates. As such, it directly reflects the increasing demand for homes, as opposed to the company’s expansion into new markets. Net contracts per community were up 33 percent from the fourth quarter of last year and 60 percent from this fiscal year to last, the highest yearly gain for the company since 2006 and the highest quarterly increase since 2005.

The housing market may still be lagging but this Toll Brothers data suggests the demand for larger homes has increased in the last year. See more of the financial details here.

With Toll Brothers profits up, are McMansions on the comeback?

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Marketplace suggests McMansions may make a comeback. Here is some of the evidence:

This hour, the luxury home-builder Toll Brothers said profits in the latest quarter jumped 46 percent over last year. The CEO says he sees recovery across most of the country…

The [New Hampshire] builder says there’s a real difference between what his clients want pre- and post-recession. Before it was family homes — three-, four-car garages…

Spain: And I think today people are more or less getting back to basics. They are just looking to downsize. Single-floor living. And then have moderate finishes to fit their budgets.

It may be back to basics for Spain’s customers, but Fred Cooper with Toll Brothers, one of the nation’s top builders, says that’s not what their clients want.

Fred Cooper: While initial buyers came in thinking maybe they wanted the lower-priced home, they ended up predominately buying the larger one. That’s what they want.

So we may see more McMansions, but Los Angeles architect Buzz Yudell says the funny thing is we won’t see as much of them.

It doesn’t appear clear-cut here. Toll Brothers may have more profits but perhaps this means they have effectively reached certain segments of the housing market. At the same time, the majority of builders might be scaling back a bit and building units for those who have smaller budgets.

This raises an interesting question: at what point could we truly say that McMansions have or haven’t officially made a comeback? Who gets to decide this? We’ve heard this before – see these two examples from earlier this year. A few signs we could look at:

1. Like this article does, the fate of luxury builders like Toll Brothers might be the deciding factor. Presumably, a majority of them would see profits. However, these factors could be the result of other factors like builders being more efficient.

2. The square footage of the average new home goes up. This figure did increase this year. However, Australia just passed us again.

3. Perhaps all it takes is public perception. If more people feel like McMansions are being built, this is enough.

3a. A problem with this: perceptions of what constitutes a McMansion could change in the future. In a recession, is a 2,500 square foot home, the size of an average new home now seen as bigger than ten years ago? Or perhaps bigger homes could be more green, thus reducing the stigma of being a McMansion.

Regardless of the options I laid out, I suspect the media will have a fun time debating the comeback and/or death of McMansions for a while now as the term is such a loaded time.

As it encounters opposition to a NYC project, can Toll Brothers escape its McMansion past?

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Residents in the Carnegie Hill neighborhood in Manhattan are opposed to a possible development from Toll Brothers:

Following news that the builders, who have slowly been expanding their Manhattan presence, had closed on the purchase of a townhouse at 1110 Park Avenue and also had their eye on neighboring 1108 Park Avenue, Tolls’ new neighbors are trying to stop them.

Toll Brothers has kept mum about the whole thing (a rep told the Observer that the company is not commenting on the transaction), but rumors are circulating that the developer plans to build a 15-story tower where the two townhouses now stand, according to Curbed.

It comes as no surprise that nearby townhouse dwellers are not super happy about the possibility of a new tower rising in their midst. Even if the developer’s New York properties are a far cry from McMansion, they do share at least one characteristic—size.

Curbed reports that not only are residents writing letters to get the Landmarks Preservation Committee to extend the historic district from 86th to 96th Street (the buildings lie right outside the Carnegie Hill historic district), but residents of neighboring 1112 Park Avenue may have hired a lawyer in attempt to block any project that could block their view. (Never mind that theirs, and just about every other building on Park, is now quite large, the days of townhouses and mansions on the boulevard long since passed.)

I wonder how much of this opposition is driven by the fact that Toll Brothers is behind the project. If you look at a picture of the properties in question, it looks like the neighborhood has already moved beyond just having townhouses. During the building boom of the 1990s and early 2000s, Toll Brothers became well-known because of their “estate homes” (McMansions to critics). Even though the company has branched out into more urban projects (see this earlier post about another NYC project), can the company ever escape the image that they build oversized and architecturally incongruent structures? Just hearing the name Toll Brothers, many defenders of traditional neighborhoods as well as opponents to sprawl likely cringe and think about a corporate behemoth who throws their weight around. Both critics and media sources were very effective in making Toll Brothers the poster child for McMansions and ideas such as excessive American consumption. While the company seems to be trying to fly under the radar in this particular project, perhaps they will have to instead be aggressively friendly to the community and stress their good intentions.

Toll Brothers still moving forward

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While some may claim that the McMansion era is over, one of the prominent builders of some of these homes is still moving forward. Here is an update on Toll Brothers:

Luxury-home builder Toll Brothers has rebounded impressively since the start of October, along with its industry. The stock has risen by two-thirds and now trades at 71 times forward earnings estimates.

This is the case even with a reported quarterly loss announced Monday:

Toll Brothers Inc. swung to a fiscal-first-quarter loss as fewer deliveries and increased cancellations weakened revenue for the luxury-home builder.

But the company, known for its sprawling suburban homes and high-end urban condos, said it was optimistic because contracts were the highest for any first quarter in five years. It also sees recovery along Florida’s east coast and in Phoenix, markets hard hit by the housing crash…

Revenue dipped 3.6% to $322 million. Analysts expected a per-share profit of two cents on $361 million in revenue, according to a survey conducted by Thomson Reuters.

It sounds like some are optimistic that the housing market is turning a corner or has already reached its bottom. On the other hand, it sounds like there is still a lot of potential volatility. Here is a mixed report:

Homebuilders have struggled to compete as foreclosed properties sell at a discount and the U.S. unemployment rate remains above 8 percent. Toll Brothers depends on people selling their homes and buying its more expensive residences.

Sales of previously owned U.S. homes rose in January to an annual pace of 4.57 million, the highest level since May 2010, the National Association of Realtors reported today from Washington. The results were below the median forecast of 4.66 million by 74 economists surveyed by Bloomberg…

Toll Brothers’ earnings miss wasn’t “significant,” because it was caused by the longer period needed to complete high-rise condos in New York, which accounted for its most profitable sales, Chief Executive Officer Douglas Yearley Jr. said on Bloomberg Television today.

“This is the best we’ve felt in about five years,” he said on “Street Smart” with Trish Regan. “For the first three weeks of February, our orders are up significantly. We’re seeing deposits up. We’re seeing traffic up.”

My translation: we are still far from clearly positive results in the housing market.

I don’t know how many houses the biggest builders build but the figures from Toll Brothers are intriguing. Toll Brothers attracts a lot of attention but they “delivered 564 homes in the latest quarter, down slightly from 570 homes a year earlier.” This is not a lot of homes. I assume Toll Brothers gets more attention then because they tend to build high-end homes?

Example of advertising language: “executive home” versus “McMansion”

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In a longer article about the role of truth in advertising, an advertising executive notes how two different terms about a house raise two very different ideas:

Language gives marketers power to construct positioning. Consider the difference between using the following terms to describe the exact same house: “executive home” or “McMansion.” The descriptors shape a relative interpretation and even can deliver a value judgment.

Here is a brief overview of what is associated with these two terms:

1. McMansion: mass produced, low quality, emblematic of suburban sprawl, residents are social strivers, too large, not green, more about glitz than substance.

2. Executive home: aspirational (who wouldn’t want to be a executive?), quality, a home (which implies not being mass produced), impressive with gravitas (the executive label).

This difference between terms is not inconsequential: Toll Brothers, one of the biggest builders of large homes in the United States, has claimed to build “executive homes” and does not like the McMansion label.

The decision about whether to call a home a McMansion or an “executive home” often depends on one’s standing and relationship to the designated home. For example, a neighbor who opposes the teardown next door is likely to call it a McMansion. The builder who is putting up the new luxury home is likely to call it a McMansion while an architect who is building a similar home several miles away shuns the McMansion label. So there might just be multiple advertising truths about the same home.

Big home builders in trouble during market downturn, adopting new strategies

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The Wall Street Journal reports on the financial troubles of several big builders and the new strategies others are adopting to push forward:

“The market is not deep enough or big enough to support all the builders,” said Alex Barron, a founder and analyst with the Housing Research Center, an independent research firm in El Paso, Texas. “There needs to be some consolidation. I don’t think that means [mergers or acquisitions]. I just think that means there has to be a shakeout.”

Mr. Barron declined to speculate about any specific companies. But two operators that other analysts are watching closely are Hovnanian Enterprises Inc. and Beazer Homes USA Inc. Some analysts believe both companies are running low on cash. Both companies have seen their stock prices decline nearly 60% so far this year—making them the sector’s biggest decliners—and both have traded below $2 a share…

Both Lennar Corp. and Toll Brothers, for example, are working out distressed real-estate loans, a move that is being cheered by many industry analysts. Toll, long known as the builder of suburban McMansions, has expanded into urban areas building condominiums, which continue to be some of its strongest performers.

Hovnanian’s strategy is to keep acquiring land lots and keep building a broad variety of homes. In the second quarter, it spent some $125 million of cash to purchase about 1,440 lots and to develop land.

I’ve wondered before if these new strategies might change the image of some of these builders who built many large suburban homes in recent years.

It would be interesting to consider what the housing industry would look like if a prolonged downturn forced these big builders out of business. Are there some regional builders who could then step into the gap? Would we have a return to smaller builders a la the pre-Levittown days?

Toll Brothers, former McMansion builder, near completion of luxury condos in NYC

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During the housing boom of the 1990s and 2000s, Toll Brothers was well-known for its large homes that they often called “estate homes” and critics called “McMansions.” But now Toll Brothers is branching out into new kinds of construction, including luxury condos in New York City:

The kinder, gentler Toll Brothers are debuting new luxury condos at 205 Water Street in Dumbo next month, and to support that image, the 67-unit “modern loft” building just got a huge PR boost from a Wall Street Journal preview calling it “unerringly contextual, but also elegant, and even at some points, whimsical.” Unlike Toll Brothers’ previous, shinier attempts in Brooklyn, the seven-story scale of 205 Water fits right in with its landmarked historic district (zoning allows up to 12 stories) and the rusty steel and concrete facade by architects GreenbergFarrow takes cues from the nabe’s industrial past. Adhering to the LPC’s requirements meant constructing 205 Water out of reinforced architectural concrete, a “temperamental material rarely used anymore as the primary material in new buildings” that projects a “world-weary sort of workingman’s facade” to the street. Upper stories are clad in cor-ten steel, a lighter material also seen on the Ford Foundation headquarters in Manhattan.

I wonder if the people at Curbed are disappointed since it sounds like Toll Brothers is building fewer homes they would view as McMansions and instead built contextualized structures that fit in more urban neighborhoods that maybe could even be considered green. Could Toll Brothers turn their image around?

Nostalgia for the early 1990s: McMansions, SUVs, and more

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The early 1990s are not that long ago but this comparison of the 2011 Ford Explorer and the 2011 Jeep Grand Cherokee is wistful for this earlier era:

The early 1990s are starting to seem like a long time ago. McMansions were barely a twinkle in the Toll brothers’ eyes. Apple stock was less than fifteen dollars a share. The Iraq war was going great. A tea party was something for little girls. And Justin Bieber hadn’t even been born.

In the U.S. car market, perhaps the biggest difference between then and now is that the SUV, as an automotive force, was in its infancy. Sure, Wranglers, Blazers, Broncos, Scouts, and the like had been bouncing along on the fringe of the American automotive scene for a while, but their numbers were small.

I am interested in this mention of McMansions, which has several connotations in these opening paragraphs:

1. It is not unusual to lump the McMansion in with other consumer objects. Perhaps its most common pairing is with the SUV, often considered an oversized and ostentatious vehicle.

2. The Toll Brothers, a large American home builder, are often tied to McMansions. This builder preferred to call their larger homes “estate homes” but critics ended up dubbing them McMansions. Read a quick summary of Toll Brothers history here. The term McMansions really started being used in earnest in the late 1990s.

3. There seems to be a growing idea that the McMansion might have been a blip in American history. This review pegs the McMansion as beginning in the 1990s and other recent commentators (see here and here) have suggested McMansions are done and will not return. The jury is still out on this one: the size of the average American home grew steadily from the 1950s until just a few years ago.

(4. An unrelated issue: can we already have nostalgia for a time just 20 years ago? Think of this in terms of “oldies” on the radio: it’s hard to even find 60’s music on the radio and now the 80’s and 90’s are considered old. How far can we compress the past in order to develop a prepackaged nostalgia?)