HUNTINGDON VALLEY, Pa. -- One thing is clear: Bob and Bruce Toll are business conservatives. In most industries, that penchant might brand them as plodding conformists. But among people who develop residential communities, it has made them consummate contrarians.
Other developers willingly buy overpriced land, figuring that its value will rise even higher. In the 24 years since Robert I. Toll and Bruce E. Toll started Toll Bros. Inc. here, they have not bought anything they did not think they could flip immediately at a minimum 10 percent profit.
And while other developers ride a boom to its exhilarating peak in hopes of making enough money to last them through the inevitable and wrenching market plunge, Toll opts for incremental growth, forgoing the highs to avoid the lows.
Toll, whose Maryland developments include Green Spring Hunt in Owings Mills and Burleigh Manor in Ellicott City, may have missed some deals because of its approach, but it has also made it through three recessions without a stain of red ink.
Countless developers have gone under in the last year. But Toll, which builds as many as 800 homes a year, will probably manage to hold its revenues steady this year, at about $200 million, making it among the nation's largest residential real estate developers.
And analysts and Toll executives alike say there's a good chance that the flurry of development in which the company is currently indulging could ratchet those revenues to $250 million next year.
"There are builders out here who, 20 years ago, were bigger than we dared hope we could ever be," said Bruce Toll, 48, the company's president. "Now we're buying their properties at fire-sale prices -- and we don't even have to worry about smoke damage."
While most of the industry drowns in debt, Toll has slashed its debt in half, to $50 million, and has tons of cash at its fingertips. With more than $200 million in revolving lines of credit, it need not apply for construction loans, which the badly burned banks are refusing to make even to the healthiest developers. And despite the building downturn, Toll raised $16 million in a secondary stock offering last May.
"Toll Brothers simply does a better job of creating an image than anyone they compete against," said James M. Meyer, an analyst with Janney Montgomery Scott Inc., who recently put Toll stock, which has been trading at close to $8 a share on the New York Stock Exchange, on his "buy" list.
Still, Toll will need every one of these advantages in the coming years. The much-touted post-Persian Gulf war consumer spending spree lasted all of two months as far as new housing went. The National Association of Home Builders anticipates 1.05 million housing starts this year, the lowest level in 45 years.
Even during the depths of the 1980-1982 recession, housing starts did not drop below 1.06 million per year. "The credit crunch has literally stopped builders in their tracks," said Kent W. Colton, the association's executive vice president.
And the Northeast corridor, Toll's mainstay area, is recovering even more slowly than the West and Midwest. Home values are && continuing to decline in New Hampshire, Maine and New Jersey, where Toll concentrates its building, according to Runzheimer International in Rochester, Wis., which tracks selling prices of existing homes. And Mr. Colton says that values of new and old homes "absolutely track each other."
Moreover, Toll is about to enter one of the most hotly competitive eras in its history. Until now, Toll, whose homes generally sell in the $300,000 to $700,000 range, has competed primarily with local and regional builders -- exactly the folks who are having financial troubles. Toll peacefully coexisted with the few other well-capitalized, publicly traded development companies around because most of them emphasized starter homes, which rarely approach even $200,000.
But now, the bulk of the American population is moving into the 35-to-50 age range, when people trade up to larger, more expensive houses -- the kind that Toll builds. And the heavy hitters of real estate are following those aging baby boomers into that market.
K. Hovnanian & Co., for example, has introduced three new home models to appeal to this older, more affluent buyer. The huge New Jersey company, which stresses volume sales over high per-house profits, is unlikely to go much above $230,000 as a top price. But that number still butts up against the lower end of Toll's market.
"We may still be a Honda to their Mercedes, but we are definitely moving upscale," said Ara Hovnanian, the firm's president. "In this business, demographics is destiny."
It is the sort of concept that also plays well with the Toll Brothers. Based as they are on immutable birth patterns from the past, demographics are easy to plan against. And plan the brothers did, though certainly not with the speculative, risk-taking gusto of most other real estate dealers.