Horsham, Penn.,-based home builder Toll Brothers is planning a significant presence in the apartment business, but don’t look for it jockeying for a spot on the Top 50 anytime soon.
In a recent interview with Multifamily Executive, CEO Doug Yearley shared what Toll, the No. 13 biggest home builder on the BUILDER 100, plans to do in the apartment business.
The company already owns a little more than 1,000 units in Northern Virginia and Princeton Junction, NJ, but in its latest earnings call, it detailed plans to build about 4,000 units, which are in different stages of development from entitlement to construction. This pipeline includes a relatively small student housing component at Penn State and the University of Maryland.
“We’re very opportunistic and we will buy property as it becomes available and pencils out, but right now we’ve been primarily focused on the Washington D.C. to Boston corridor,” Yearley says. “We will expand the business on the coasts and maybe in an infill market in Texas or somewhere else [possibly Denver]. But there’s no number we’re trying to attain. To get from 5,000 to 25,000 [units] would take a long time.”
Toll plans to invest $200 to $300 million of its own capital into apartments and will rely on joint venture partners to contribute 50 percent or more of the equity in each deal. It generally plans long-term holds, but could sell after lease up or if a partner wants to exit. Toll also plans to do its own management, with the exception of student housing, which Yearley admits is a slightly different business.
“For the size of our portfolio and the growth that we project, we can handle it [management] in house,” he says.
Toll’s apartments will be marketed as Toll Brothers Apartment Living and its student properties will be called Toll Brothers Campus Living. This is in addition to its Toll Brothers City Living condo brand, which is primarily in New York (where the company has built 23 condo towers). Right now the company has about 1,500 City Living units in the pipeline.
“We’re going to do it [apartments] to the same quality, in the same kind of locations, with the same kind of finishes and amenities that you see out of the Toll Brothers for-sale product,” Yearley says. “We’re playing off of the Toll Brothers brand. I think that will bring us hopefully better rents and a new piece of the market.”
Yearley says Toll is aware of oversupply concerns in markets, like DC, but is taking the proper precautions through due diligence and conservative underwriting. “We’re being careful on expansion,” he says. “We’re very happy with these 4,000 units in development and where they’re located.”
If the projects are successful, they’ll meet Toll’s initial goals, which were to provide a hedge against single-family shakiness and a way to leverage its construction expertise.
“What public homebuilder wouldn’t have wanted to have an apartment business from 2007 to 2011 when the for-sale market hit the deepest, darkest housing depression ever?,” Yearley says. “It’s a good hedge. Secondly, we’re really leveraging off our Toll Brothers teams because we have seasoned land acquisition, land development, marketing, and construction people. We have all of these people who are really good at what they do from land acquisition through to construction. It’s very easy to step [for them to go] from for sale to rental.”