As the apartment market recovered over the past few years, many commercial builders and single-family developers entered the space, causing some grumbling among established multifamily players.
Based on the remarks on single-family builder’s Toll Brothers' third-quarter conference call, that competition should be a valid concern.
In its call, Toll outlined plans for five joint ventures with 1,900 units and announced that it had more than 2,550 units in in its pipeline. That’s in addition to two joint-venture projects that recently opened, which totaled 1,900 units. In addition, Toll is building an expensive City Living condo line in New York, Washington, and Philadelphia.
The company plans to develop apartments by contributing a quarter (or less) of the total equity to a joint venture structure and then use what it says is “attractive” debt to finance the rest.
“These communities are primarily in upscale urban and suburban markets where we also have a strong for-sale presence,” CEO Doug Yearley said on Toll’s earnings call.
Yearley says Toll is looking at the apartment market for two primary reasons.
“One is the hedge, we all wished we had a big apartment portfolio through this downturn," he said on the call. "And the other was to leverage all the synergies and operations of Toll Brothers because we have land, people in these markets and we navigate entitlements and builds and we have a great brand, we know how to market."
Now, that Toll is in the business, Yearley says the company wants it to grow, sounding much like an apartment builder when he talks about the industry’s potential.
“I think what’s going on right now is kids were getting out of college and they are getting jobs, but not the jobs they thought they'd get,” he said on the call. “They are sleeping on mom and dad’s couch longer than they ever thought. They are getting married later, they are having kids later, so they are renting longer than prior generations and that is causing more multifamily and less home ownership.
Yearley does think the tide will eventually turn as the economy improves and these kids get jobs. Once that happens, Toll execs are convinced they’ll benefit from pent-up demand. Toll Chairman Bob Toll mentioned that, based on trends over the last 40 years, the industry should be building 50 percent more homes this year than its current pace.
“At some point, this pent-up demand will be released, which will add momentum to the entire housing market,” Toll said on the call.
And, he thinks Toll is well prepared to capture that demand. “By casting a wide net, we remain committed to reach as many niches of the luxury housing market as possible,” Toll said.
