The super-luxury condo party in New York City is over. That was the message Toll Brothers CEO Doug Yearley had for investors on Tuesday’s fourth-quarter earnings call.
Though the nationally-focused real estate firm reported $382.1 million in overall profits in fiscal year 2016 — an uptick of 5.2 percent year-over-year — its luxury-laden urban properties division struggled. Toll Brothers City Living saw revenue slide 18.5 percent to $257.5 million in fiscal year 2016, mostly due to a slump in luxury sales.
Coming off two years of feverish condo construction, Yearley said he expects the condo pipeline in New York City to thin somewhat, easing the competition. The company has also transitioned to find a market with a deeper pool of buyers.
The Pennsylvania-based homebuilder has found its “sweet spot” with “price points in the $2,000 to $2,500 per square foot range and projects of 150 units or less” in New York City, Yearley told investors.
Toll Brothers hasn’t purchased property in New York City in two years, but Yearley said the company is continuing to look. “We’re keeping a close eye on some properties that opportunistically may become available because developers aren’t moving forward,” Yearley said. “We’re strict on the 35 percent or better [gross] margin. If it’s not penciling, we’re not buying.”
Its City Living Division — which developed the Pierhouse condominiums and the luxurious 1110 Park Avenue — accounts for roughly 4 percent of the company’s overall revenue.
Overall, Toll Brothers generated $5.17 billion in revenues for Fiscal Year 2016, up nearly 24 percent over last year’s $4.17 billion. For the fourth quarter, Toll Brothers reported a profit of $114.4 million on $1.86 billion in revenues. That’s compared to $147.2 million in net income and $1.44 billion in revenues for 2015’s fourth quarter.
“We are not focused on super-luxury,” Yearley said on the earnings call. “With an average delivered home price of approximately $850,000 companywide in fiscal 2016 — $690,000 in markets other than New York City and California — our product lines are affordable to many households.”
Toll Brothers City Living recently launched a portfolio-wide commission incentive to woo brokers to its buildings, as The Real Deal reported in October .