The Real Deal New York

Toll Brothers plays defense as NYC’s luxury market falters

Homebuilder opts for JV, shedding $320M equity requirement at 121 East 22nd Street
By E.B. Solomont | February 22, 2017 05:40PM

121 East 22nd Street and Doug Yearley

With New York City’s luxury market going sideways, national homebuilder Toll Brothers is playing an increasingly aggressive game of defense.

The company — which slashed prices last year at 400 Park Avenue South and 1110 Park Avenue — is reducing its equity stake in new projects through joint-venture partnerships and offering to pay transfer and mansion taxes for buyers who sign contracts by Feb. 26.

“We are being cautious… We haven’t bought land in New York City in a couple years now, and we’ve also moved into some JVs,” CEO Doug Yearley said Wednesday during a first quarter earnings call. “We are well positioned to absorb what’s going on in New York.”

The moves resulted in a mixed bag during the first quarter of fiscal 2017.

The company’s City Living division, which operates primarily in the New York metropolitan area, saw a steep drop in the number of contracts signed during the quarter — 50 — compared to the 83 inked during the same quarter of 2016. And while revenue generated by wholly-owned buildings plummeted to $17.9 million from $137 million, income from joint-venture projects jumped to $235.3 million from $153 million.

Overall, Pennsylvania-based Toll Brothers TRData LogoTINY generated $920.7 million in revenue during the first quarter, down less than 1 percent from $928.6 million in the first quarter last year. Net income was $70.4 million, down 3.8 percent year-over-year from $73.2 million.

In December, Toll Brothers reduced its equity stake in a 133-unit condo project at 121 East 22nd Street, when it brought on Gemdale Properties. On Wednesday, Yearley said the company’s equity stake in that project is now $30 million, down from $350 million.

Toll Brothers recently launched sales at 121 East 22nd, where prices range from $1.2 million to $10.5 million, and 10 units are in contract so far, the company said.

Last week, the company rolled out incentives at three buildings — 100 Barrow Street, 55 West 17th Street and the Sutton at 959 First Avenue — where it will cover the buyer’s transfer and mansion taxes. “Even with our increased incentives, our gross margins have exceeded company averages,” Yearley said Wednesday.

Meanwhile, performance in New Jersey “has been hot,” Yearley said. “We are in no way giving up on the tri-state. If you have land in the right location, we think you can do very well.”