With another quarter in the books and no new land buys, the Pennsylvania-based firm faced questions Tuesday about its strategy going forward, particularly after CEO Doug Yearley described growing opportunities in Los Angeles, where he visited three potential development sites there over the past month.
“We’ve always wanted City Living to get to the West Coast,” Yearley said during an earnings call Thursday, referring to Toll Brothers’ urban development division, which until has operated largely in the New York metro area.
Yearley dismissed the suggestion that Toll Brothers was retreating from New York in any way, and said it’s no secret that the company’s “been hunting for years” for land in Los Angeles. The firm also paid $81 million last year for a 34-acre site in the San Francisco Bay area that comes with approvals for about 1,000 residential units.
“We continue to look hard in New York City [but] land prices have been too high. It’s a risky business, as we’ve talked about, which means you need a significantly higher gross margin and we will not change the underwriting,” he added. “At the moment, the opportunities have come elsewhere but I’m sure they’ll be back to New York.”
For now, however, the market in New York is relatively flat, he said.
During the second quarter, City Living revenue jumped to $76.6 million from $54 million a year earlier. The average sale price was $2.47 million, up from $2.08 million. Yearley said at its 131-unit condo at 121 East 22nd Street, the developer sold 18 apartments since October.
Those figures helped to offset a lackluster first quarter at City Living, which saw revenue fall for the first half of the year to $94.5 million from $191 million during the first half of 2016. The average price per unit remained flat, but the number of units sold during the first six months of 2017 dropped to 35 from 71 a year prior.
In New York, the developer has offered aggressive incentives to lure condo buyers and brokers in recent months, including paying mansion and transfer taxes in certain buildings. “New York is flat,” Yearley said Tuesday. “We’ve had to raise incentives, but I am happy with our business.”
Overall, Toll Brothers’ net income during the second quarter rose 40 percent year-over-year to $124.6 million. Strong employment levels coupled with low interest rates drove revenue to $1.36 billion, up 22 percent from the same time last year. “This was the best spring selling season we’ve had in over 10 years,” said Yearley, who added that contract activity was the highest it’s been since 2005. “The business is clicking.”