And here we learn the drama around which Toll’s story will revolve:
If all of Toll’s previous experience has offered a single lesson, it’s that the truly big money is made at the bottom, when other people are scared to buy. If he bets right again this time, he could lead his industry out of the doldrums. If he doesn’t, it augurs poorly for the entire sector—and perhaps indicates that the housing situation is even more dire than Toll imagined.
If that doesn’t make you forget Toll’s role in this mess, and root for him, perhaps the next paragraph will:
Homebuilding is an industry prone to spectacular cataclysms. Bob Toll became one of its patriarchs the same way Noah did—by staying afloat through the floods. ‘I think he loves being the grandfather of the business,’ says Michael Greenberg, a former senior executive at Toll Brothers. In the early years, Bob was notoriously prickly and irascible—Bruce was the company diplomat—but age has smoothed his persona, turning sharp edges into charm and bluntness into wisdom. Toll’s conversational style resembles the layout of one of his developments, full of meandering byways and digressive culs-de-sac. He has a broad Philadelphia accent and cultivates an air of disarming schlumpiness. He’s been known to show up to industry conferences in sandals.
Before you answer that, you should know that we do get some startling news toward the end of the piece:
Toll Brothers executives say they glimpsed the first signs of a downturn in mid-2005. Analysts started wondering about the company’s position months before that, however, when Toll Brothers insiders began selling off stock. Over a sustained period between December 2004 and September 2005, Bob Toll made $323 million from these transactions, Bruce Toll made $206 million, and other company executives took home smaller amounts. At the time, the sales were explained as diversification and estate-planning measures, and Bob Toll continued to call his company ‘a tremendous buy.’ The sales are now the subject of a federal shareholder lawsuit, about which Toll would not comment.
But Portfolio doesn’t pay too much attention to the revelation, and soon we are comfortably back to where we were:
Bruce Toll scaled back his involvement in the company a decade ago and has since devoted himself to various other pursuits, such as financing movies and buying a stake in the Philadelphia Inquirer. But Bob Toll has never cared for any business except building, and he says he feels a responsibility to right his company. Friends say that this challenge has invigorated him.
And we even get some good news:
In fact, stock analysts say that Toll Brothers could end up profiting over the long term from widespread misery. With a relatively low debt load and one of the largest cash reserves in the industry—roughly $1.5 billion, twice as much as its competitors’ on average—Toll Brothers seems to hold a decent position compared with others in its field.
So it looks like the hero of the story might triumph after all. Concerned that it will be at the cost of “widespread misery”? Don’t be. That’s not the narrative here. You’re supposed to root for Bob Toll.
Oh, and you know those greedy customers? It turns out the company’s future business model requires them. That’s right future business model:
The company refuses to lower its prices too much for fear of compromising its brand, which means it must accept the costs of carrying considerable inventory until demand returns…. The company’s executives say Toll Brothers is catering to universal appetites and has no plans to scale back its trademark homes.
Here’s hoping for more greed.
And on to the second piece.
The story is titled “The Mansion: A Subprime Parable. But we warn you now that it has little to do with subprime lending—or parables—and a lot to do with mansions.