Portfolio: Anybody Home?

Two duds about housing suggest the magazine is not getting it

A Double Debit to Conde Nast Portfolio for offering us an extended portrait of luxury homebuilder Bob Toll as a gutsy CEO who is down but not out, and then following that unfortunate puff piece with another one on how a reporter’s choice to rent a $13,000-a-month mansion he couldn’t afford is emblematic of the housing crisis. Each article has problems of its own, but together they look even worse, and make Portfolio seem embarrassingly out of touch with the realities of the current financial situation.

We’ll start with Portfolio’s cover profile of Toll, which combines two shopworn bizpress formulas—the counterintuitive slant and access journalism—in a single story. Perhaps all these journalistic calisthenics would be worth it if there were a point to this piece. But there isn’t.

This piece opens on a bleak note:

On a bright morning in late July, the corporate headquarters of Toll Brothers, the luxury homebuilder that profited mightily from the latest housing boom, are uncannily silent. Outside chief executive Bob Toll’s office, swaths of cubicles sit vacant and bare, depopulated by deep layoffs. Inside, a Bloomberg terminal scrolls dismal updates: A new report says home prices are plummeting by record margins; in markets like Las Vegas and Miami, they’re off almost 30 percent. Toll Brothers’ stock is trading at about $20, down two-thirds from its 2005 high.

And then some history:

Perhaps no company better symbolizes the engorged consumption of the last real estate spree than Toll Brothers, which Bob founded with his brother, Bruce, in a one-room office four decades ago. During the height of the housing bubble, from 2004 to 2006, Toll Brothers reported nearly $16 billion in revenue, putting it in the top ranks of the industry. Its carefully cultivated brand—large, high-end suburban homes with all the latest must-have appliances—was among the most enviable in the business and catered to the yearning for bigger and better that the era’s easy credit allowed. Although Toll Brothers once had uncanny judgment, it has hit tough ground in the bust.

Okay so far. But then, as the piece veers off this initial course, we begin to understand what kind of story we are in for: The drama of a brave and embattled CEO trying to pull his company back from the brink.

The piece starts to go wrong a few paragraphs in:

Toll offers me no excuses and freely concedes that he made some foolish deals. ‘We boatloaded a bunch of real estate in ’04 and ’05 that is underwater today,’ he says ruefully….

Still, as many other real estate executives have headed for cover—or unemployment—Toll is reveling in the self-appointed role of cantankerous spokesman for his beleaguered industry.

Now, given the industrywide—make that countrywide—disaster, this is really the only possible positive take. Why Portfolio thinks that’s worth a cover is unclear.

It also helps, of course, to pass along blame:

In our conversation, he spreads the blame liberally, even pointing to customers, saying it wasn’t the builders’ fault that banks made foolish loans and people took them, knowing full well what their incomes were:

’What cracked the market was not just our greed but the greed of our buyers.’

Just to drive home that quote, Portfolio prints it on the cover of the magazine and also as a pull quote in the middle of the piece, with “greed of our buyers” bolded and in caps.

Now, we point out two things. One, that Toll Brothers has a mortgage arm and so is not detached from the financing. And two, that blaming borrowers is not exactly a new strategy.

It also can be easily refuted or at least put into context; this Portfolio doesn’t bother to do.

But we won’t dwell on these details because Toll doesn’t. He’s not that kind of guy:

At 67, Toll is old enough to step aside and let others handle unpleasant times, but instead he approaches the wreckage with grim cheer.

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.

Charmed yet?

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.

Michael Lewis sets up the story this way:

I was looking to return to New Orleans, where I’d grown up, to write a book. The move would uproot my wife and three children from California, and I felt a little bad about that. They needed a place to live, but places to live in New Orleans are hard to find. Ever since Hurricane Katrina, the real estate market there has been in turmoil. Owners want to sell, buyers want to rent, and the result is a forest of for sale signs and an army of workers commuting from great distances.

At the bottom of every real estate ad I saw was the name of the same agent. One woman ruled the market, it seemed, and her name was Eleanor Farnsworth. I called her and threw myself on her mercy. She thought my problem over and then said, ‘I only know of one place that would work for you.’ She’d suggested it to Brad Pitt and Angelina Jolie, she said, before selling them their more modest place in the French Quarter.

That shouldn’t have been a selling point; it should have been a warning. I should have asked the price. Instead, I asked the address.

Now, this would be an engaging tale—we at The Audit are not uninterested in peeping into houses we can’t afford—if it didn’t pretend to have a larger moral dimension to it.

As with the first piece, this one starts to veer off several paragraphs in, when we get a meditation on class:

Upper middle class: That’s how I’ve always thought of myself. Upper middle class is the class into which I was born, the class to which I was always told I belonged, and the class with which, until this moment, I’d never had a problem. Upper middle class is a sneaky designation, however. It’s a way of saying ‘I’m well-off’ without having to say ‘I’m rich,’ even if, by most standards, you are. Upper-middle-classness has allowed me to feel like I’m not only competing in the same financial league as most Americans—I’m winning! Playing in the middle class, I have enjoyed huge success.

In this house, I now glimpsed the problem with upper-middle-classness: It isn’t really a class. It’s a space between classes. The space may once have been bridgeable, but lately it’s become a chasm. Middle-class people fantasize about travel upgrades; upper-class people can’t imagine life without a jet. Middle-class people help their children with their homework so they’ll have a chance of getting into Princeton; upper-class people buy Princeton a new building. Middle-class people have homes; upper-class people have monuments. A man struggling to hold on to the illusion that he is upper middle class has become like a character in a cartoon earthquake: He looks down and sees his feet being dragged ever farther apart by a quickly widening fissure. His legs stretch, then splay, and finally he plunges into the abyss.

We are starting to feel like we are listening in on a therapy session here. The logic is sufficiently convoluted that it seems to say more about Lewis than about social structure. But, taking a cue from our own therapist, we reserve judgment as Lewis explains that he decided to rent the mansion because it stood “on the more appealing side of the chasm.”

We do, however, object when Lewis tries to offer his story about paying $13,000 a month in rent as the key to understanding the housing crisis:

In all the public finger-pointing about the American real estate bust, surprisingly little attention has been paid to its origin. There’s obviously a long list of people and ideas that can share in the blame: ratings agencies, mortgage brokers, big Wall Street firms, small Wall Street firms, Angelo Mozilo, Alan Greenspan. Every few weeks, the New York Times runs a piece exposing some new way in which a big Wall Street firm has exploited some poor or middle-class family. The rich people on Wall Street blame their bosses. The brokers at Merrill Lynch blame Stan O’Neal; the traders at Bear Stearns blame Jimmy Cayne. Everyone blames Countrywide.

And the ultimate point:

But all of this misses the point: However terrible the sins of the financial markets, they’re merely a reflection of a cultural predisposition. To blame the people who lent the money for the real estate boom is like blaming the crack dealers

yes, crack dealers

for creating addicts.

Americans feel a deep urge to live in houses that are bigger than they can afford. This desire cuts so cleanly through the population that it touches just about everyone. It’s the acceptable lust.

Then, in case this explanation of the problem didn’t quite sink in, Lewis goes on to tell us about a May 30 New York Times story on how California residents Lilia and Jesus Garcia bought a house beyond their means, and to explain:

But the real moral is that when a middle-class couple buys a house they can’t afford, defaults on their mortgage, and then sits down to explain it to a reporter from the New York Times, they can be confident that he will overlook the reason for their financial distress: the peculiar willingness of Americans to risk it all for a house above their station.

Look, here is the fundamental problem with blaming the root of the financial crisis on ingrained attitudes: If Americans have always wanted expensive houses, why did the crisis occur now? Of course, the only way to answer that question is to look at the structural causes. At that whole list of people and institutions Lewis rattled off before proclaiming they were pretty much beside the point.

We know Portfolio has fallen on hard times recently . We are sorry. But too many stories like this, with the lack of vision they imply, are a key part of the problem.

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Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.