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Toll Bros. goes after distressed assets

Joel Rose Aug 26, 2010

Toll Bros. goes after distressed assets

Joel Rose Aug 26, 2010


STEVE CHIOTAKIS: If you’ve been looking for some good housing numbers this week, seems like you have a better chance of
winning the lottery. Record drops in sales of new and existing homes.But luxury home builder Toll Brothers bucked that trend and reported its first
quarterly profit in three years.

Joel Rose reports the company’s looking to grow more, by launching a new subsidiary to buy distressed assets.

JOEL ROSE: Toll Brothers isn’t looking to buy that house down the street that’s in foreclosure. The company is after bigger fish: loan portfolios consisting of commercial property and land for development.

ROGER BRUSH: You don’t necessarily grow today by buying land from a farmer. So this is just another vehicle to continue to grow the company.

Roger Brush is the president of Gibraltar Capital, a new Toll Brothers subsidiary that specializes in distressed assets. This may sound like a major shift for a company that’s known for building big, expensive houses on the edge of suburbia. But Brush says Toll Brothers has experience scooping up properties at risk of default in the early 1990s.

BRUSH: And ultimately, some of those properties became some of our very successful communities in New Jersey.

Gibraltar has already closed its first deal, acquiring a stake in $1.7 billion worth of loans and properties — mostly in Florida, Nevada and Arizona. And Toll isn’t the only major homebuilder that’s looking to invest in distressed assets.

Alex Barron is an analyst at the Housing Research Center.

ALEX BARRON: A lot of these builders have several billion of cash in the banks. And that cash is not earning anything for shareholders. So this might perhaps be a better to make use of some of that capital, and put it to work.

It’s a strategy that makes sense over the long run, Barron says. But it implies that Toll and other builders don’t see a rebound in housing sales coming anytime soon.

BARRON: The fact that they’re kind of diverting away from their from core strategy suggests that the turnaround is not imminent.

Maybe not. Although Gibraltar Capital’s Roger Brush says now is a great time to buy — whether you’re an individual or the nation’s largest luxury homebuilder.

BRUSH: When we did this back in the early 90s, it really set us up for our growth during the 90s. And we believe that today will set us up for our next period of growth.

But Brush didn’t want to speculate about when that period of growth is likely to begin.

In Philadelphia, I’m Joel Rose for Marketplace.

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