Jones Lang LaSalle
A Suburban Builder Heads for the City
By LISA CHAMBERLAIN
Toll Brothers is perhaps the best-known builder of luxury homes in the country, having honed the art of upper-middle-class living into the science of large-scale suburban development. But now the company is entering the New York City real estate market, with five sites in various stages of development from the East Village to the Gowanus Canal neighborhood in Brooklyn.
For a national homebuilder that has specialized in upscale suburban houses, the obvious question is, Why New York City and why now?
"The better question is, Why didn't I do it earlier?" said Robert I. Toll, chairman and chief executive of the $6.5 billion company, which is based in Horsham, Pa. "We weren't ready for urban development. We're a conservative company. There was too much risk. It required a different set of skills. But we picked up some urban skills in Hoboken and Jersey City, and built some towers in Florida. So the question then is, Why not the boroughs?"
Toll Brothers will be investing approximately $500 million to build 1,000 condo units in Manhattan, Queens and Brooklyn.
Two years ago, Toll Brothers hired David Von Spreckelsen, who has worked in real estate in New York City for nearly 20 years, most recently as director of real estate development for Silvercup Studios in Queens. Mr. Von Spreckelsen set about securing plots in established areas that still had room for improvement, but were also near transportation and other amenities.
Working for a conservative company, however, has required Mr. Von Spreckelsen to educate his boss. The first purchase recommendation he made, two blocks along the Gowanus Canal in Brooklyn, was initially rejected by Mr. Toll.
The two-mile canal, which passes through a once heavily industrialized area of Brooklyn, would certainly seem like an unlikely place for Toll Brothers to make its first move in New York City. But Mr. Von Spreckelsen prevailed when he was able to show that not only was the Gowanus area likely to be rezoned (an action that is still pending), but that the canal was being cleaned up after nearly 30 years of community activism. And the site, along Bond Street between Carroll and Second Streets, is only two blocks from the Carroll Gardens subway stop and the rapidly evolving restaurant row on Smith Street.
"It's a unique spot," Mr. Von Spreckelsen said. "It's not Venice; I don't expect to see gondolas up and down the canal. But people are excited about reactivating this waterfront."
Mr. Von Spreckelsen envisions turning First Street into an entry point to the canal and has promised a boat launching dock and storage space to the Gowanus Dredgers, a canoe club. On either side of First Street will be approximately 200 housing units each between Carroll and First and between First and Second Streets. Even though this was Toll's first purchase in New York City, it is expected to be the last of the five developments to be completed because construction will not begin until the current industrial zoning has been changed to allow residential development.
On Third Avenue between 13th and 14th Streets in Manhattan, Toll Brothers has begun excavation for One Ten Third, a 77-unit 21-story tower that will have one- to three-bedroom units priced at $850,000 to $2.2 million, the upper limit of all the New York City apartments being built by the company. The 16th-floor units will have terraces; other floors will have balconies. The roof will have both a common area and partly roofed private spaces, equipped with electrical outlets and running water and ranging from 250 to 500 square feet, which will be for sale. There will be ground-floor retailing as well. Sales are to begin this summer, and the projected move-in date is the spring of 2007.
Demolition has begun on another purchase in Long Island City, Queens. The L-shaped plot at 48th Avenue and Fifth Street will become a building of 118 units, from studios to three bedrooms, starting as low as $350,000. Some units will have private backyards. There will also be bike storage, 24-hour concierge service and enclosed parking available for purchase. Sales are to begin in the fall, with an expected move-in date of spring 2007.
Mr. Von Spreckelsen also secured two sites in Williamsburg. At Kent and North Eighth Street will be North8, a building that is restricted to six stories but will overlook a new waterfront park with unobstructed views of the Manhattan skyline. In addition to 40 apartments, there will be a series of six town houses along North Eighth Street that will be part of the building but will have separate entrances. Sales will begin in early summer, with a projected move-in date of January.
The most recent acquisition is a joint venture to build three high-rise towers on the Williamsburg waterfront with L&M Equity and RD Management. The first tower to go up is to be 164 Kent, designed by FxFowle Architects. It is to have 180 units (studios to three bedrooms) and a yoga studio; half of the apartments are to have balconies. Plans for the other two towers are not yet available.
Some real estate specialists say that Toll Brothers is moving into the New York market for two reasons. The obvious one is purely a growth opportunity. But the other is that the company's traditional market — single-family suburban development — is being curtailed both by local ordinances designed to limit growth and by a lack of premium buildable land.
In recent months the company has also encountered problems related to broader market trends; Toll Brothers announced in February that the company was experiencing increased cancellations of new home orders, and that new contracts fell by 21 percent compared with the previous year.
"They have to move beyond their primary market: high-end single-family housing," said Gregory E. Gieber, an equity analyst who follows homebuilders for A. G. Edwards & Sons. "That market is declining right now. Urban development is riskier for the company, but diversification is usually viewed as a good thing. The question is, there's a lot of construction going on. We haven't seen overbuilding in New York in a long time, but it has happened."
John K. McIlwain, senior resident fellow for housing at the Urban Land Institute, a nonprofit research and policy organization based in Washington, said, "All the big builders are having land problems."
"What I'm assuming is that Toll Brothers are ambiguous about the exurban market, the farthest-out areas," he said. "One way to respond to that is to be pushed into urban markets. And now average condo prices are higher than single-family prices for the first time ever. That's a trend that will continue because you have a strong reurbanization."
Mr. Toll disagreed that suitable suburban land was becoming increasingly limited, and he said the company was not being pushed into the urban market, but pulled in by its vibrancy. "The thrust into urban development for me and other homebuilders is not because we don't have the available product in suburbia, but rather because you have a new market here. You might say, 'What new market? New York's always been here.' But there's a lot of urban demand that wasn't there before."
Jon Epstein, senior director of the New York capital markets group for Cushman & Wakefield, who sold the Long Island City site to Toll Brothers, said that beyond the purely financial reasons for moving into this market was an image issue: "If you want to be seen as a real national player," Mr. Epstein said, "you have to be in New York at some point."
A Suburban Builder Heads for the City
By LISA CHAMBERLAIN
Toll Brothers is perhaps the best-known builder of luxury homes in the country, having honed the art of upper-middle-class living into the science of large-scale suburban development. But now the company is entering the New York City real estate market, with five sites in various stages of development from the East Village to the Gowanus Canal neighborhood in Brooklyn.
For a national homebuilder that has specialized in upscale suburban houses, the obvious question is, Why New York City and why now?
"The better question is, Why didn't I do it earlier?" said Robert I. Toll, chairman and chief executive of the $6.5 billion company, which is based in Horsham, Pa. "We weren't ready for urban development. We're a conservative company. There was too much risk. It required a different set of skills. But we picked up some urban skills in Hoboken and Jersey City, and built some towers in Florida. So the question then is, Why not the boroughs?"
Toll Brothers will be investing approximately $500 million to build 1,000 condo units in Manhattan, Queens and Brooklyn.
Two years ago, Toll Brothers hired David Von Spreckelsen, who has worked in real estate in New York City for nearly 20 years, most recently as director of real estate development for Silvercup Studios in Queens. Mr. Von Spreckelsen set about securing plots in established areas that still had room for improvement, but were also near transportation and other amenities.
Working for a conservative company, however, has required Mr. Von Spreckelsen to educate his boss. The first purchase recommendation he made, two blocks along the Gowanus Canal in Brooklyn, was initially rejected by Mr. Toll.
The two-mile canal, which passes through a once heavily industrialized area of Brooklyn, would certainly seem like an unlikely place for Toll Brothers to make its first move in New York City. But Mr. Von Spreckelsen prevailed when he was able to show that not only was the Gowanus area likely to be rezoned (an action that is still pending), but that the canal was being cleaned up after nearly 30 years of community activism. And the site, along Bond Street between Carroll and Second Streets, is only two blocks from the Carroll Gardens subway stop and the rapidly evolving restaurant row on Smith Street.
"It's a unique spot," Mr. Von Spreckelsen said. "It's not Venice; I don't expect to see gondolas up and down the canal. But people are excited about reactivating this waterfront."
Mr. Von Spreckelsen envisions turning First Street into an entry point to the canal and has promised a boat launching dock and storage space to the Gowanus Dredgers, a canoe club. On either side of First Street will be approximately 200 housing units each between Carroll and First and between First and Second Streets. Even though this was Toll's first purchase in New York City, it is expected to be the last of the five developments to be completed because construction will not begin until the current industrial zoning has been changed to allow residential development.
On Third Avenue between 13th and 14th Streets in Manhattan, Toll Brothers has begun excavation for One Ten Third, a 77-unit 21-story tower that will have one- to three-bedroom units priced at $850,000 to $2.2 million, the upper limit of all the New York City apartments being built by the company. The 16th-floor units will have terraces; other floors will have balconies. The roof will have both a common area and partly roofed private spaces, equipped with electrical outlets and running water and ranging from 250 to 500 square feet, which will be for sale. There will be ground-floor retailing as well. Sales are to begin this summer, and the projected move-in date is the spring of 2007.
Demolition has begun on another purchase in Long Island City, Queens. The L-shaped plot at 48th Avenue and Fifth Street will become a building of 118 units, from studios to three bedrooms, starting as low as $350,000. Some units will have private backyards. There will also be bike storage, 24-hour concierge service and enclosed parking available for purchase. Sales are to begin in the fall, with an expected move-in date of spring 2007.
Mr. Von Spreckelsen also secured two sites in Williamsburg. At Kent and North Eighth Street will be North8, a building that is restricted to six stories but will overlook a new waterfront park with unobstructed views of the Manhattan skyline. In addition to 40 apartments, there will be a series of six town houses along North Eighth Street that will be part of the building but will have separate entrances. Sales will begin in early summer, with a projected move-in date of January.
The most recent acquisition is a joint venture to build three high-rise towers on the Williamsburg waterfront with L&M Equity and RD Management. The first tower to go up is to be 164 Kent, designed by FxFowle Architects. It is to have 180 units (studios to three bedrooms) and a yoga studio; half of the apartments are to have balconies. Plans for the other two towers are not yet available.
Some real estate specialists say that Toll Brothers is moving into the New York market for two reasons. The obvious one is purely a growth opportunity. But the other is that the company's traditional market — single-family suburban development — is being curtailed both by local ordinances designed to limit growth and by a lack of premium buildable land.
In recent months the company has also encountered problems related to broader market trends; Toll Brothers announced in February that the company was experiencing increased cancellations of new home orders, and that new contracts fell by 21 percent compared with the previous year.
"They have to move beyond their primary market: high-end single-family housing," said Gregory E. Gieber, an equity analyst who follows homebuilders for A. G. Edwards & Sons. "That market is declining right now. Urban development is riskier for the company, but diversification is usually viewed as a good thing. The question is, there's a lot of construction going on. We haven't seen overbuilding in New York in a long time, but it has happened."
John K. McIlwain, senior resident fellow for housing at the Urban Land Institute, a nonprofit research and policy organization based in Washington, said, "All the big builders are having land problems."
"What I'm assuming is that Toll Brothers are ambiguous about the exurban market, the farthest-out areas," he said. "One way to respond to that is to be pushed into urban markets. And now average condo prices are higher than single-family prices for the first time ever. That's a trend that will continue because you have a strong reurbanization."
Mr. Toll disagreed that suitable suburban land was becoming increasingly limited, and he said the company was not being pushed into the urban market, but pulled in by its vibrancy. "The thrust into urban development for me and other homebuilders is not because we don't have the available product in suburbia, but rather because you have a new market here. You might say, 'What new market? New York's always been here.' But there's a lot of urban demand that wasn't there before."
Jon Epstein, senior director of the New York capital markets group for Cushman & Wakefield, who sold the Long Island City site to Toll Brothers, said that beyond the purely financial reasons for moving into this market was an image issue: "If you want to be seen as a real national player," Mr. Epstein said, "you have to be in New York at some point."
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