Toll Brothers, the prolific U.S. luxury single-family homebuilder, has a lot to celebrate besides its profitable second quarter.
It was 50 years ago this month that Robert Toll, the executive chairman of Toll Brothers, and his brother Bruce Toll co-founded the Horsham, Pa.-based company.
In 2003, the company, public since 1986, launched an urban development division called Toll Brothers City Living with the acquisition of Manhattan Building Company, a Hoboken, N.J.-based condominium builder, allowing Toll to develop in a series of urban markets.
Looking to beef up its New York metro-area presence, in 2004 the company brought on board David Von Spreckelsen. He oversees acquisition and development in Gotham and Long Island. That includes nine active and under-development condo projects—amounting to 1.7 million square feet—in the five boroughs, such as 400 Park Avenue South between East 27th and East 28th Streets, 1110 Park Avenue between East 89th and East 90th Streets and Pierhouse at Brooklyn Bridge Park at 90 Furman Street in Brooklyn Heights with the 1 Hotel Brooklyn Bridge, the company’s first foray into the hospitality sector.
Toll’s New York City posse will soon be hosting its 50-year anniversary soirée at the soon-to-be-opened sales office for its 91 Leonard Street condo building between Church Street and Broadway.
Commercial Observer recently met with Von Spreckelsen, the president of Toll Brothers City Living New York division, in his Financial District office at 75 Broad Street, where we talked about the 54-year-old’s career trajectory, what his family does for fun and how Toll Brothers is weathering the current market.
Commercial Observer: When you got out of college at the University of Richmond [in Richmond, Va.] you were a retail buyer, right?
Von Spreckelsen: Yeah. I was an assistant buyer. I was in the executive development program at Lord & Taylor. I ended up in girls [wear] 7 to 14, and then I worked shortly at Macy’s as a department manager before going to graduate school at Columbia Business School for an MBA.
How did you get into retail?
It was an on-campus interview that I had and the job offer was in New York City, and I wanted more than anything to come to New York City. So, I took it.
What did you do after business school?
I worked briefly in management consulting in the retail industry and didn’t love that. I ended up for a while as an adjunct professor at Kutztown State College [in Kutztown, Pa.].
What were you teaching?
Marketing. My concentration at Columbia was marketing. I did that for a little while as I was trying to figure out what I really wanted to do. The one thing I knew was that I loved New York. I had a friend who was in an urban planning program at Rutgers [University], and it sounded appealing to me, so I applied for the urban planning program at Hunter College.
More school. I got a full fellowship to go there. When I graduated from Hunter [in 1993] I got a job at [the city’s Economic Development Corporation] as a vice president, working on the redevelopment of city-owned properties. I left EDC in 1997. The position I was able to get was in real estate finance at Guardian Life doing debt and equity investments. The investments that we did at Guardian were rather conservative.
The guy who ran real estate at CBS [with whom Von Spreckelsen worked at EDC] called me and said he had a job open in corporate real estate. So I took that, still wanting to get into development.
When CBS was acquired by Viacom, I was worried that I was going to be out of a job, so I started looking a bit and found a job at Silvercup Studios, which was a real estate development job.
The brothers who own Silvercup hired me to try to get real estate development going there. They had the cash flow from the studios, and it was when Sex and the City and The Sopranos were there—they were real cash cows. We did a rezoning there, we did a development in Harlem, a limited equity co-op, and I was looking at a lot of market-rate condo sites, but we didn’t pull the trigger on anything. Then, I found the job at Toll Brothers.
Did you leave because they weren’t pulling the trigger?
When I was at CBS it was just so transaction-oriented because corporate real estate is mostly just leases. I was maybe not super patient, and so being at Silvercup for a while and not having a lot go forward, I was looking for something where I would be able to do more projects.
I assume that impatience is a strength and a weakness for you.
Yeah, it’s a good question for interviews when you have to say something bad about yourself. You can say, “I’m impatient.”
When you were at Silvercup, did you ever have any fun interactions with celebrities?
I would get into work and I’d be walking down the streets in Long Island City [Queens], and [the late James] Gandolfini [of The Sopranos] would be just outside in full view of anybody who was walking around, smoking a cigar at 9 o’clock in the morning. I saw close up Mikhail Baryshnikov dancing and stretching—not that that was part of any of the [Sex and the City] scenes that he was in, but he would be limbering up. The wrap party for Sex and the City was really cool. It was at Capitale in Manhattan, and there was a separate area where the four leads were just hanging out talking to people.
Did you watch Sex and the City?
Yeah, I liked the show. Before I started working at Silvercup, I didn’t watch that or The Sopranos. I don’t think I had HBO to tell you the truth. I got HBO and started watching the shows.
How has the condo market changed since you started at Toll?
When we first started, people got involved in some really big projects, and it was sort of condo mania. You could build as many as you wanted, and you could sell out as fast as you wanted. We did a large project, Northside Piers, 450 units in Williamsburg, Brooklyn, and right next door, Douglaston Development did a project called the Edge, which was 575 units. The market changed a little bit, and we both struggled to sell out there, and I think we certainly learned that you can’t expect very fast absorption rates to last forever. We’re doing more boutique buildings, and generally we stay under 100 units in a development.
You guys have hit prices of $2,000-plus per square foot for apartments at Pierhouse, and there you hit a record $10.7 million for a Brooklyn condo unit in late February.
It was two units combined into a very large penthouse. That was a record for aggregate price, and then very shortly after that, the unit at Clock Tower in Dumbo that was on the market [for years] sold, and that was $15 million. So we lost.
Meanwhile, the luxury market is cooling.
I would say Brooklyn hasn’t cooled off but slowed down, so it’ll take you a little while longer to sell units that are in the $9 [million], $10 million range.
What about in Manhattan?
I think we don’t have a lot of the extreme luxury prices of $50 [million], $60 [million], $70 [million] and $80 million. We’ve avoided that for the most part. But certainly that has slowed down. I think that there just aren’t as many buyers for those units as people had anticipated when they all started building them.
Are you guys trying to hedge with some of the joint ventures you’ve formed?
Northside Piers was a JV because someone else had the land and they wanted to develop it but they didn’t want to undertake it all on their own. So, they brought us in.
We had a similar scenario at a project we did in Manhattan [at] 303 East 33rd Street [where closings started in March 2009]. And that we did with the Kibel family, which had typically done rental, but they wanted to try condo, so they brought us in. [At] these projects, we were able to jump into [them] already started, and [that] improved the return for us.
What about the JVs at Pierhouse and 400 Park Avenue South?
Pierhouse was a joint venture because it was [a request for proposal] and the requirement in the RFP [for developing] in the park was that it be residential and hotel and we had no hotel experience, so we got a partner in Starwood Capital Group. We decided that the best way to do the project was to have our interests completely aligned. We’re 50-50 partners across the board. So now we own half of a hotel that is operating in the park, which is pretty cool.
And 400 Park Avenue South was actually not a joint venture; it was a joint development. Equity Residential did the bottom 22 stories as a rental, and we did the top 18 as a condo. If that building had been 100 percent condo, it would have been hundreds of units, and we weren’t really willing to take that on and Equity Residential at the same time didn’t want to have a super-large rental building. We had nothing to do with the rental. They had nothing to do with the condo.
Are you guys going to do more JVs?
Those we did for specific development reasons. We have subsequently started to do joint ventures but really for financial reasons so that we bring in debt and equity on these projects when we have a partner and we have capital that we can use elsewhere. In the past, our projects when we were doing them on our own, were 100 percent cash. We had a large acquisition of a company in California called Shapell [Industries]. It was $1.8 billion. It took a lot of resources, and then there were fewer resources to buy and build stuff here, and so we said, Let’s leverage our money and bring in outside partners.
Where are you doing this?
The Sutton, which is at [959 First Avenue on] First Avenue between 52nd and 53rd [Streets], is a project where we brought in Och-Ziff [Capital Management Group] to provide the majority of the equity, and we have some in, and then we do a third-party debt [from Capital One] on the project.
Any other examples?
We’re doing one right now with Gemdale [Properties] at 121 East 22nd Street. This is a project that we’ve yet to top off on, but we will soon. It’s the first building done by OMA and Rem Koolhaas in New York City.
What projects are you doing with 100 percent cash now?
We’re doing a project in the West Village called 100 Barrow. It’s a co-op on a land lease with The Church of St. Luke in the Fields, and we’re doing 33 units. We’re in sales now, and we’re going to be moving people in probably in September.
What’s cooking at 77 Charlton Street in Hudson Square?
77 Charlton is our newest, yet to start really. We’re in design. Within a month, we’re going to demolish the two-story garage, and in the fall we will start working on a foundation. It’s a through-block, so there’s a piece on Charlton [Street] and a piece on King [Street], and so it’ll be two, 20ish-story buildings with an internal courtyard.
With your New York City projects, what price point are you doing? Are they all similar?
They’re fairly similar except for something like 1110 Park Avenue, which was a boutique building with only nine units. We were over $3,000 a foot in that one. Generally speaking, we’re between $2,000 and $2,500.
You guys have in some cases offered to pay transfer taxes and mansion taxes and even slashed prices. You are in a position where you could press pause and wait it out.
We can. We have a $29 million penthouse [at 1110 Park Avenue] that we’ve been looking to get our price on so we’ve been waiting there.
[But] you don’t want to wait forever because there are just carry costs. So, when we get to the point on a project where we have immediate occupancy and we’ve sold the majority of the building and we’re moving people in, it just makes sense to sell the rest of it and move on.
When do you think you guys will start buying again?
We’ve been very actively looking, and if the right opportunity comes along, we will buy it.
Would you say since the last downturn, you’ve been looking to more often offer moderately priced units?
Yes, we have focused more on seeing if we can find a way to deliver product at a lower price threshold. If you’re able to deliver stuff below $2 million that are two bedrooms and three bedrooms, that’s something that more people can afford. And we’d like to be able to supply that.
City Living is looking to develop on the West Coast.
[Toll Brothers Chief Executive Officer] Doug [Yearley], on the last earnings call, was mentioning L.A., but we’ve been looking in other urban markets for years. We’ve looked at Boston pretty extensively, Miami, San Francisco and recently L.A. And so Doug was talking about that because we like the market. It’s very high-per-square-foot rent there and not a lot of new construction condo product, so we see a market there to do fewer than 100 units somewhere in L.A. County.
How do you stay ahead of your competitors?
Given our capital and our wherewithal, we’re able to react really quickly if something comes on the market and it’s something we like. The seller recognizes that we can buy all cash and they don’t have to worry about whether we can get our financing or not. And I think we stay ahead by keeping our costs down by doing so much in-house—by doing sales ourselves, by building ourselves. And we can certainly always be price competitive if that’s what it comes down to in the market.
If you had to make a prediction for where the market will be this time next year, what would it be?
I think we’re going to start to see a lot of what’s been on the market getting absorbed, and we’re going to see people in addition to Toll looking at doing less ultra-luxury product and more product that is affordable to more segments of the population.
Do you live in ultra-luxury?
No. I live in a 10-unit condo on Dean Street in Boerum Hill [with wife of 21 years, Anna Quintana, and their three daughters, 18 and 14-year-old twins].
What do you do for fun?
We see live music a lot. I play basketball. As a family, we love the beach, so we’re excited that it’s getting into summertime and we’re going to be able to go to the beach.
Do you have a summer house?
No. We do day trips to Neponsit in Queens, right next to Jacob Riis [park].
You have a lot of cool images on your walls. Why one of Walter “Clyde” Frazier?
He was my idol growing up. I love the [New York] Knicks—he was a fantastic player. But, what I liked about him was he was very cool. He got the name Clyde because of Bonnie and Clyde because he had this style and he was cool. He won two championships, he racked up amazing statistics, but the most amazing thing to me was that in his entire career he never got one technical foul, which is the ultimate cool. Playing at that level with that intensity and just never, ever losing his cool was really amazing.