The Toll House Featured

8:00pm EDT August 19, 2004

Robert Toll's building blocks keep him quite busy.

A conversation about constructing Toll Brothers, a $2.8 billion luxury real estate empire, starts in the car, continues on the airport tarmac, is punctuated by a short flight and reconvenes an hour later via cell phone en route to a Boston subdivision.

"A wise man knows what he doesn't know," says the chairman and CEO of Toll Brothers, reciting a principle he learned at Princeton law school.

That said, he passes driving directions to an aide.

"I learned to be very careful in business," he says. "My father taught me in the beginning, 'It's more important not to lose money than to make it.'"

After 11 years of record earnings, 12 years of record revenue and 13 years of record sales contracts, Toll Brothers' steady 20 percent growth average proves careful isn't constrictive. Toll builds homes in 21 markets, hitting what he calls the sweet spot of construction: the supple, stable luxury market. Home prices in the target market average $556,000.

But for Toll, chairman and CEO of Toll Brothers, it's more important to create a conscious company than to just break more ground. Building isn't limited to bricks and mortar; communities are the foundation, says Kira McCarron, Toll Brothers' chief marketing officer.

"We build neighborhoods, and we are leaving a legacy behind. We know we want to build again in the neighborhood, and we want to be invited back," McCarron says of the raw material most critical to sustaining the house that Toll built -- goodwill.

The company has raised more than $3 million for the American Red Cross in the last 13 years, and this year will filter contributions to the American Cancer Society. Giving also trickles down to the backyards of the 48,000 homes Toll Brothers has built since its inception, reaching organizations such as Toys for Tots and local groups from softballs teams to animal shelters.

"We are trying to be good neighbors," McCarron says.

Landmarks

Since founding the business with his brother Bruce in 1967 -- and going public in 1986 -- Toll has expanded the company's portfolio to include products beyond its first basic homes. To say Toll multitasks is misleading; to call the company a construction business is confining.

"It's an understatement to say that Bob thinks out of the box," says Fred Cooper, Toll Brothers' vice president, finance and investor relations. "He gets more done in a 24-hour day than anyone I know."

This on-the-move mentality drives Toll Brothers' innovation, and Toll himself is motivated by improving the lives of the people his company touches.

"We are constantly taking advantage of new opportunities and investigating new growth strategies," Cooper says.

Existing markets such as Denver, Chicago and Reno are ripe, and New Jersey high-rise complexes with Manhattan skyline views are hot as well, he says.

"Over the long term, we have the potential to double or triple the size of our company just by expanding in our existing markets," Cooper says. "You have a growing potential of possible luxury home buyers and, in addition, the baby boomers right now are entering the peak of their earning and home-buying years."

To attract that market, Toll has super-sized his early starter home designs. He recalls his first For Sale signs: "I started off with two homes that went for $17,490 and $18,490 -- hardwood floors were included but carpet was extra," Toll says, noting how interior upgrades have changed. "I brought my brother, Bruce, into the business with me and we did 20 homes the first year, 40 homes the next year, and I haven't looked back since."

A second-generation builder, Toll says he "went from law to learning" when he left his job as an attorney. He spent days in the field, selling, supervising and building, and nights at a family friend's home.

"It's very difficult for a father to teach his own son," he says. "I took lessons at night. I would go to my father's friend and say, 'What do I do next in building this house?'"

Toll plugged away and plotted plans for his first community, a starter home development in Chester County.

"I remember every time we sold a home, I used to sing, "Inglewood, da-da-da," he imitates with Broadway gusto.

Toll's tune caught on, and construction boomed in the 1970s. He built apartments and several new communities and expanded into New Jersey.

And when the market lagged, his energy and persistence persevered.

"I remember begging on my hands and knees and literally dancing on a table," Toll says, illustrating a negotiation with a savings and loan officer to secure mortgages for expansion. "One S&L officer said, 'If you get on the table and dance, I'll give you two mortgages.' I did -- and I got two mortgages."

This scenario wouldn't surprise McCarron, one of 4,847 employees infected by Toll's contagious personality.

"There is never a dull moment, always something new," says the 19-year employee. "He has more energy than most of us, and he likes to surround himself with a great talent base. He loves to have smart people who want to work hard, have fun, challenge the status quo and come up with new ideas."

The economy hasn't been all song and dance the last four decades, but Toll Brothers' diverse portfolio positions the company to grow whether interest rates are sluggish or soaring, Cooper says. Today, Toll plants his high-end designs in golf course communities, urban lots, empty-nester homes and resort-style country club settings. Thirty percent of the business targets the growing empty nesters market; 12 percent caters to active adults.

"We focus on the luxury market, and our typical buyer borrows about 70 percent of the purchase price of the home vs. roughly 85 percent for the starter-home market," Cooper says. "Our buyers typically are not as impacted by interest rates."

And it helps that many Toll Brothers buyers are already familiar with the name, McCarron adds.

"We get a lot of brand-name benefits from executives who move from place to place," she says. "They are excited to learn we are in their market because they know and trust our name."

That trust begins before the blueprints are drawn. Construction is a hospitality industry, in a sense, and Toll's team plays the part of social coordinator and community activist before homeowners even move in.

"In our subdivisions, we host parties for families and children to get to know each other," McCarron says. "Even though they aren't physically moved in yet, they feel like they are part of the community. We aren't just building 20 houses, then leaving."

Charity events that support each Toll Brothers community create a sustainability that outlasts curb appeal.

"Every place we build, we have many, many employees who live in that community, so it's easy for us to see how our efforts benefit the local community," McCarron says.

Model builder

An altruistic vision that begins with Toll helps the company win approval from residents and regulatory arms. People with not-in-my-back yard reactions to construction hesitate to side with builders that want to develop so-called McMansions and other high-end model homes.

"One can't read the paper or watch television news without listening to anti-development and anti-building messages," McCarron says. "While there is an acknowledgement that people need a place to live, they don't always want it next to them."

This political pressure strains builders, in particular, smaller organizations that don't have the resources, reputation or patience to swim through land entitlement and development processes. But Toll Brothers has gumption.

"It's not like you could decide tomorrow to go into the home-building business," McCarron says. "It's a multiyear process, and there is a high barrier to entry against a large volume of people."

Toll Brothers' foundation of industry expertise works to its advantage. Because municipalities don't dole out approvals to build on every corner, supply is slim, and the demand for luxury fare is high.

Consequently, Toll expects to continue the company's 20 percent annual growth trend. To achieve this, he depends on his managerial team, a group of eight operational vice presidents who help him run his "mini-businesses." He hires for talent and trains for construction.

"Most of the people I hire come from other walks of life," he says.

Toll Brothers' learning culture breeds strong managers.

"I used to keep a pitchfork in the corner of the conference room," Toll says, "and we would have meetings every Monday night. We still do, and we teach each other. It's amazing that a new experience occurs after 40 years in business, but it does."

Meanwhile, Toll exposes employees to experiences outside the business realm as well. Stewardship extends beyond land grants and development projects. He encourages involvement in the company's annual gala in February, where proceeds that generally hit the $400,000 mark benefit the American Cancer Society. Toll plays auctioneer, engaging guests in an evening of dinner, dancing and entertainment.

Outside the office, he and his wife, Jane, purchased a camp in Maine, which they have leased to Seeds of Peace for the past 12 years. They have helped raise more than $8 million for the organization, which teaches peaceful ideals to children from war-torn countries.

"It's our hope that by exposing these children to a summer in Maine with sports and conflict resolution sessions, when they become leaders in their respective countries, they will change the dialect of how conflict is handled," Toll says.

Before he bought it, the camp was a favorite summer spot for the young Toll.

"It is absolute heaven," he says. "It was a regular boy's camp then."

Modeling the Say Yes to Education program, in 1991, the Tolls created a program in which they guaranteed two third grade classes, comprising 58 Philadelphia inner-city elementary school children, that they would pay for any and all college, vo-tech or continuing education. To help them prepare for college, the couple also provided full-time counselors, teachers' aides and summer programs for the children.

"We took them to ball games, made sure they had proper medical treatment and took them on spring break vacations from the time they were in kindergarten to high school," Toll says. "We were very fortunate. Thirty of the 58 students ended up in college, and they are in their last year."

Community spirit fills the Toll house -- it's the most basic building block, supporting neighborhoods from Philadelphia to California. It secures the company's success and paves its future. It fills Toll's schedule, and he is quite busy.

After all, he wants to make sure he is invited back.

HOW TO REACH: Tolls Brothers, (215) 938-8000 or www.tollbrothers.com