Robert Toll: ‘Everywhere You Don’t See High-Rises, There Are Places to Build’
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The Sit-Down
Location: We’re probably in a recession, and a big culprit is the housing market—prices were much too high, and now they’re really sinking. As the nation’s largest luxury home builder, do you feel guilty?
Mr. Toll: I feel guilty for not being more cautious and recognizing that we had to be on thin ice because things had been so good for so long. [But], by 2000, we should have entered the next down cycle, on an ordinary basis. But we didn’t. And if I had become cautious then, my company would have missed the great ride that it took in ’05 and ’06. In ’05 we made $800 million plus—net, net, net!
Yet, in 2005, you said in an interview that the housing market was ‘frothy and infested with speculators,’ and you also said ‘the mortgage industry needed to tighten up its lending practices.’ But you profited brilliantly through exactly those problems.
Now, we didn’t profit from those things. … We profited from tremendous demand for housing. That demand was pushed above what should have been by speculation, by investment, and by a mortgage market that was rabid for product.
If you knew the system was flawed, what could you have done?
You see, on the one side I had sales people who are on commission, who are paid to sell; and on the other side I’m asking these sales people not to sell to speculators, investors or people who are demanding more mortgage than they should, and are therefore at risk. … The reason capitalism works is that one of the basic instincts of human nature is greed; everybody wants to get bigger, better, more, you know? And there are very few of us that walk around all day long with the thought of being our brother’s keeper.
But as the biggest luxury developer, do you feel a social responsibility for not selling houses to people who shouldn’t be buying them because their finances aren’t good enough?
No, I don’t think we’re feeling socially responsible not to sell homes. I think it’s on a business basis that we don’t want to sell homes to people that are going to fail, because we don’t want those homes back.
As of today, you have a new bonus agreement, which gives you a bonus even if your company isn’t performing well.
The board felt for somebody who works as hard as I do—I guess, they think, as well as I do—that they ought to have the option to give me some additional bonus when the formula has taken me down to zero.
Do you deserve a multimillion-dollar bonus when your company is doing poorly?
I definitely deserve to make four, five [million], etc., in that range, for the work that I do.
You made $19.2 million in 2006, plus a $17.5 million bonus, but made over $8 million in total compensation last year, with no bonus.
I don’t think your numbers are right.
They’re from your company’s regulatory filings.
O.K. Go ahead.
How much time have you spent skiing this winter?
Ski season is still on, and I go out to Telluride and ski at the end of the week, and the rest of the time I go to the office and work. My honey, Jane, and my dog moved to Telluride; we have a home in Telluride. … I go back and forth as much as I can, and try and be with my honey and my mountain.
What kinds of issues keep you up at night? It’s been such a weird winter.
It hasn’t been weird for us in Telluride; it’s been the greatest winter on record.
You know what I mean—in America over 3.6 million mortgages were foreclosing or past due in the last three months of last year. Do you worry about families losing their homes, or just homes that are Toll’s?
I try when I’m not working not to worry. What do I worry about? I worry about my family’s health first.
But haven’t foreclosures been a plague on housing?
Is it a plague? I think that’s too strong a word. … Remember, it’s a two-way street. The people were to some extent misled into buying more than they could afford, and borrowing more than they could afford. But it’s a two-way street, the person has to be willing to be led, you have to want to go for the sales pitch, take a home that’s bigger than you want to, take a mortgage that’s bigger than you want to.
You’ve been famous for not believing in the idea of a real estate bubble. Just because prices are high, you would say, doesn’t mean they have to pop and come down.
I made a mistake there, didn’t I? I made a mistake in that I didn’t see the extent of the bubble … I didn’t say to myself, ‘Well what happens if this demand stops?’
But what about Manhattan—will prices come down?
Is Manhattan in a bubble? It doesn’t seem to me that it is. Manhattan is supported not just by the local market, not just by the region, not just by people from all over the United States who want to have a pied à terre, but it’s also supported by foreign buyers.
Wouldn’t it be a good thing if prices go down here? In Manhattan, if prices keep going up, it will mean the city will just be for the super-wealthy, even more than it is now.
There’s a lot of available housing outside of Manhattan; it’s not written anywhere that you have to have a workforce within Manhattan, although there certainly is a lot of workforce housing in upper Manhattan. You can go out in Queens; you can go out in Long Island; you can go up to the Bronx.
You’re now finishing your first Manhattan condo, One Ten 3rd in the East Village. I like the way the building looks, but it’s in a neighborhood that used to be an area for musicians and artists, and now it’s a neighborhood with expensive condos like yours.
Hey, Max, once upon a time the populace of the United States wore buckskin and deerskin, rode ponies and hunted with bows and arrows, and I’m sure they didn’t appreciate it when your kind came to the Untied States. What’s the point you’re making?
Are you equating developers with colonialists?
No, I’m equating you with displacing Indians. What’s your point?
Well, even if there may be no natural right for young people to afford Manhattan, what about the fact that Brooklyn and Queens, where you’re also building condos, used to be affordable? When people are priced farther out, New York will lose some of its culture.
It appears to me that New York now is more cultural than it used to be.
Are there any other places left for you to build in Manhattan?
There are tons of places to build in Manhattan. In particular: In the Lower East Side, in Soho, Chelsea, the meatpacking district. Everywhere you don’t see high-rises, there are places to build. Should they be built? That’s a zoning and planning question.
You’re famous for mass-produced luxury suburban homes. But, in New York, big developers are working with big architects. Would that appeal to you?
I think the name-architect thing is probably overdone;, I don’t believe in it personally. I believe we should try and use architects that we think have great taste, and who build according to our taste.
In Brooklyn you’re reportedly building a new development with 707 units of housing and 2,000 square feet of retail on three acres on the Gowanus Canal. What will that look like?
I’m not going to say.
Housing has a huge environmental impact. Does Toll build green?
Yes, and we’ll be doing it more and more. The market wants it and the market will pay for it. … I predict that whereas now we’re doing it voluntarily because the market wants it and we can sell it for a profit, in the future you will see regulation come requiring it, further driving up the cost beyond what’s desired.
Feel free to call me naïve and hang up the phone, but what about the idea that as a developer of luxury housing, which takes a terrible toll on the environment, you should want to build green?
Sure, we should all want to build green. So have a great day. I’m going to get down to some other work.
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