Builder of the Year report: Toll Brothers - new guard, new era, more success

It’s true that Toll Brothers is the only company to twice be named Builder of the Year by this magazine. But 1988 was a long time ago, and at that point, the recognition was focused primarily on Bruce Toll and Robert Toll, who founded the company in 1967. This award has long since stopped being about individuals and has focused more on company achievements. And the achievements of late have been remarkable.

Many other large builders have managed through the historic downturn quite well. For that matter, so have many small- and mid-sized companies. But Toll Brothers today is arguably at the top of the industry when it comes to its cash position, its leading land positions across the country, its access to and extremely low cost of capital, the strength of its brand, the experience and tenure of its people, its high levels of quality and customer satisfaction, and its ability to execute against a long-term product diversification strategy that is working well and is one that holds great promise for the years to come.

So when Bob and Bruce Toll sat together to discuss their company at this point in its upward trajectory, their focus was entirely on the team, more specifically a new group of top leaders, whom they had mentored for decades. “I want everyone to know how proud we are of the team here,” said Bruce Toll. “This is about their hard work and effort.”

Table of Contents
Land acquisition (this page)
Financial position
Operations/culture
City Living operations
Sales and marketing
Toll Brothers Company Timeline
Design innovation
Builder of the Year past winners
Component manufacturing

Until May of 2010, when Doug Yearley was named chief executive, top management for many years had consisted of Bob Toll as CEO and chairman, Zvi Barzilay as president and COO, and Joel Rassman as CFO and treasurer. Their stewardship of the business was greatly admired and influenced many builders and other outside professionals who wanted to learn about the home-building industry.

Several top investment analysts who cover home building today cite the tutelage of Joel Rassman in helping them initially learn the business. Sadly, Rassman passed away in the fall of 2010 and was replaced by Martin Connor, whose deep familiarity and close working relationship with the company stemmed from his two years working directly for Rassman in anticipation of the transition and, prior to joining Toll, as the lead partner for Toll’s outside auditing firm. And it was about one year later that Rick Hartman was promoted to COO, succeeding a retiring Barzilay.

Hartman has been with the company since 1980, and Yearley since 1990. Such tenures are not atypical at Toll. In an era when people move from place to place without compunction, these individuals choose to stay and remain immersed in home building. And that, say many, is a testament to Bob Toll, who remains as executive chairman and who consistently hews to a myriad of learned axioms about home building that keep the daily work of the company’s employees quite focused on the ground-level business that must be executed week-in and week-out.

Toll Brothers - Then and Now

A comparison of Toll Brothers today versus 1988 — the last time they captured Professional Builder’s Builder of the Year honors.

Founded: 1967
Headquartered: Horsham, Pa.
Website: www.tollbrothers.com

1988
Revenue: $200,167,000
Closings: 778
No. of employees: 536
Markets served: five states (Pa., N.J., Del., Md., Mass.)
No. of communities: 26

2012
Revenue: $1,475,882,000 (2011)
Closings: 2,611 (2011)
No. of employees: 2,396
Markets served: 20 states (Ariz., Calif., Colo., Conn., Del., Fla., Ill., Mass., Md., Mich., Minn., N.C., N.J., Nev., N.Y., Pa., S.C., Texas, Va., Wash.)
No. of communities: 224

Anyone visiting the Toll headquarters in Horsham, Pa., on a Monday night should expect to see the executive team and many others working late. It is a tradition, a way to unite the company in real time across many time zones. Project managers, for example, in California and Arizona know that they can reach out to the home office for specific quesitons and expertise on Monday nights. The whole package — Monday office hours, professionalism, and long tenures — speaks to a deep reservoir of employee engagement and pride.

Among construction-management graduates, the company is known to hire only the best, with competitive compensation packages and benefits that include use of company owned vacation properties, notes Jon Downs, SVP of human resources. Through the downturn, when the company (like all other builders) had to dramatically reduce headcount, and now in the upturn, as more people are needed, Downs has managed Toll’s staffing needs. The company, he says, has recruited back 600 former employees, many of whom left jobs to return.

Strong Systems and Processes

A thorough review of sales figures and potential land deals exemplifies the company’s core conservative methods and processes. They deserve part of the credit for Toll’s leading position as the market improved this year, and the reason why this magazine believes the company is positioned well for the upturn. While project managers, divisional heads, and regional presidents for Toll have a lot of authority over how things get executed, decisions on land and community pricing still merit the close scrutiny of Yearley, Hartman, and Bob Toll. Land-deal briefs come to the executive team on Fridays so they can be reviewed over the weekend for a Monday meeting. Ninety percent of those deals get approved, but all division presidents supporting those deals come out with questions that need to be resolved first.

“They go out of the meeting with a greater understanding of the community that they brought us for approval. We will say, ‘We don’t think this comp is accurate. You don’t support this pace. Yes, you say they sold seven homes in the last month, but if you look over the last two years, they have done 14. So something is not making sense,’” Bob Toll explains.

“We will go through every negative that we can find. We may find that the way the contract is written so that the money that is put up is refundable during due diligence, but only if the seller’s conditions are met after due diligence, and then we read down three paragraphs later and it says there are no conditions. Something is wrong here. We will want to know who wrote it and to determine where we really stand. So while we might kill one out of 10, those that go through do so with additional concerns and additional questions.”

The rigor applied to land deals and to pricing at the very highest levels of the company also sends the right message to the rest of the company’s employees, says Yearley. “I think it is a great message that senior management is getting into the kind of details that we get into. And I think that trickles down to everybody and how they do their jobs.”