Complexity Takes Toll on Land-Need Guesses

How much land is enough? You never can tell, but don't despair - neither can Wall Street analysts or Giants such as Toll Brothers, the $2.3 billion luxury home builder based in Huntingdon Valley, Pa. Toll controls roughly 47,000 lots and owns 60% outright compared with other public builders' average of 43%, says Joel Rassman, Toll's chief financial officer.

Margaret Whelan of UBS Investment Research said in a memo to investors that Toll has an eight-year supply of land. Other analysts have cited higher numbers, but Rassman says it's lower than eight. How much lower, he can't say, because "how much land you need depends on where you are."

Toll closed 4,430 homes in 2002 and expects 20% growth through 2005, when it projects a 7,600-unit year, Rassman says.

He cautions that permit battles are getting tougher in the Northeast, Mid-Atlantic states, California and unpredictable pockets in the Midwest. "In Virginia, where the approvals process takes 2 1/2 to three years, I have to control at least three years' worth of land to stay ahead of the game. If I'm looking to grow, I'd need four-plus years."

Most deals are done in three to five years, he says, "but some can go out seven, 11 years. It took 12 years for us to fight through the approval process for Princeton Junction" in New Jersey, where it took the state Supreme Court to grant a builder's remedy before Toll broke ground.