Homebuilder Toll Brothers to Buy Distressed Real Estate

Last Updated Jul 19, 2010 9:41 PM EDT

Toll Brothers, the luxury homebuilder, has apparently decided that if you can't beat 'em, join 'em.

The Horsham, Pennsylvania-based company, known as a builder of McMansions, lost $40 million last quarter on revenue of $311 million. The company announced Monday that it would launch Gibraltar Capital and Asset Management LLC, a fund to invest in distressed real estate. The fund is open to buying loan and property portfolios -- an aim shared by many a private equity firm. A story by Bloomberg BusinessWeek describing the Toll Brothers announcement noted that Toll was increasing its land holdings for the first time since 2006.

The move is a way to bet on a real-estate recovery that doesn't necessarily start in the new-home sector. As I've noted in prior Moneywatch columns, new home sales is an increasingly irrelevant data series. That's because selling new homes is a diminishing part of the real estate business.

In May, for example, new-home sales came in at a seasonally adjusted annual rate of 300,000. Contrast that with total home sales for the year, which should be on the order of 5.5 million, if present trends continue. So new home sales make up about 5.5 percent of total sales volume; in January 2001, they represented 17.5 percent.

With the pie shrinking, Toll did what it could do to affirm its faith in the business: joining, as the Bloomberg story notes, competitor Lennar (which has already invested $3 billion in distressed real estate). It's not a recovery, and maybe not even possibly a leading indicator for a recovery, but it sure is a sign that some housing-industry experts are looking for one.

  • Alison Rogers

    Since graduating from Harvard summa cum laude, Alison Rogers has been a reporter, an editor, a real-estate agent, a Wall Street desk jockey, a columnist, a failed flipper, and a landlady. A member of the National Association of Realtors, she currently sells and rents luxury co-ops in Manhattan for the Chelsea-based firm DG Neary. (If you've got $27,500 a month, the firm has an apartment for you!) Her book, Diary of a Real Estate Rookie, was called "a valuable guide for rookie buyers" by AOL/Walletpop, "beach-read fun" by the New York Observer, and "witty" by Newsweek.