Toll Brothers Plans to Develop Luxury College Dormitories

Toll Brothers Inc., the largest U.S. luxury-home builder, is beginning development of high-end college dormitories, according to Chief Executive Officer Douglas Yearley Jr.

The dorms will be off campus, starting at two East Coast universities the company will identify later. The buildings won’t be affiliated with the schools, giving Horsham, Pennsylvania-based Toll greater control of the properties, such as managing the rent, Yearley said. They will feature such amenities as a bathroom for every resident, movie-screening rooms and gyms.

“Not the dorm living I experienced,” Yearley, 52, said in an interview yesterday at the International Builders’ Show in Las Vegas.

Toll, best known as a builder of upscale single-family houses, has diversified into urban high rises, rental apartments and communities for residents 55 and older as it seeks to broaden sources of revenue and reduce the cyclical disruptions of the housing market. Toll’s primary focus remains owner-occupied housing, Yearley said.

“Our core business is fabulous,” Yearley said.

Toll rose 2.1 percent to $37.06 at the close in New York. The shares have gained 67 percent in the past 12 months, less than the 84 percent increase for the 11-member Standard & Poor’s Supercomposite Homebuilding Index.

Home Sales

Sales of existing homes declined 1 percent last month from November to an annual pace of 4.94 million, slower than economists estimated, as sales were limited by a drop in listings, the National Association of Realtors reported yesterday. The number of sales for all of 2012 was the highest since 2007.

U.S. new-home sales, which are scheduled to be reported Jan. 25, probably climbed to an annual pace of 385,000 in December, according to the median of 74 estimates in a Bloomberg survey.

“All signs point to a very good spring,” Yearley said, citing the number of visitors to Toll Brothers model homes and the amount of closings. The company expects to add 74 communities and sell out of about 50 this year, bringing its total to about 230, he said.

Echo Boomers

College enrollment is expected to increase by at least 10 percent by 2016, as “echo boomers” enter their late teens, fueling demand for student housing on and off campus, according to Axiometrics Inc., a Dallas-based research firm specializing in apartments.

Demand for student housing was less robust than expected during the first half of the 2012-2013 school year, according to an October report by Andrew McCulloch of Green Street Advisors Inc., a Newport Beach, California-based firm that researches real estate investment trusts.

“A challenging economy, new supply and overly aggressive rent hikes were the main culprits,” McCulloch said. “Newer, more amenitized assets in close proximity to campus have been, and are expected to continue to be, outperformers.”

Three REITs that focus on student housing had varied returns last year. American Campus Communities Inc., the largest student housing REIT, with more than $5 billion of assets under management, had a total return of 18 percent for shareholders who reinvested their dividends in the 12 months through yesterday. Education Realty Trust Inc., a Memphis, Tennessee-based student-housing REIT, delivered a total return of 3.2 percent. Campus Crest Communities Inc., based in Charlotte, North Carolina, had a total return of 27 percent.

Gibraltar Slowing

As Toll enters the dormitory market, it is seeing a slowdown for its distressed real estate investing division, Gibraltar Capital and Asset Management LLC, Yearley said.

“It is logical, as the housing and commercial real estate markets continue to recover, that the volume of distressed-deal flow should slow and there will be a point in time where Gibraltar will either have to re-invent itself or wind down,” Yearley said in an e-mail today. “Should the latter happen, the members of the team will be placed back into our homebuilding operation, finance or legal departments, where many of them started.”

Toll Brothers started Gibraltar in 2010 to buy portfolios of foreclosed properties and nonperforming loans from banks following a collapse in demand for new housing. Toll’s peak investment of $135 million in Gibraltar has declined to $125 million, Yearley said.

The Gibraltar investment hasn’t led directly to any new Toll subdivisions or housing developments, Yearley said. A winery in Georgia, a Minneapolis shopping center, student housing at Western Kentucky University and a condominium project in Las Vegas are among the assets that have been acquired, he said.

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