CEO Interview: Toll Brothers’ Yearley takes reins at homebuilder; Sees growth opportunities

New Toll Brothers CEO optimistic about market

Douglas Yearley was just a child when the man he’s replacing as the chief executive of Toll Brothers Inc. launched what would become the nation’s largest luxury homebuilder.

That’s more than 40 years of professional experience that Yearley will have to live up to when he officially takes the job on Wednesday. Yearley has spent the past 20 years working for Robert Toll, who is staying on as executive chairman.

By Yearley’s account, he and Toll have racked up more than 800 Monday nights together in strategy sessions that dragged late into the evening, the stints helping to groom him along the way for the top job.

The executive changeover is a milestone for the company, which has had Robert Toll as its CEO since he and his brother, Bruce, who is vice chairman, founded the company in 1967.

That Yearley, 50, is even working in homebuilding stems from a passion he developed for home renovation projects after he became disillusioned with a career in law.

“I hated billing every six minutes of my day. Hated working on the same cases for years. Hated being in the middle of a fight, which is what a litigator does,” Yearley said.

Yearley started spending every moment of free time he could spare renovating his house in Haddonfield, N.J. He painted, converted the basement and attic into livable spaces and became a self-described “wallpaper guru.”

Then one day in 1990, Yearley saw an ad in a Philadelphia newspaper for an executive assistant position at Toll Brothers, then a growing regional homebuilder, and decided to apply, not fully knowing what the job entailed.

He interviewed on his 30th birthday and got the job. His assignment: Buy up distressed land from banks and other institutions in the wake of the savings and loan crisis of the late 1980s.

“Within a couple of weeks, Bob threw me in an office, gave me a book that listed every bank in America and he said ‘Start with the As, cold-call them and see if they have any real estate to sell,’” Yearley said.

The land-buying spree helped fuel a growth streak for Toll Brothers that elevated it to a national builder.

Now, there’s a similar dynamic in play. The worst housing downturn in decades has created an opportunity for Toll once more to load up on land at sharp discounts in preparation for when the market fully recovers.

Only this time around, Yearley won’t be doing the cold-calling.

Here are excerpts from an Associated Press interview with Yearley:

Q: You’re going to be the first CEO of the company whose last name isn’t Toll. Is that intimidating?

A: Sure, it’s intimidating. Bob’s an icon in our industry and a founder of the company. It’s always been his company and his brother’s company and it always will be. And you know, with the shares he owns and the passion he still has for the business, it’s a little bit of a unique situation because when he says he’s executive chairman, don’t forget the word executive.

I’m very lucky that it’s great timing because we’re beginning to come out of some very dark days of homebuilding and we have an opportunity now to regrow the company.

Q: Why do you believe this a such a good time to be taking the reins at Toll?

A: Our numbers this last quarter were better than the last two years. In no way are we back to ‘05 numbers or ‘04 numbers, but we are seeing significant improvement in our business and we’ve been reporting that. We’re also seeing a whole bunch of land deals now get freed up from the banks. And we have the capital to take advantage of those deals.

Every recession for this company has been a time of growth, not immediate sales results, but growth in terms of preparing to feed our pipeline. So, I’m not declaring that we’re roaring and therefore it’s a great time for me to step in, but we think we’re clearly off the bottom.

Q: What project or initiative that you led at Toll are you’re most proud of?

A: Getting us into urban markets. We had no urban division or developments at all. And then all of a sudden, in about 2003 or 2004, I was the point person for acquiring an urban high-rise builder in Hoboken, (N.J.), which has now led us to our City Living brand, which we’re very proud of.

It’s about 10 percent of our business now. And it was very exciting, because it was such a different business line from building suburban farm field houses.

Q: Any business decision you wish you could take back?

A: Oh sure. We all made mistakes in some of the land we purchased in 2002-2005, when the market was roaring. And now we look back on that land and realize that we were too bullish, we were too aggressive, maybe we weren’t as disciplined as we should have been.

I remind myself of that every day. I have a little plaque on my table that says: “You can buy more land in an afternoon than you can get rid of in a lifetime.”

Q: Toll Brothers has, by some accounts, a 12-year supply of land right now, and you’re still looking to buy more. That’s raised red flags for some analysts.

A: It’s our culture to embrace land. That being said, at our peak we had 90,000 lots and we’ve shed about 60,000 of those lots, and most of that was optioned land that we didn’t yet own. And we’re sensitive to making sure we don’t just keep piling land on that doesn’t make sense. But there are so many great opportunities out there right now, at such great pricing, and we do see the market improving, and we have $1.5 billion of cash.

Q: What’s your most immediate challenge to returning to profitability?

A: We need to grow community count. We’re at 190 communities. In 2005 we were at 325. So, even as sales pace has improved, if you only have 190 communities open versus 325, you’re not going to get yourself back to anything like the 8,800 homes we (sold) in ‘05 until we get that community count up. (The company has estimated that it will sell between 2,200 and 2,750 homes in its current fiscal year, which ends in October.)

Q: How do you convince homebuyers that now is a better time to purchase a luxury home than six months from now or even later?

A: Our buyers, they can get a mortgage, they have great FICO (credit) scores, they’re putting 30 percent down, it really comes down to consumer confidence, how they feel about the economy, their investments in the market, how they feel about their ability to sell their house, their job security. And all of that has been trending the right way. Not everywhere, but in most of our markets it’s trending the right way.

Q: Do you live in a Toll Brothers-built house?

A: I live in a 1927 Tudor in Westfield, N.J.