As those of you who have followed this blog regularly have probably figured out, we have mixed emotions when we hear of a new residential development from Toll Brothers in the city. On the one hand, we are elated that the nation’s largest luxury home builder has such confidence in its home city and its future. On the other, we look at the developments and ask ourselves, Couldn’t they be something more?
That ambivalence was magnified somewhat when we received the publicity materials Toll Brothers City Living, the division responsible for the firm’s Philadelphia projects, handed out at last November’s groundbreaking on the 2400 South project. On the cover were images of striking skyscrapers, the kind that make many urbanophiles and Philly boosters salivate.
Those, we found out, are located in New York, where Toll Brothers City Living has also established a successful beachhead.
So why haven’t we seen anything like them here? Brian Emmons, Toll Brothers’ vice president for the City Living division, explained why in a recent interview at his Naval Square office.
“We’re not pioneers,” he said. “A lot of developers, when they go into a market, they try to create a market based on a dream they have. When we look at every single land deal we do, we look at what’s available and what’s selling in each marketplace.”
As a publicly traded company, Toll Brothers has to operate this way – it has shareholders to satisfy. A private developer like Bart Blatstein can afford to take bigger risks and build developments whose payoff may come further down the road, carrying the near-term losses with profits from other developments. Stockholders tend to frown on this business model.
And when Toll Brothers looks at the Philadelphia market, what it sees is a landscape littered with high-rise luxury residential projects that proved way too premature.
“When you look at a lot of those high-rise condos, a lot of them had been completed about five or six years ago, and they have a lot of inventory,” Emmons said. “Waterfront Square had been completed for five years, and most of the units there went to auction. The Murano went to auction. 10 Rittenhouse went into bankruptcy.”
Part of the problem stems from construction costs. “In Philadelphia, it costs about $250-$300 a square foot to build this kind of place,” he said. Meanwhile, luxury homes in the city sell for about $200-$300 a square foot.
You do the math. Toll Brothers did. “When it costs that much to build it, and that doesn’t even include your carrying costs, you’re upside down before you even build it.
“When you look at our New York products, you see a lot of great high-rises. Those are selling for $1500-$3000 a square foot.”
“The market can sustain it there,” added Toll Brothers City Living marketing executive Todd Dumaresq, who is based there.
Another reason why Toll’s luxury projects here tend towards the safe and traditional is because residents have indicated with their voices that they prefer such projects overall. Areas like Northern Liberties, where nontraditional architecture is welcomed and encouraged, are still the exception to the rule. A more common reaction is the one Society Hill residents gave Stamper Square, a proposed mid-rise hotel/apartment/retail complex on the site of the former Newmarket complex. Sustained complaints delayed the project to the point where, by the time the developer had received the necessary approvals, financing had dried up. Toll Brothers’ proposal for a more traditionally styled and sized condominium, by contrast, sailed through the approval process.
Which brings us to another oft-voiced complaint – the Toll projects are pure residential plays, by and large. Its first Philly success, Naval Square, is a gated community. This is city living, right? Where’s the retail? Where’s the yeasty mix of uses Jane Jacobs told us real city neighborhoods display?
Once again, the behavior of the buyers and would-be neighbors shows that most of them do want it – just not next door to them.
“Look at 777 South Broad. Does that have commercial? Is it full?” Emmons asked. “Or the Murano. Does that have commercial? Is it full? Or look at the Piazza. It’s full, but how many times have those tenants swapped over? Or 1352. Not a single commercial tenant save for a dental clinic. And this is on South Street!
“We would love to build mixed residential/commercial in this market, but right now, [builders who do] can’t fill their retail. We would love to build more retail in the area, but based on what we’re seeing, it isn’t full. While everyone likes to live near commercial, the luxury demographic buyer chooses to live two to three blocks from it, not directly above it.
“The immediate neighbors didn’t want Stamper Square,” he said. “The people five and six blocks away wanted it.”
That goes for New Yorkers too, said Dumaresq. “Even in New York, a lot of our properties don’t have a retail component to them. Of the last three we’ve developed and sold, only one has a retail component to it.”
And what about all that parking? “When we can, we like to build [projects with] parking in New York, because it’s something people look for in the luxury market,” he continued, echoing statements made by other high-end developers here.
Overall, the company is pleased with its foray into urban development. “The suburbs have been our bread and butter and will continue to be, but we saw an opportunity to expand our market,” Dumaresq said. And the division continues to grow: “We just expanded into Washington, DC. We purchased our first property near Bethesda, Md. That will be the first project built under the Toll Brothers City Living umbrella there.” The City Living division started out with a project in Hoboken, N.J., in 2003, and expanded into Philly with the Naval Square project in 2005. It built its first Manhattan development three years later.
Emmons says Toll Brothers would welcome the opportunity to build denser, mixed-use developments and high-rise apartments in its home region, but the market for such projects isn’t big enough yet and the cost structure makes them unfeasible outside a few specific neighborhoods: Rittenhouse Square, Society Hill and Old City. (Need we remind you that the last of those neighborhoods has a zoning overlay with a height limit?)
“The thing that makes Philadelphia Philadelphia is that this is a city of neighborhoods,” he said. “Those neighborhoods have their own distinct identity, and you have to approach every single neighborhood individually and assess what is the right fit to the neighborhood.”
Except as noted, all photos by the author