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Robert Toll, Chairman and CEO of Toll Brothers (TOL), comments on land prices in California and Florida in his quarterly conference call:


Rick Murray - Raymond James

I was curious, Bob, if you could give us a sense quantitatively, and I know it's a difficult thing to ask of you, but a sense for the degree of magnitude that you believe or perceive land prices are changing in perhaps Florida or California or anywhere that you may have some insight like that?

Robert Toll

My sense is that they're changing quite a bit and quite more rapidly than in past home building recessions, slowdowns. The nominal prices are not changing as much as the terms. September '05, sellers of land were demanding full pay if it were a $30 million piece, you would give $1.5 million to $2 million down and as soon as you achieve preliminary plan so that you know you had vested rights, you had to close. Then on your nickel, which is substantial, you went through the planning process, the engineering process, the wetland approval, the water and sewer approval so that you would then get into the ground about on average 15 months from the time you had spent the money.

Now, the same seller will offer the same piece of dirt for the same money, however, $500,000 down refundable, if you don't achieve your approvals. You don't have to pay till you get all your approvals so you're riding on the land seller nickel instead of your own, for the time period you're securing all of the approvals, which can be as much as five years.

When it comes time to close, you only have to close on 20 lots and then take down six a quarter for the next, it could be ten years or five years. So when you throw in the discount because of the slowness in payment, the stretched out terms, you get a pretty substantial difference.

Rick Murray - Raymond James

Despite the fact that billions of dollars of public builder land deals have returned to the market, you haven't seen any impact on nominal prices yet?

Robert Toll

Not really, no. We have found a substantial difference in prices with sellers that we have and I think other builders are finding the same. You go back and renegotiate. You can take $100 million deal back to from $100 million to $72 million. But there was all cash at the end of the time period. So the $72 million was laid out as fast as the $100 million was going to be laid out. That was something that just comes to mind, it was a substantial discount. Hope that helps.

Source: Robert Toll Comments on Changing Land Prices