PhillyInc

Instead of getting blasted for reporting lousy quarterly results, Toll Brothers Inc. (NYSE: TOL) Chief Executive Robert Toll is getting kudos because they weren't nearly as bad as Wall Street expected.

BusinessWeek remarked that the Horsham company can "take a punch." Toll shares rose more than 5 percent yesterday and continued to rise today. JMP Securities analyst James Wilson raised his rating on the stock to market perform (about a C) from market underperform (a failing grade).

Toll got into the good graces of investors because Wall Street analysts expected it to lose money in the quarter. Instead, it posted a profit of 16 cents. Toll also indicated that it wasn't having trouble getting so-called jumbo loans funded. These loans are more difficult to sell to investors because they exceed the $417,000 limit set by Fannie Mae and Freddie Mac.

In the world of Wall Street, Robert Toll hit a grand slam home run.

But Toll's results were still pretty bad even if they weren't awful as analysts expected. Profit fell 85 percent and cancellations were their highest in the company's 21-year history as a public company. Robert Toll told analysts on the earnings conference call that traffic to the company's developments has been "stinky." The company also declined to give earnings guidance given the shaky state of the market.

Eventually, the real estate market will rebound and Toll's financial position will improve, JMP's Wilson wrote in a note today to clients. When that will happen, though, isn't clear.

"We believe Toll is uniquely positioned as the only national production builder of luxury housing," JMP's Wilson wrote in a note to clients. "However, in today's weak housing environment, in which significant volume and price contraction is occurring, we expect its highly discretionary luxury product segment to take longer to register renewed growth than other parts of the housing market."

Lawrence Rothman of the Motley Fool cautions that investors may be overly optimistic.

"Some onlookers may have also parsed Robert Toll's words, taken a positive-sounding comment, and run with it," he wrote.

Toll Bros.' vice chairman Bruce Toll also is chairman of Philadelphia Media Holdings L.L.C., which owns The Inquirer, Philadelphia Daily News, Philly.com and this blog. He is the brother of Robert Toll.

- Jonathan Berr

Nicholas S. Schorsch, who was ousted last year from the REIT he founded, American Financial Realty Trust, doesn't see the $1.5 billion initial public offering of his new REIT called American Realty Capital Trust Inc. as a comeback or a return from the dead.

"The last time I checked, I hadn't died yet," Schorsch told PhillyInc in an interview from his office in New York City.

Whether Wall Street finds his spunk inspiring remains to be seen. Shares of Real Estate Investment Trusts, or REITS, have gotten pounded this year amid worries about the meltdown in the subprime mortgage market. The concerns have also have reached the commercial area. CB Richard Elis Group Inc., the largest commercial real estate broker, was downgraded yesterday by Goldman Sachs Group Inc. because of worries about a slowdown.

But Schorsch told us he is convinced that the time is "ideal" for his new REIT based in Jenkintown to go public.

"We have long-term leases with 100 percent occupancy," he said, adding that his company will focus on mid-range properties. "The market is good for the investor because it gives really stable returns."

His new American Capital Reality is focusing on single-tenant retail properties net-leased to investment grade or other credit worthy clients. These properties are a better investment than malls or office buildings because, his filing yesterday said, they "generally require less management and operating capital and have less recurring tenant turnover. ... In addition, since we intend to acquire properties that are geographically diverse, we expect to minimize the potential adverse impact of economic downturns in local markets."

As MarketWatch notes, analysts questioned Schorsch's strategy at his old firm of focusing on smaller commercial space instead of large marquee properties. Former American Financial Realty board member William Kahane has also joined American Capital Realty. Harold W. Pote, who succeeded Schorsch at American Financial Realty, died in June while vacationing in Turkey. The Jenkintown company is conducting a search for a successor.

- Jonathan Berr

Putting his money where his mouths is? Five days after playing down the collapse of a $5.47 billion sale agreement of his Radian Group Inc. (NYSE: RDN) to rival MGIC Inc. (NYSE:MTG), Radian Chief Executive Sanford A. Ibrahim - along with non-executive chairman Herbert Wender and some major investment groups - has turned around and bought shares in their mortgage insurer.

Ibrahim personally bought 15,000 shares valued at $256,900. And chairman Wender shelled out about $56,800 for 3,400 shares on that same day. They were the first stock purchases made by Radian insiders in the open market in more than two years, according to InsiderScore.com. Granted, they were not huge amounts. But they were signs of confidence nonetheless at a bad time in the housing market.

And they were not alone. The same day, Third Avenue Management LLC, a New York-based investor, quadrupled its stake in the company. Other big investors, including Canadian mutual fund manager AIC Ltd. and hedge fund manager D.E. Shaw & Co., also have boosted their investments in Radian, according to Bloomberg News.

- Jonathan Berr

Toll Brothers Inc. (NYSE: TOL) has been giving deeper-than-usual discounts during its "Toll Advantage Days" events at its developments around the country, where it offers what it calls "a behind the scenes look at our homes from start to finish." In other words, a sale. Deals include everything from additional hardware flooring to upgraded cabinets and appliances. Buyers may also find bargains on some lots and properties, such as those that Toll was forced to hold onto after a sale collapsed.

Kira McCarron, Toll's chief marketing officer, told PhillyInc that it was "reasonable" to assume that the offers would be better this year, given the state of the real estate market. "A few years ago, there probably were zero offers," she said.

Toll held "Toll Advantage Days" in Denver in April and now plans several on Sept. 29-30 in select spots, including New Hope.

Like other homebuilders, Huntington Valley, Pa.-based Toll is facing one of the worst real estate markets in recent memory. Reuters this week reported that sentiment among home builders fell for a seventh straight month in September. Speaking at a conference sponsored by Credit Suisse, Chief Executive Robert Toll said the current housing downturn is worse than others the company has experienced in 1980 to 1982 and 1987 to 1991, according to Reuters. His gloomy outlook takes into account the Federal Reserve's decision to cut interest rates.

Reuters quotes Toll: "Is this a turning point? Does anyone want to call this the bottom because of the Fed cut? I don't think you can call it yet." (Disclosure: The vice chairman of Toll Brothers is Bruce Toll, who is also is chair of Philadelphia Media Holdings L.L.C, which owns PhillyInc, The Philadelphia Inquirer, The Daily News and Philly.com.)

Other homebuilders also are having tough times. Orleans Homebuilders Inc. (NYSE: OHB), based in Bensalem, recently said it had an $11.3 million loss in the most recent quarter. A company spokesperson didn't return our call for comment.

Chief Executive Ara Hovnanian of Tolls' rival Hovnanian Enterprises Inc. (NYSE: HOV) of Red Bank, N.J., told the same conference where Robert Toll spoke that Hovnanian didn't expect the housing market to recover anytime soon. To that end, Hovnanian held what it dubbed the "sale of the century" last weekend, which the company claims was a huge success, Bloomberg News says.

Toll's McCarron says Toll Advantage Days is not a reaction to Hovnanian's sale. She pointed out the company has held these events for years. This time, though, the buyers are calling the shots more than they have in the past.

- Jonathan Berr

That's a Bryn Mawr home of Jack Bogle, founder of Vanguard Group Inc. and one of the most-admired CEOs (albeit former) in the Philadelphia area. It has recently gone up for sale at an asking price of $2.35 million, according to various listing services.

Is Bogle bugging out? Moving across town? Sensing an even bigger drop in the real estate market? We've put in a call to his office.

The home is known as the Jay Gates Residence, according to the Philadelphia Architects and Buildings web site. Here's the description of the house from Prudential Fox and Roach:

Located on one of the Main Line's most desirable and private lanes...this handsome stone & stucco colonial is a one-of-a-kind property. A blend of old and new with large inviting rooms, high ceilings and three fireplaces. Some special features include deep Jefferson windows and French doors, spacious eat-in Kitchen with large island and skylights. Adjoining the Kitchen is a magnificent Family Room with vaulted ceiling and large stone fireplace with raised hearth, first floor office and bright Playroom. Lovely terraces, 2 car Garage, circular drive and original 100 year old 'Smokehouse' complete this magnificent 1 1/2 acre estate.

- Michael Klein

Remember the old caveat to beware a guy offering to sell you the Brooklyn Bridge? Now there's a new twist, so says the Doylestown Intelligencer: a California-based auction company called LandAuction.com has sold to Brooklyn resident Mustafa "Steve" Keser a picturesque parcel of land in Warrington, which has turned out to be a bike path that Warrington now claims as its own. The paper says the parcel was sold in 2005 by Barbara E. Osder of Glenside to the auction company, which in turn put it up for auction last March in New Jersey with no mention of the bike path and only the words: "Be sure to pre-inspect this one!" No kidding.

- Thomas Ginsberg

Here's yet another clever gimmick by one of the country's most prolific "rapid resellers" of decrepit homes. The franchiser HomeVestors of America Inc., a Dallas company responsible for those loud "We Buy Ugly Houses.com" billboards, is sponsoring an Ugliest House of the Year contest -- among its own properties, that is. The 10 "finalists" in its nationwide inventory include this North Philadelphia student-rental house near Temple University, owned by HomeVestors franchisee Nick Cifaldi of Cifaldi Property Investments L.L.C. (Nasty, yes. But our choice was the shack in Phoenix.)

Ugly, in fact, is HomeVestors' stock in trade. The company quotes Cifaldi as proudly sayng: "The property was a complete dump. We replaced everything from the floors, walls, roof, windows, beams and heater. You could literally see through to the basement." HomeVestors' business model seems to be based on the particular ability, as the company's CEO has been quoted as saying, to buy stressed homes for two-thirds of what they would be worth in good condition, then quickly spruce up and sell them. Hence the term "rapid resellers."

Cifaldi of Philadelphia already seems to be a cottage celebrity for HomeVestors, having been featured in an article about rapid resellers by The Daily News and a less-than-glowing piece in the New York Times last year. The Times noted that some traditional brokers are miffed at this kind of business, but it also reports fnding a dearth of actual consumer complaints about them.

- Thomas Ginsberg

Canadian billionaire Michael Lee-Chin's mutual fund management firm, AIC Ltd., has unloaded all its holdings in Radian Group Inc. (NYSE: RDN), the Philadelphia-based mortgage insurance company. So says Radian in an SEC filing. That means AIC has gone from being Radian's biggest shareholder to its biggest deserter in just two months. AIC held about 13 percent of Radian shares in September, according to Bloomberg News. Lee-Chin's firm, now run by his successor, was known for emulating Warren Buffett's "buy-and-hold" strategy. Or at least it used to be.

- Thomas Ginsberg

Speaking of the housing slowdown: Robert I. Toll, chief of Toll Bros. Inc., has told the SEC (here, here and here) that he exercised 960,000 stock options on Monday that were due to expire at year's end.

Though he apparently had little choice other than to lose the shares, it's hardly an ideal time to sell. Toll stock as of yesterday was down 33 percent from a year earlier and the company just reported its first-ever quarterly loss. Not a great moment for a big insider sale, either.

So, Toll preemptively announced that he sold only enough -- about $13.2 million worth of shares -- to cover the option purchases and taxes, and is holding the rest, about 374,600 shares. Toll chief operating officer Zvi Barzilay and chief financial officer Joel Rassman did likewise with their expiring options. Not that Toll is suffering. He disclosed that his holdings rose to 29.12 million shares, which were worth about $609 million yesterday. But give him credit for not taking the money now, when his option shares were still worth roughly $8.5 million. Because odds are good they will go down before going up. After all, this is the same CEO who openly predicts a real estate-led recession is coming.

- Thomas Ginsberg

Carl Dranoff has rescued and transformed former industrial buildings such as the RCA Victor building in Camden and the GE building in West Philadelphia. Now the developer looks to be part of the rescue of Newark, N.J.

The New Jersey Performing Arts Center and Dranoff Properties Inc. will announce today that they have a deal to develop a mixed-use residential and retail project in the North Jersey city that has lagged Jersey City and Hoboken, which have emerged as real alternatives for Manhattanites. Called Two Center Street, the $200 million development would include a 250-unit luxury-apartment tower of between 30 and 40 stories, 30,000 square feet of retail space and parking.

The arts center opened in 1997 and has had aspirations to be the development engine for Newark. Two Center Street would be the first new building on the 12 acres that the nonprofit group controls.

Lawrence P. Goldman, president and chief executive officer of the arts center, said Dranoff Properties was selected from a short list of five developers. Technically, what Dranoff has won is a letter of intent giving him a nine-month period of exclusivity to reach a development agreement.

A financial Web site has found a hot investment in Philadelphia: houses in the Society Hill neighborhood.

Forbes.com calculated a 184 percent increase in the median sale price of a Society Hill house between 1990 and 2006. Noting how Philadelphia real estate tends to be "some of the most stable in the country," the Web site said:

"In this otherwise affordable city, more than 10% of the homes in this neighborhood command more than $1.5 million."

(From a map on Forbes.com, it looks as if the magazine considered the boundaries of Society Hill as the area between Walnut and South streets and Seventh and Front streets.)

Matt Woolsey's full story on America's most lucrative neighborhoods also features Boston's Charlestown, Chicago's Wicker Park, downtown Minneapolis, and the Sweet Auburn/Grant Park area of Atlanta.

Woolsey writes:

The most obvious trend in the neighborhoods here: many of them weren't valuable in 1990. That's good news for those who invested.

Remember: This is a backward-looking indicator. Past performance is no guarantee of future gains.

- Mike Armstrong

Losses are rarely good news for investors. But Orleans Homebuilders Inc. shares soared 56 percent last week even after airing its substantial red ink from its latest earnings report. Of course, the Bensalem company also detailed the steps it's taking to restructure its operations.

That made Orleans the biggest mover among local non-penny stocks. Add in recent interest rate cuts, and some investors may be hoping the worst is behind the builders.

- Mike Armstrong

Toll Bros. Inc. this morning released a preliminary report on its first-quarter revenues, contracts and backlog.

And chairman and CEO Robert I. Toll summed it up this way:

The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel.

Home-building revenues were $842.7 million, down 22 percent from the first quarter of 2007. Backlog for the Horsham builder of luxury homes was $2.4 billion, down 42 percent.

The company reported gross signed contracts of $573.2 million and 904 homes, down 46 percent and 38 percent respectively.

- Mike Armstrong