Toll Brothers CEO Remains Defiantly Upbeat

IT'S MIDMORNING AT Robert Toll's office, more than two years into the housing slump, and still the CEO of Toll Brothers (TOL) doesn't seem fazed. He's on speakerphone with one of his executives, firing off talking points. The company Toll founded with his brother 41 years ago has posted a third-straight quarter of losses, and the luxury home builder's shares are down 60 percent since the boom. But Toll is defiantly upbeat. "Our business is good," the punchy 67-year-old blusters from behind his desk. His office, at Toll's nondescript headquarters outside Philadelphia, buzzes with urgency. Another line rings. A reporter waits. Another meeting is minutes away. To kill time, his marketing manager points out a photo of Toll trading jabs with Muhammad Ali.

Toll has taken a different sort of hit recently. Today's ongoing housing bleakness isn't what he predicted; back in 2006, he said we were "bouncing along the bottom" and that the next season would pick up. He even ventured into new territory: Known for building pricey suburban McMansions, Toll muscled into New York's cutthroat condo market, with upscale high-rises in Manhattan.

Toll's misplaced confidence has angered many big investors. This year major pension funds and a big labor union opposed Toll's board reelection. "Robert Toll's dramatic proclamations turned out to be clearly wrong," says Richard Metcalf, of the Laborers' International Union of North America, which has several funds that own Toll shares. "There's been bad performance and an underestimation and miscalculation of problems facing the industry."

But Toll, a physically unassuming man with thin hair and bushy eyebrows, bridles at such critiques. He says that over the long term, the growing number of wealthy middle-agers will want his homes, and with $1 billion in cash, Toll Brothers will be ready. Many on Wall Street agree. Jay McCanless, an analyst at FTN Midwest Securities, calls the firm "one of the best-managed builders out there." SmartMoney's Paulette Miniter caught up with Toll to talk about the industry's troubles, his regrets and how Barack Obama could fix everything.

It doesn't seem as if you were prepared for the real estate bust.

We recognized there was a speculative overexuberance taking place, but we didn't think it was to such an extent that it dwarfed demographics. Wealth was increasing. You had a roaring stock market. Unemployment was at an all-time low. Credit was free, and all the money in the world was sloshing all over the place.

Weren't there also signs of froth? Double-digit price increases, no-money-down loans...

That's a lot of topics. Froth? Yes, but we thought the underlying fundamentals were strong enough to support the market, even if the froth blew away. The free mortgages were an accident — a result of greed and the capitalist system. It's the best system we've figured out, but without checks and balances, it can run amok.

Was there a point when you thought about slowing down?

You don't stop building. But you do raise your threshold. And we did, toward the end of the cycle.

Yet you have some six years' worth of land in a down market and are taking losses.

Because we didn't foresee the serious decrease in the business any more than anybody else did. Management of any firm has to look at both sides. You want to have an exit strategy, but you also don't want to miss opportunity, because shareholders aren't paying you to just sit. They want expansion, extra profit. We could've balanced it a lot better if we'd had that crystal ball. But we didn't.