Big Houses And Sprawling Suburbs Are Back -- And Better Than Ever

By Stephane Fitch and Kristin Kloberdanz

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With their younger son off finishing college and their older one out on his own, Linda and Lee Sussman found their four-bedroom house near downtown Boca Raton, Fla. too quiet. But the couple, now in their mid-50s, didn’t want to downsize to, say, a luxury condo. Instead, they sold the old house for $430,000 and moved last year into a $731,000 newly constructed home with a backyard pool overlooking the lake at Parkland Golf & Country Club in the northernmost reaches of Broward County.

“The backyard is phenomenal. We see water, wrapped by water all around. It’s like being on a peninsula,” marvels Linda, a retired art teacher who appreciates a good view. Sure, Lee, a golf-loving financial planner, has to drive an extra 7 miles each way to his office. But the supermarket is close by, and it’s just a short stroll to the Parkland clubhouse, with its spa, restaurant, lounges, tennis courts, pools and fountains. “It feels like a Disney resort,” Linda says. Get this: At 3,300 square feet, the empty nesters’ new home is bigger than the one where they raised two sons.

“Nobody moves to a smaller house,” crows Robert “Bob” Toll, the 73-year-old cofounder and executive chairman of luxury home builder Toll Brothers TOL -0.33%, which sold the Sussmans their new spread. At least not if Toll can help it.

The suburbs, McMansions and Horsham, Pa.-based Toll Bros. are all staging a comeback. Bob and his younger brother, Bruce, started building homes in 1967 and were mass-producing luxury housing by the time they took Toll Bros. public in 1986. The company survived the housing bust with a 60% staff cut and $2 billion in writedowns. Now with excess inventory depleted and 130 home builders having disappeared, Toll and the other remaining players are enjoying a gale of resurgent demand.

Bob Toll (Matt Furman for Forbes)

Toll sold 5,300 luxury homes in its fiscal 2014 year ended Oct. 31–more McMansions spread over more states than any other U.S. builder. Customers typically get 3,000 to 7,000 feet of enclosed space on a lot that may be scarcely larger than that. After picking from models with names like Artisan, Tuscana, Wimpleton and Zinfandel, they spend thousands or even hundreds of thousands more on “custom” options–from higher-endKohler faucets and the latest in high-efficiency “flush technologies” for their three to six bathrooms, to wine cellars and pools, cabanas and “outdoor oases” (grilling and food stations) for their backyards. On average, upgrades account for 18% to 20% of the final price of a Toll home and even more of the company’s profit.

For 2014 analysts expect Toll to report $345 million in net earnings, or $1.87 per share, on sales of about $3.9 billion–more than twice 2012 revenues but still well off its $6 billion revenue peak in 2006. Toll’s stock, which traded as low as $15 in 2011, is now back around $35.

Veteran independent housing analyst Ivy Zelman figures that if the recovery continues at its current pace, housing starts could approach their precrash annual average of 1.5 million a year by 2016. If that happens, Toll Bros.’ revenues could again hit $6 billion, with profits doubling to $3.60 a share, she estimates.