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Toll Bros. to build upscale college housing

HORSHAM, PA (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury home builder, is beginning development of high-end college dormitories, according to Chief Executive Officer Douglas Yearley Jr.

The dorms will be off campus, starting at two East Coast universities the company will identify later.

The buildings won’t be affiliated with the schools, giving Horsham, Pa.-based Toll greater control of the properties, such as managing the rent, Yearley said.

They will feature such amenities as a bathroom for every resident, movie-screening rooms and gyms.

“Not the dorm living I experienced,” Yearley, 52, said Tuesday at the International Builders’ Show in Las Vegas.

Toll (NYSE: TOL) , best known as a builder of upscale single-family houses, has diversified into urban high rises, rental apartments and communities for residents 55 and older as it seeks to broaden sources of revenue and reduce the cyclical disruptions of the housing market.

Toll’s primary focus still remains owner-occupied housing, Yearley said.

“Our core business is fabulous,” he said.

Toll shares rose 59 percent in the 12 months through Tuesday, less than the 78 percent increase for the 11-member Standard & Poor’s Supercomposite Homebuilding Index.

Resales of existing homes declined 1 percent last month from November to an annual pace of 4.94 million, as sales were limited by a drop in listings, the National Association of Realtors reported Tuesday. The number of sales for all of 2012 was the highest since 2007.

'Good spring'

“All signs point to a very good spring,” Yearley said, citing the number of visitors to Toll Brothers model homes and the amount of closings.

The company expects to add 74 communities and sell out of about 50 this year, bringing its total to about 230, he said.

College enrollment is expected to increase by at least 10 percent by 2016, as “echo boomers” enter their late teens, fueling demand for student housing on and off campus, according to Axiometrics Inc., a Dallas-based research firm specializing in apartments.

Demand for student housing was less robust than expected during the first half of the 2012-2013 school year, according to an October report by Andrew McCulloch, of Green Street Advisors Inc., a Newport Beach, Calif.-based firm that researches real estate investment trusts.

Newer ‘outperformers’

“A challenging economy, new supply and overly aggressive rent hikes were the main culprits,” McCulloch said. “Newer, more amenitized assets in close proximity to campus have been, and are expected to continue to be, outperformers.”

Three REITs that focus on student housing had varied returns last year.

American Campus Communities Inc. (NYSE: ACC), the largest student housing REIT, with more than $5 billion of assets under management, had a total return of 18 percent for shareholders who reinvested their dividends in the 12 months through Tuesday.

Education Realty Trust Inc. (NYSE: EDR), a Memphis, Tenn.- based student housing REIT, delivered a total return of 3.2 percent.

Campus Crest Communities Inc. (NYSE: CCG), based in Charlotte, N.C., had a total return of 27 percent.

As Toll enters the dormitory market, it’s “winding down” its distressed real estate investing division, Gibraltar Capital and Asset Management LLC, Yearley said.

“The deals aren’t there,” Yearley said.

Investment decline

Toll Brothers started Gibraltar in 2010 to buy portfolios of foreclosed properties and nonperforming loans from banks following a collapse in demand for new housing.

Toll’s peak investment of $135 million in Gibraltar has declined to $125 million, Yearley said.

The Gibraltar investment hasn’t led directly to any new Toll subdivisions or housing developments, he said.

A winery in Georgia, a Minneapolis shopping center, student housing at Western Kentucky University and a condominium project in Las Vegas are among the assets that have been acquired, he said.

Employees working for Gibraltar will be assigned to other jobs at the company.

“It’ll be painless,” Yearley said.

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