BOB TOLL—THE MAN TRYING TO NAVIGATE AN INDUSTRY CRISIS

New York —In the October 2008 issue of Condé Nast Portfolio, Toll Brothers C.E.O. Bob Toll sits down exclusively with contributing editor Andrew Rice and talks about how things in the real estate industry got so bad—and how he believes they can be fixed (“Master Overbuilder,” p.130). Toll scored big in the real estate bubble, but now, as sales and losses mount at the luxury homebuilding company, he talks candidly about overbuilding, unwise land deals, greed, and how he plans to extricate the company from the industry mess. Rice reports that through the first nine months of 2008, Toll Brothers’ new sales contracts were down 49 percent from 2007, and 76 percent from 2005, and that the company has been forced to take massive write-downs—around $1.5 billion to date. Toll declares that he has seen this movie before: the market drops, the market recovers, home values rise again. “And Toll, having snapped up property at bargain basement prices from wiped out competitors, comes out stronger, richer, and better positioned,” Rice writes. “His plan is to do that again—and he thinks he has amassed the cash reserves to accomplish it…. The truly big money is made at the bottom, when other people are scared to buy.” Toll admits that he doesn’t know if the worst is yet over for his company. Rice suggests that the big question for Toll Brothers is what type of company it will be when the crisis ends. Its luxury specialization was a great advantage during the boom, but that designation may work against the company during a recovery. “Nobody wants to be called a dope,” Toll says. “The only thing we fear more than missing a good buy is being made to look like a fool.”

 
Also in the October issue:

“Taking on the Times” (p. 149). Staff writer Sheelah Kolhatkar takes a look at the Harbert family, an elusive Alabama clan behind the assault on the New York Times. Like many newspaper concerns today, the New York Times Co. has been described as embattled, and at the most recent shareholder meeting, chairman Arthur Sulzberger Jr. declared that the company was not for sale, an announcement that many believe was prompted by two hedge funds amassing 20 percent of Times Co. stock. Harbinger Capital Partners, a hedge fund founded seven years ago with Harbert family money, is currently the largest Times Co. shareholder outside the Sulzberger family. Last spring, along with the hedge fund Firebrand Partners, Harbinger forced two representatives onto the Times Co.’s board of directors with the stated aim of pushing management to improve the stock price—although as Kolhatkar reports, some fear they are after much more. “The fate of the country’s (and perhaps the world’s) most esteemed journalistic institution will be determined, in part, by a fortune that was made half a century ago in the coal mines of Kentucky and on the highways of Alabama by a founder who carried a sidearm into union drives and never met a Republican he didn’t like,” Kolhatkar writes. “It’s an irony fit for the pages of the New York Times.” Raymond Harbert took over Harbert Corp., the $500 million conglomerate his father, John Harbert III, created just after World War II, and since then, he has transformed it from a company that builds power plants and pipelines into a passive investment firm managing $25 billion for the Harbert family and outside clients. “When Harbinger took an aggressive stake in the New York Times Co. in January, people started to wonder who this secretive Southern mogul was, where his money came from, and what he was doing mucking with the Times.”

“UBS and the Diamond Smuggler” (p. 94). Paul Sullivan investigates the private-banking scandal that is rocking Swiss finance. It began with illegal diamonds, a tube of toothpaste, and a rogue American banker. Sullivan reports that Brad Birkenfeld, a director in the private wealth division of the Swiss bank UBS, helped very rich Americans hide tens, if not hundreds, of millions of dollars from U.S. tax authorities. This past June, Birkenfeld—and, in turn, UBS—was called to account in federal court in Fort Lauderdale. The implications of the Birkenfeld case for the Swiss bank were potentially huge, as the information he promised to provide authorities could well unwind 300 years of bank secrecy and dismantle the largest Swiss bank operating in the U.S., Sullivan reports. “If the government could prove that the creation of sham foreign companies was done knowingly, with institutional backing, in violation of the law, UBS’s banking license in the U.S. could be revoked.” Sullivan writes. The case put Swiss banking laws at direct odds with those of the United States, as U.S. authorities were demanding the disclosure of their American clients, which is a practice prohibited by Swiss law. Though the case is still unfolding, Birkenfeld has become the poster boy for the U.S. government’s case against tax cheats, the banks that enable them to move money offshore, and the Swiss government itself, Sullivan reports.

“The Mansion: A Subprime Parable” (p. 136). Contributing editor Michael Lewis gets a taste of the new American nightmare when his family moves into a house it can’t afford. When Lewis temporarily moved his family to New Orleans, the city he grew up in, to write a book, he was lured into renting the grandest home in town, a $10 million mansion on St. Charles Avenue. The perks of living in a “mansion” and the luxuries it offered—an elevator, a pool house, more space than you could ever use—proved impossible to resist. After living in the house for just a few weeks, however, Lewis quickly understood the pitfalls of being in a house one cannot afford—the exorbitant utility bills, the upkeep of all the luxuries, and that people assume you are rich and “therefore treat you differently.” Lewis came to realize that “a house is not just a house.” It’s one of those tools people use to rank each other. Lewis examines the psyche of Americans who seek to live in homes outside of their financial comfort zone. “We are a nation of financial imposters, poised to seize the first opportunity to live in houses we cannot afford.”
 
“Running on Empty” (p. 43). In the issue’s opening essay, California Governor Arnold Schwarzenegger calls for a national clean-energy policy that he maintains could break U.S. oil dependency. Schwarzenegger believes that no matter which candidate wins the presidential election in November, his priority must be to lead this country into an energy revolution. “We’ve known since 1973 that we are dangerously dependent on unstable and unfriendly regimes for our energy needs,” Schwarzenegger writes. “Sadly, we tend to change course whenever gas prices drop.”

“Health-Care Nation” (p. 59). Contributing editor Howell Raines examines how the media coverage of the national health-care debate oversimplifies the feud. Raines profiles two professors, Trudy Lieberman and Regina Herzlinger, who are trying to set the media straight by providing clear and thorough analysis of each candidate’s health care proposals. “Overall expert opinion is that media coverage of the $2.7 trillion industry that touches—or neglects—every American life has been sparse, shallow, and timid,” Raines writes.
 
“Reining In the Speculators” (p. 70). Senior writer Jesse Eisinger argues for a trading tax, because although he believes that rapid-fire traders are being wrongly blamed for the downturn, he maintains that the status quo should not remain unchallenged. “It’s better, not worse, for people and institutions to diversify their holdings into different asset classes, such as commodities,” Eisinger writes. “Financial markets do suffer from an endemic shortcoming, but it’s not rumor-mongering or manipulation by dark, power forces. It’s myopia. Short-termism is the problem.”

“Who Shot Motorola” (p. 164). In the wake of Motorola’s sinking sales and share price, contributing editor Kevin Maney profiles Chris Galvin, the deposed C.E.O. whose grandfather founded Motorola 80 years ago. Galvin explains what he believes went wrong at the once iconic company, and blames the company’s mismanagement—specifically the decision to get rid of his family—for its failings. Having once been the leading cell phone provider in the world, Maney writes, “Motorola being bested by Nokia was the equivalent of the Yankees losing to a Finnish baseball squad.”

“The Best President for Business” (p. 22). In the opening commentary, the editors of Condé Nast Portfolio examine McCain’s and Obama’s stances on economic issues such as taxes, health care, and trade, and ultimately deem Obama the best president for business. “One candidate offers a more realistic plan for enhancing both the domestic economy and the competitiveness of this country. And that is why we believe Barack Obama should be our next president.”
 
“The Tab for the Four Seasons” (p. 92). In a-back-of-the-napkin estimate, contributing editor Duff McDonald calculates how much New York’s legendary power-lunch spot, the Four Seasons restaurant, would bring in if the owners ever decided to sell it. Looking at earnings, exclusivity, and investment potential, McDonald comes up with a possible sale price of $20 million to $30 million.

This month on Portfolio.com
The October issue of the magazine, plus additional content, including “Five Ways the World Has Changed Forever” (your privacy, for one thing, will be never be same again), a look at how the recession squeeze is trickling down from parents and employers to teens (who are changing their spending habits), and a new Careers section that helps you work through politics better and negotiate smarter.

PRESS CONTACTS:

Perri Dorset
perri_dorset@condenast.com
212-286-5898
 
Sarina Sassoon Sanandaji
sarina_sanandaji@condenast.com
212-286-6898
 
Emily Weber
emily_weber@condenast.com
212-286-6373