This past September, nearly 1,000 prospective buyers turned out for “Toll Advantage Day,” an invitation-only event that Toll Brothers conducted to showcase three mid-rise projects in the New York metro area. A picnic was followed by a tour of Hudson Tea, a 523-unit condo conversion of a former Lipton tea factory in Hoboken, N.J.; Maxwell Place on the Hudson, a conversion of a former Maxwell House coffee plant in the same city that ultimately will become a luxury complex with 823 for-sale apartments within four buildings ranging from five to 12 stories; and 700 Grove, a 324-unit project in nearby Jersey City, N.J.

Toll also has vertical projects going up in Manhattan, Brooklyn, and Miami, which it markets under its “Toll Brothers City Living” brand. Doug Yearley, who manages this business, says the builder expects vertical (mid- and high-rise) projects to eventually represent 10 percent of its annual business, from 5 percent today. In fiscal year 2006, Maxwell Place sold 250 units at an average price of $950,000 per unit.

SEASCAPE SOLUTION: One of Beazer Homes' vertical projects is The Pointe At Moore's Inlet in North Wildwood, N.J., which will have 60 beachfront condos.  Paul R. Schneier, president of Beazer's New Jersey division, says local land-use policies are forcing builders to develop closer to urban centers.
Beazer Homes SEASCAPE SOLUTION: One of Beazer Homes' vertical projects is The Pointe At Moore's Inlet in North Wildwood, N.J., which will have 60 beachfront condos. Paul R. Schneier, president of Beazer's New Jersey division, says local land-use policies are forcing builders to develop closer to urban centers.

In their pursuit of homeowners who prefer an urban lifestyle or wish to live closer to where they work, production builders such as Toll are venturing into steel-and-concrete construction, five stories or higher, of condos, lofts, and townhouses. Later this year, for example, buyers should start moving into Fifty One, Centex's $120 million redevelopment of a former Del Monte fruit cannery called Plant 51 in San Jose, Calif. This condo project, which the builder has worked on for nearly three years, is Centex's first podium building in Northern California and its most ambitious effort to date in vertical residential construction. The 65-foot-high Fifty One offers 46 floor plans for 265 lofts and flats that range from 800 to 1,500 square feet and from $496,000 to $656,000. “It's an ideal location, right at the downtown area and adjacent to transit lines,” says Christopher Warren, vice president of urban development for Centex's Bay Area division.

RIVER VISTA: Residents of Hudson Tea, a 523-unit mid-rise condominium redevelopment in Hoboken, N.J., have  a breathtaking view of Manhattan's skyline across the Hudson  River. Toll Brothers is marketing this and other vertical projects under  the “Toll Brothers City Living” brand.
Toll Brothers RIVER VISTA: Residents of Hudson Tea, a 523-unit mid-rise condominium redevelopment in Hoboken, N.J., have a breathtaking view of Manhattan's skyline across the Hudson River. Toll Brothers is marketing this and other vertical projects under the “Toll Brothers City Living” brand.

Beazer Homes has a half dozen mid-rises (each no more than six stories) under development in Florida, California, and the Mid-Atlantic region, says company CFO Jim O'Leary. One project is The Pointe At Moore's Inlet in North Wildwood, N.J., a four-story structure that will be completed this spring with 60 two- and three-bedroom beachfront condos ranging from 1,310 to 3,000 square feet and from $724,900 to $1.8 million. “You have to take what the market gives you, and up here, government [regulation] is pushing people back into the urban areas,” says Paul R. Schneier, president of Beazer's New Jersey division.

JOINING THE CLUB “This is an interesting time for vertical, because more people are getting into it,” observes Michael Lander, who owns Lander Group, a Minneapolis-based mid- and high-rise developer, and who founded the first “Urban 20” group within the NAHB. Lennar, KB Home, Hovnanian Enterprises, and Kimball Hill Homes are some of the other production builders whose portfolios now include vertical product. This trend, though, involves more tiptoe than leap. “The key to this business is being conservative,” says Emile Haddad, president of Lennar's Western region, which has five vertical projects in the works but withdrew with KB from a tower development in Los Angeles because of its cost.

PRESERVATION PROJECT: In converting a Del Monte fruit cannery in San Jose, Calif., into a condo called  Fifty One, Centex kept the plant's brick exterior by building the mid-rise  inside of the older structure's original walls.
Centex PRESERVATION PROJECT: In converting a Del Monte fruit cannery in San Jose, Calif., into a condo called Fifty One, Centex kept the plant's brick exterior by building the mid-rise inside of the older structure's original walls.

Home builders acknowledge that moving into vertical is competitively daunting, especially because there's already a plethora of companies that specialize in this kind of development, including Milliken Development Group, whose high-end towers feature retail components that promote a sense of community.

Remi Cos.' $50 million, 128-unit Velocity project in Hoboken is that market's first urban luxury residence to use 7.5-inch precast-concrete walls for noise containment. AvalonBay's Chrystie Place was New York's first residential tower built above a subway tunnel.

Some industry experts wonder why production builders are dabbling in vertical, given what one expert calls their “checkered” performance in multifamily development. Tim Alt, a Minneapolis-based interior designer whose company works on residential and commercial projects, fears that the penetration of production builders into this sector could lower its design standards. “I don't know if the builders understand the customer in this market,” he says. “Buyers are a lot more savvy now, and I don't see the correlation between people who want to move into a $300,000-to-$800,000 single-family home and people who want to move into a condo.”

CODE CALAMITY: Just as it was about to take occupancy of its Midtown Lofts project in Minneapolis, Lander  Group was forced by an 11th-hour code change to add an exterior  water system that was installed improperly and flooded some apartments. The  developer, however, made repairs and used the situation to demonstrate  how it stood behind its construction.
Lander Group CODE CALAMITY: Just as it was about to take occupancy of its Midtown Lofts project in Minneapolis, Lander Group was forced by an 11th-hour code change to add an exterior water system that was installed improperly and flooded some apartments. The developer, however, made repairs and used the situation to demonstrate how it stood behind its construction.

Production builders are also expanding into vertical at a time when market conditions are less than ideal, with flagging buyer demand and condo overload in several markets. Nearly 38,000 mid- and high-rise homes are currently under development in Las Vegas, for instance (see “Raising the Ante,” page 192).

“[In the New York metro area,] we're competing with 8,000 [vertical] homes that are either planned, under construction, or selling,” says Larry Florin, president of Lennar's year-old New York Urban division. In response to the current downturn, WCI Communities, which has built residential towers on the East Coast for more than 15 years, reduced the number of towers it planned to start in 2006 to between one and three, after originally planning to start 11 to 13 towers.

However, an increasing number of production builders feel they have little choice but to diversify into vertical construction in order to capture urban infill opportunities to expand their customer bases. They hope to give their companies a viable growth avenue into densely populated metropolises where relatively affordable land for horizontal construction is difficult to find and entitle, if it is available at all.

Learn more about markets featured in this article: New York, NY, Las Vegas, NV, Los Angeles, CA, Minneapolis-St. Paul, MN.