The new condo building at 205 Water Street in Brooklyn’s DUMBO neighborhood doesn’t appear all that out of the ordinary: Its concrete-and-steel façade, indigenously landscaped roof garden, and million-dollar loft apartments all reflect New York’s hyperexpansive (and expensive) real estate market circa 2013. The very hipness of 205 Water belies its provenance: The condos were constructed and developed by Toll Brother (TOL)s, the Horsham, Pa.-based homebuilder that rose to fame on the wings of the luxury suburban megahome. For the past five years the company has been quietly building a major presence in New York City, part of an overall push into urban markets. The company says it is just getting started.
Toll’s New York properties are going up in some of the most coveted locations in town: in the hipster playground of Williamsburg sits Northside Piers, two 30-story shimmering glass towers; on the Upper East Side, the Touraine — a 22-unit white-glove building that will include a gym, rooftop terrace, library, wine cellar, and 24-hour concierge; nearby, on tony Park Avenue, Toll is planning an 11-unit boutique; south, on 28th and Park, a massive hole in the ground will soon give way to a 40-story glass skyscraper developed with Sam Zell’s Equity Residential. Toll Brothers has built 30 buildings in the New York City market, and is currently building or planning 11 more. “New York City is our best market by far,” says Toll CEO Douglas Yearley, who took over from Bob Toll in 2010.
What does Yearley like so much about New York? Prices, for one thing. The company’s apartments start at $400,000 in Brooklyn and Hoboken but go much higher: 21 of the 22 units in the Touraine sold within six months at an average price of around $5 million; the only remaining unit is the penthouse, which is on the market for $20 million. (Most of the luxury suburban homes Toll builds, by comparison, sell for less than $700,000.) And the market in New York is diverse: The company sells to “hedge fund Johnny,” as Yearley calls finance types, as well as empty-nesters and international buyers. The properties are all part of Toll Brothers City Living, which started in 2003 and now makes up roughly 10% of the company’s overall revenue by units delivered. In January the company announced the division’s expansion into the greater Washington, D.C., market. The company is now considering taking City Living to Boston, Seattle, San Francisco, and São Paulo.
Toll’s moves are representative of a larger trend: More people are leaving the suburbs for the city. Yearley points out that a global urban push also diversifies the company’s operations and makes it more resilient to, say, a giant housing crisis in the U.S.
Still, city living requires some adjustments. When Yearley was examining 205 Water Street, he was dismayed to find a cracked concrete floor and visible graffiti. He told the crew that was unacceptable. They gently informed him the floor was cracked on purpose and the graffiti had been left to add to the urban charm. “I’m a suburban guy,” he shrugs.
This story is from the March 18, 2013 issue of Fortune.