The Peebles Corporation, one of the nation’s largest African-American-owned development firms, is using public/private real estate development partnerships to get its feet wet in the New York City market, founder and CEO Don Peebles told The Real Deal from his Madison Avenue office today.
The public/private model, which involves partnering with city- or state-run agencies to develop new properties on government-owned land, allows the company to compete for all too rare big development parcels outside of the open market and in circumstances where price is not the only factor when picking a winning bidder.
“The public/private deals allow you to enter a market,” Peebles said, noting that a developer can quickly get to know New York City political players and zoning and land uses procedures through collaborations with government agencies. Once a developer has made it through a public/private project, it’s much easier to approach a private development, he said, speaking from his experience in markets like Washington D.C. and Miami.
Earlier this year, the city selected Peebles to reposition a landmarked 400,000-square-foot building at 346 Broadway in Tribeca. After a year-long application and proposal process, the company is gearing up to officially take title to the property for $160 million, with plans to transform the building into condominiums and a hotel.
Peebles is also waiting to hear if he has been selected to redevelop a BP gas station site on 110th Street and Frederick Douglass Boulevard in Upper Manhattan. The New York City Economic Development Corporation sought proposals as early as June 2012 to build on the 13,500-square-foot space at 2040 Frederick Douglass Boulevard and a decision is expected imminently. If Peebles wins the assignment, the company would develop an 80,000-square-foot residential condominium property with large residences ranging from 3,000 to 6,000 square feet.
Peebles is also bidding on two other city-owned sites in the five boroughs, one of which is close to 346 Broadway, he told The Real Deal, but declined to comment on which sites, citing a confidentiality agreement.
The public/private model is more attractive than ever for newcomers, since the competition for sizable vacant Manhattan sites and conversion opportunities has reached a fever pitch – and the arena is dominated by a small coterie of local heavyweights.
“By and large, it’s a heavily capital intense market and it’s got a small group of people that are playing in it,” Peebles said. “[Finding a site to develop privately] would be much more challenging and I’d probably overpay for the property.”
In general, New York City developers have eschewed working with the government because it prolongs the timeframe for developing a project, and it’s expensive to put together bids that might get rejected. The city may also have requirements that the developer work with minority-owned businesses and hire residents from the surrounding community, which can be off-putting for developers with no experience in those areas.
But for those players who’ve established a track record in the public sector – Peebles’ first ever project was a public/private partnership in Washington D.C. in the 1980s – and have squeaky-clean public images, those barriers to entry work to their advantage, Peebles said. That’s because the city generally taps developers based on a broad range of factors, such as the number of jobs the development will create, the inclusion of affordable housing and the expansion of its tax base. If a developer can stand out in those areas, they may be able to secure properties at a much lower cost basis.
“Developers want to do the easiest, most efficient things,” Peebles said. “We all have to play to our strengths. Our business has to have niches.”
Peebles’ history of political engagement also plays to his advantage when it comes to dealing with the city, he noted.
Of course, Peebles is not the only developer teaming up with the city. Mammoth new projects like the Related Companies’ Hudson Yards and Forest City Ratner’s Atlantic Yards projects are both public/private partnerships.
“The transformational projects are all public private,” Peebles said. “That’s where the land is.”