Don Peebles’ diversity capital call: Developer says push for equal economic opportunity is “not going away”
Veteran developer on how commercial real estate must address disparities in access to funding
Developer Don Peebles founded his eponymous firm in 1983. Since then, the Peebles Corporation has built out a portfolio that totals $6 billion and spans more than 7 million square feet in Boston, Los Angeles, Miami, New York, Philadelphia, San Francisco, Washington, D.C., and Charlotte, North Carolina.
Peebles has long been outspoken about the need for real estate companies to address the lack of economic opportunity for minorities in the industry. He once served on the Real Estate Board of New York’s board of governors, but stepped down before the end of his two-year term, citing frustration that the group wasn’t doing enough.
Last year, he announced that his company is launching a $500 million fund to invest in minority and women developers, targeting multifamily and commercial projects ranging from $10 million to $70 million.
In an interview with The Real Deal this month, Peebles talked about the fund and how the industry missed its chance to lead the way on economic inclusivity. Developers and other commercial real estate players, he said, now have no choice but to change how they do business.
Last year you announced the launch of a $500 million fund for minority and women developers. How much has been raised so far? The typical fund, especially a new fund, I’ve been told, takes about 18 months, and we are about a year into this. It’s been a lengthy and arduous process, but we are making progress now. We are in due diligence with several institutional investors. The pandemic and the inability to meet people in person, and so forth, made it more difficult. But everybody’s adapting.
Do you have a time frame for having the platform up and running? I’m hopeful, by year end, we’ll be able to begin to deploy some capital to entrepreneurs who need it and who can produce good returns. Frankly, since the murder of George Floyd and the resulting protests, the issue of equal economic opportunity for African Americans has become more of a topic in the business community and has become one of the more current issues of focus. As a result of that, we’ve seen a significant increase in interest in our fund, in our entire platform, in terms of raising equity and providing equity to minority and women developers, as well as the projects that we develop.
What did you think of the real estate industry’s overall response to the Black Lives Matter movement and George Floyd’s death? I think that the industry is very late to the game. It’s almost too little, too late. While the industry over the last couple of decades has talked about diversity, they have approached it in generally philanthropic ways — helping the most neediest of Black people, as opposed to doing business with Black [firms], deploying capital to businesses and entrepreneurs who are talented but haven’t had fair access to capital.
[Investing in minority firms] is a very profitable endeavor, but our industry has looked at the Black community as one that is lesser than, and that’s unfortunate. In terms of providing real economic opportunities, real career opportunities, the New York commercial real estate industry has failed miserably, and the results are clear.
What are the results? People of color, when it comes to New York commercial real estate, are almost nonexistent. New York City is a market that is forgiving. People fail. They give their properties back to their lenders, and yet they live to fight another day constantly, and they get more institutional capital. You have an industry that has low barriers to entry with low educational barriers to entry, and people are building some of the biggest projects in the city with very limited educational or career backgrounds in the space, and the reason why is they get access to capital.
The people who deploy the capital, deploy it in a discriminatory manner. Whether that’s intentional or not is another story, but that result is the same. If you think about where private equity gets invested, it’s certainly not reflective of the population demographics of New York. Nor is it reflective of the investors of the capital in these funds because the biggest contributors to real estate private equity are public employee and labor union pension systems, whose memberships are heavily represented by minorities and women.
Can you describe what you mean by the discriminatory manner [in how capital is deployed]? I’ve been in the business for 35-plus years. So, when I see developers and owners give their properties back to their lenders or litigate with their lenders — or overpay and lose money for their projects — and they continue to get capital, I’ve often asked some of the people in the financial markets, “How’s that possible?” They explained to me that generally when a deal is underwritten in New York City, the investors and the lenders look at the deal first. When it comes to minority and women developers, they look at the sponsor first, with a microscopic eye, and then they look at the deal.
That’s a very different way of treatment, because there’s this overriding presumption, unfortunately, that somehow minorities and women are not as competent. Of course, that couldn’t be further from the truth.
You singled out New York City, but have you found real estate to be more diverse in the other markets you work in? If you look at Miami, the commercial real estate industry is more reflective of the population demographics. Latino developers are heavily in the Miami and South Florida marketplace. In fact, the largest condo developer in the state of Florida, Jorge Pérez, is a Latino American. David Martin and his father Pedro, again, are Latino Americans doing some of the most exciting projects in South Florida. The list goes on.
African Americans are underrepresented in Florida, and that is a consistent theme around the country. I think you have probably the best representation in Washington, D.C., and that really is because the government and the leaders of the city back in the 1980s made an affirmative push to create economic opportunities for Black businesses. And Washington, D.C., was a majority Black city.
For several years, you’ve called out the industry for its lack of diversity. What do you think should happen now? I think that the industry needs to provide economic and career opportunities to individuals and companies who are community-based and to create opportunities for other people to start new businesses. The industry just has been myopically focused on efficiency and profits and being incestuous with doing business with the same people over and over and over again. They haven’t felt the need to be inclusive, but now that’s changed.
I’ve been telling our industry for years that the business model of exclusion is not sustainable — that if the industry didn’t address these issues, if it didn’t address the diversity issue and affordable housing, those things would be imposed on the industry in ways it may not like. We’d be better suited to draw out the blueprint ourselves, and there wasn’t much interest in that. Unfortunately, now we’re going to see. These topics are not going away and the expectation of economic opportunity is not going to go away.
This interview has been edited for length and clarity.