Peebles, McNeely’s $1.5B Conversion Fund Nears Milestone

Developer Don Peebles and former BlackRock executive Doug McNeely are closing in on a fundraising goal milestone.

The partners are nearing $1 billion in commitments for their office conversion fund, a national play to turn the country’s surplus of empty offices into housing, the Commercial Observer reported.

The duo’s firm, Donahue Douglas, launched this spring with plans to raise $1.5 billion and deploy it across cities including Washington, D.C., San Francisco, Los Angeles and Boston. The fund will target both distressed and underused buildings with the potential to spur $4.5 billion worth of apartment redevelopment and create up to 15,000 housing units, Peebles said.

The venture’s backers range from state pension plans to family offices and university endowments. Institutional investors even cut checks between $100 million and $200 million each.

Peebles expects to reach the $1 billion milestone by early next year. The firm is also setting up an “emerging developer” fund aimed at bringing more minority-led firms into the conversion pipeline.

“The secular headwinds that exist in office space right now, with structural shifts post-Covid, have created a real generational opportunity to invest in this space,” McNeely said.

The move comes as demand for apartments surges while office markets flounder.

Manhattan’s office vacancy rate still sits above 13 percent, nearly double pre-pandemic levels, while residential rents have soared to record highs. Nationally, roughly 70,000 office-to-residential units are slated for delivery this year, up sharply from last year’s 55,000, according to Yardi Matrix.

Cities like D.C. and San Francisco, where empty offices have drained street life and retail, are early targets for Donahue Douglas. Peebles called the latter an “environment of great opportunity.”

Markets are coming out with municipal incentives and tax-credit programs that make conversions more feasible. Congress’ recent tweak to the Low-Income Housing Tax Credit also sweetened the math for affordable units.

— Holden Walter-Warner