building in San Francisco for $31.25 million and then bought the Las Vegas property. “Around 2004–2005, we just could not find projects in Miami to develop. It was such a competitive market and land values and construction costs had gone up significantly,” Peebles recalls.
Even without the sub-prime fiasco, the real estate boom had to end sometime—and Peebles knew it. Management analyzed the South Florida market, where the company had several holdings, and saw that Florida residents income were rising at 3% to 4% from 2002–2005 while housing prices were appreciating at a rate closer to 30% to 40% a year. “It was getting to the point where the average family could not afford to buy an average home. That was unsustainable,” Peebles says.
While Peebles attributes the timing of the sell-off partially to luck, timing the market is a common trait of successful developers. “You hear all these policymakers make comments like ‘No one could have foreseen this’ and I’d argue with that a little bit,” says Michael Larson, a real estate analyst at Weiss Research in Jupiter, Florida. “There are some smart folks out there who were ready and did see the writing on the walls and took the right steps to prepare themselves for that and those are the ones that are going to be in the catbird seat now. This downturn is creating a lot of bargains.”
For now, Peebles is positioning his firm for the eventual real estate bounce back, focusing his investment efforts in Florida, Nevada, the Washington, D.C. metro area, and New York City.
The company is also shifting its business model to de-emphasize development in light of the depressed market and its capital intensive nature. Instead, Peebles plans to buy on the cheap and hold it until the market turns. “I’ve always said that we’re in the real estate business. We invest when the market’s conducive for investment, we develop when the market is conducive to developing, and we examine when the market is in flux.”
ROYAL PALM REDUX
Like most business, real estate is full of twists and turns and if you look at them as opportunities, they can be. But the real estate business isn’t always a precise science and all too often things fall