(Photo by: Lonnie C. Major)

Andrè Woolery is no “Mr. Fix It.” When it comes to doing odd jobs at home, Woolery admits to having a clumsy nature. But it was his fumbling fingers that led the 34-year-old to discover a different side of himself—latent inventor.

In 2005, Woolery created a magnetic wristband to hold small nails, screws, drill bits, and even smaller tools such as mini wrenches. Made out of Velcro and nylon, the adjustable wristband is embedded with strong but small magnets, allowing handymen to keep essential tools close while working.

“I’m awkward when it comes to fixing things around a house,” says Woolery, who was a software engineer turned restaurateur turned inventor. “I thought this would be a clever way to keep everything easy to access.”

Today, Woolery’s MagnoGrip Magnetic Wristband is sold at more than 1,700 Lowe’s locations across the country as well as online at Walmart.com and Amazon.com. Woolery estimates he’s sold 400,000 units to date and earned revenues of more than $1 million.

For most inventors, bringing their brainchild to market is a rewarding yet taxing process. From patent, design, prototype, to eventually piquing the interest of buyers, the mission isn’t impossible but it is a feat seldom accomplished. Less than 5% of all U.S. patents have ever been successfully commercialized, according to the United Inventors Association. When starting out, understanding the costs—time and money—is as important as managing expectations, identifying the tools and resources needed, and planning the execution of truly bringing a creation to the masses. For most inventors, the trickiest part is getting started.

Patent Royale
While Woolery knew he had a hit product on his hands, the Jamaican-born businessman needed to know if the marketplace felt the same, and to secure his idea against copycats and scam artists. He enlisted intellectual property attorney Jonathan O. Owens, a 17-year veteran.

Owens says he suggested his client file a “provisional patent” with the United States Patent and Trademark Office (USPTO), which serves as a placeholder and gave Woolery a year to convert his filing to a regular pending patent application.

“In the right circumstances, especially for a startup, a provisional patent is good because it gives you a year to figure out if there is a market for your product and it requires fewer resources,” explains Owens, a partner with Haverstock & Owens L.L.P. in Sunnyvale, California.

Hiring an intellectual property attorney can cost between $8,000 and $12,000 depending on the complexity of the invention, says Owens. But money is only part of the cost. The average response time regarding a patent application is more than two years, according to the USPTO. Most experts recommend retaining an intellectual property attorney to navigate the process, but with or without legal help, don’t expect your patent to be approved on the first try. Although nearly 483,000 patent applications were filed in 2009, only 192,000 patents were granted that same year. Thanks to a backlog, there are nearly 1.2 million patents pending.

(Continued on next page)

Intellectual property attorneys not only perform patent searches, but also fill out the required paperwork and submit this information to the USPTO, a crucial part of the daunting process, says Calvin Flowers, president of Chicago’s 1st Black Inventors Entrepreneurs Organization).

“Inventors need to be engaged every step of the way,” says Flowers, whose organization offers resources for inventors looking to commercialize their idea. “You need to ask if the attorney has actually had a patent issued before,” he says, noting that it’s critical to make sure the attorney fully understands and has successfully navigated the patent process.

Unfortunately, inventor Elaine Cato found this out the hard way.

(Photo by: Lonnie C. Major)

From Your Attorney, With Love
Cato self-submitted her design and claims for a backless bra she created one night when getting ready for a New Year’s Eve party in 1998. The idea had been lurking in the back of her mind for a number of years and she thought her ingenuity could lead to innovation.

Made for bustier women who need support for backless tops, Cato knew she had a hit product on her hands when friends and family began inquiring about how she’d been able to wear backless dresses while still miraculously managing to support her DD bra cup size. Initiating the patent application on her own, Cato went through two rejections before seeking out an attorney.

The Tennessee native finally sought legal help after viewing a television advertisement one day. “I gave them all of my paperwork, which was a complete application and the drawings that I had done myself,” recalls the 43-year-old. After paying a $2,000 attorney fee, Cato received her third rejection from the patent office and she later found out the lawyer submitted the same paperwork she had turned over earlier. She realized the attorney had not done any additional work after the patent office told her the application was denied again for the same reason—the sketches did not meet USPTO guidelines.

Disenchanted, Cato found guidance from the USPTO. After each rejection, the patent office explained to Cato why her application was declined. “The examiner at the patent and trademark office counseled me,” says Cato. “She gave me the information of who to contact to get a professional prototype made and also who to contact to get professional drawings.”

Cato’s patent was issued after a fourth attempt and nearly six years of getting it just right. On average, Owens says it takes about two to three years to receive a patent approval. He also says it is rare that a patent application is approved on the first submission.

Test and Let Fail
Inventors can be sensitive about their creations. But as you speak to potential customers, buyers, and investors, and learn about your competition, don’t be afraid to refine your product, says Woolery.

“After a provisional application is filed, there’s no need to wait for the patent office,” says Owens. “[Inventors] should be out there trying to sell the product.” Woolery designed plans to do just that and test his magnetic wristbands in the marketplace.

While Woolery’s Stanford Graduate School of Business classmates were summer interning at major financial firms and Web companies, he spent his time creating a sales plan. Isolating a 20-mile radius of local hardware stores, the Menlo Park, California, resident began pitching his product to potential retailers. He sold his product on consignment so retailers would only have to pay for what was sold and could return unsold merchandise. But the effort was not without challenges.

(Continued on next page)

“What’s important to understand is ‘no’ doesn’t necessarily mean your product or idea is not good,” says Woolery, referring to those stores who turned down MagnoGrip initially. Try to extract feedback and figure out how you can improve your product, he advises.

“Sometimes if your product is very new and innovative, you can spend a lot of time educating the market on the benefits of a new approach or solution,” says Penny Pickett, associate administrator for Entrepreneurial Development with the Small Business Administration. “Entrepreneurs are advised to talk to potential customers to find out from them if they would buy the new product. Potential customers will provide great feedback on the idea, if it is significant enough for them to make a change, if they would pay for the new product, and at what price point. Customer validation is significant in developing the product and in strengthening the company.”

This seemed to be the case with Cato, whose backless bra impressed potential female customers but left male executives and managers confounded. “A lot of [them] just didn’t understand how the bra could stay up,” recalls Cato, who later found that live demos helped to solve the disconnect.

Once a product is designed and patented, inventors are brought to an important crossroads: to manufacture and distribute their creation themselves, or to license their product or sell their patent. It’s here that Woolery and Cato went down separate paths in bringing their respective products to market.

Dr. No
Cato sent her Breakthrough Backless Bra design to Victoria’s Secret once the patent was approved. While the women’s lingerie and beauty retailer initially expressed interest in distributing the bra, a conflict with another line the company sold stalled talks. Cato then looked to license her product to Victoria’s Secret or a comparable retail entity. Licensing would mean Cato retains the legal rights to her invention but allows another company to manufacture and distribute the product.

“I contacted other companies, but they would not receive unsolicited product designs,” says Cato. “I learned you have to deal with a buyer for a particular company to try to get your designs in a store.”

Because of the minimum resources needed by the inventor, licensing a product may be the most time- and cost-efficient route to get a product to market since inventors will not have to invest resources getting the product manufactured and distributed, says Flowers.

But as Cato found out, licensing your invention can give the licensee room to make changes to your invention depending on negotiations and ultimately contract stipulations. After appearing in Season 2 of ABC Television’s American Inventor, which looked to discover the next great invention, the runner up and $50,000 prize winner’s bra caught the attention of intimate apparel company Maidenform Brands Inc., which offered to manufacture and distribute it. Cato began working out a deal with the company, whose second quarter profits reached nearly $14 million. Since the offer came about through her appearance on ABC, which is owned by The Walt Disney Co., Cato and Maidenform, agreed to a pre-existing contractual licensing deal with that also included ABC Television, Tic-Toc Productions and FremantleMedia—the show’s production companies—as royalty recipients. And she says she was unable to bring her lawyers in during the negotiation procedures.

(Continued on next page)

While Cato says she was happy her product was finally able to hit markets, having five parties in on the deal significantly cut in on her earnings. She received 25% of royalties for three years, which she says amounted to $50,000 to $70,000 per year. “The bra was sold at Macy’s, JC Penney, Kohl’s, Belks, and it was sold in Canada,” says Cato. Prices range from $29 to $34. Cato’s three-year deal with Maidenform recently came to an end; if she were to sign a new deal for the Breakthrough Backless Bra she’d be able to receive full royalties. The inventor is now seeking investors for the patent-pending practical shapewear she’s since developed.

While some decide to sell off their product to the highest (or most interested) bidder, other inventors choose a more time consuming process. However, it’s one that can yield more control over how and where the product is sold.

Profits Galore
Woolery, now a Stanford Business School M.B.A. graduate, enjoyed the business side of bringing his product to market. Traveling to China to speak to potential manufacturers for his magnetic wristband, he began with 5,000 pieces and continued his tried-and-true method of reaching out to retailers directly. Overall, from concept to production, Woolery says it took $45,000 in startup capital. He secured most of the cash infusion from friends and family and invested $5,000 of his personal savings.

Once ready to start manufacturing, Woolery says the money from the consignment deals he made with local retailers helped foot the bill for larger production.

He began advertising in trade magazines, attending trade shows, and building a solid business team around him, eventually catching the eye of one of the nation’s largest hardware stores.

“In my negotiations with Home Depot, we brought on board an account manager, who was experienced in doing business with Home Depot to assist us,” says Woolery. “It’s less about having an attorney involved and more about having business people involved who understand what we’re looking for and what Home Depot is looking for.”

Currently, Woolery’s MagnoGrip products are running in a pilot test in 135 Home Depot stores in select markets across the country.

Flowers—an inventor himself who created a telephone locking device for parents to cut their children’s telephone use—uses his personal experience to work with others through the Chicago’s 1st Black Inventors Entrepreneurs Organization. He stresses the amount of time and energy commercialization can take.

“If you plan on selling to a major retailer, you have to think about packaging, you have to get somebody to help you come up with a design, you have to find a manufacturer,” says Flowers, who adds a product can be the solution to everyone’s problem but if it doesn’t look the part, consumers won’t be impressed to buy. “Having packaging really helps get your product on shelves because it’s a credibility issue. Retailers want to know ‘Can you really do this? Do you have the resources to put your product on my shelf?’”

While Woolery and Cato took different paths to bring their products to market, both agree inventors need to possess patience as well as the ability to manage their own expectations and those of others in order to withstand the process and—for those lucky enough to reach it—the marketplace.

“I think a lot of the no’s we were hearing initially was more people not being fully convinced we were serious,” says Woolery. “We just needed to keep plowing away and eventually we’d be able to prove to them the product makes sense and is something they should have in their stores.”

Stylist Kim Maxwell offers advice on how to get paid to shop.

Oftentimes, a passion for fashion can do more to drain your cash supply than boost it. But there’s nothing like turning a favorite pasttime into a lucrative business venture. Personal shoppers do just that, organizing the closets of executives, professionals, and public figures, making life that much easier for those with little time – or patience – for putting together the perfect ensembles.

Kim Maxwell, celebrity stylist, personal shopper, and CEO of STYLESbyMAXX, a fashion and image consulting company, offers tips on how you can get started:

Do your research. You must have a creative eye and be aware of the latest fashion trends, Maxwell says. Stay updated on the trends by visiting online fashion blogs, news sites, and forums. Find out what the job demands and what the market desires by visiting job sites such as Indeed.com. It’s also good to be familiar with different body types and what styles of clothing compliment them so you can cater to a variety of clients’ tastes and needs, Maxwell says.

Get experience. Become an intern or look for a mentor who is a personal shopper. “That is a good approach and a realistic way of learning the career hands on,” says Maxwell. Look up personal shoppers in your area and call to inquire about internship availability. Department stores that offer personal shopping services, such as Macy’s or Bloomingdales, are a good place to start.

Tap into web and other resources. Attend a workshop or take a course to learn more about the career. Maxwell offers an online Fashion Styling 101 course for individuals interested in learning about how to pursue a career in the industry. You can also check out the Association of Image Consultants International (AICI), which offers members information on building your business, finding courses and training, and networking with other image consultants and personal shoppers.

Start building a good network and a client base. Put together marketing materials that will help promote your services. Include a promotional card that provides all of your contact info, including what you offer and your fees. Make your presence known online by blogging, participating in social networking, and creating a website. “Lastly, when it comes to gaining additional clients, I would recommend placing an ad in publications where your target market could potentially see it,” Maxwell advises.

Learn how to financially leverage your services. Consult with a potential client to get an understanding of what kinds of requests they would make and what their expectations would be. Then determine whether it would be best to offer them a package or to charge by the hour. “Always base your rates for service by the clients’ demands and expectations,” Maxwell says. For freelance personal shoppers, rates can range from $60 to $80 per hour and packages can range from $750 to $3,500, depending on the client and your level of experience.

WEB RESOURCES:
StyleCareers.com
24 Seven Inc.
Fashion Institute of Technology

Andra Hall gives real talk about being an entrepreneur

When CamiCakes Cupcakes (404-748-4288) opened its doors in 2006 in Orange Park, Florida, owner Andra Hall’s longtime passion became her entrepreneurial pursuit. Today, with three stores in operation (the Jacksonville, Florida location opened in 2008 and the Atlanta store opened in 2009), the business is delivering sweet success. In 2009, CamiCakes, named for Hall’s daughter, Camille, grossed nearly $1.1 million in revenues and expects to generate $2 million this year. Of course, Hall’s path to business ownership wasn’t all sweet, and the 38-year-old admits she’s still learning. Read more about her efforts to see how they can influence and inspire yours.

On doing her homework
From her research, Hall discovered that cupcake shops that did well in New York and Los Angeles received a lot of foot traffic. In Orange Park and Jacksonville, “the only place that had high foot traffic like that was in a mall,” she says. So that’s where she opened her flagship store in Orange Park. In Atlanta, she used a different strategy; she chose to open the store on the city’s most famous street. “Anyone in Atlanta knows Peachtree,” she says. “On Peachtree, people can find you.”

On standing out from the competition
One thing immediately set CamiCakes apart from other local bakeries. Hall sold only cupcakes, an idea that had not yet gained popularity with bakeries across the country. “At that time, cupcake shops were mainly in New York and California,” says Hall. She then capitalized on that distinction by sending out a blizzard of press releases announcing that the cupcake craze had landed in Florida. She believes the publicity fueled the first store’s success, leading to the capital and customers to open more locations.

On taking the recession in stride
While some small businesses were grappling with the recession, Hall believes the economic collapse helped her. “Before, people would have splurged on a $60 cake for a special occasion. Instead, they can stop by here and pick up a treat for $2.50,” she says. With 18 cupcake flavors—the most popular being red velvet, sweet potato, and carrot cake—CamiCakes’ rapid growth became one of Hall’s greatest challenges. She realized she needed to delegate and loosen the reins.

On the perks (and pains) of being her own boss
While being her own boss affords Hall the flexibility she craved, the baking aficionado admits it’s a mistake to think business ownership will give you more time for yourself. “There are going to be some days when you have to pull a double,” Hall says. “I may have had to work a 17- or 18-hour day while my child was sick.”

Look for more on Andra Hall and CamiCakes in the August 2010 issue of Black Enterprise.

Peebles

If the flames that forge successful, resilient enterprises are the fires of adversity and contention, one can call R. Donahue Peebles a master blacksmith of entrepreneurialism. The CEO of Peebles Corp. (No. 79 on the BE Industrial/Service companies list with $51.4 million in revenues) understands that his company’s business plan must be malleable and able to adapt with the times. His team has the skills to land the right deal, the fortitude to fend off rivals, and the moxie to ensure the company remains viable no matter the business environment.

When Black Enterprise named Peebles Corp. company of the year in 2004, a bit of the real estate company’s success had to do with the acquisition of the 417-unit Royal Palm Resort in Miami Beach, Florida—the first black-owned and developed luxury resort in the U.S. Since then Peebles Corp. sold the property for $128 million, and unloaded several of its other properties near the height of the market and is now buying up land at bargain prices to develop when the market turns and lending institutions loosen their purse strings—the opportunity within the crisis.

Peebles says his company was spared from the brunt of the real estate slump and managed to sell the lion’s share of its properties before the market tanked; thanks to a combination of luck and knowing to strike when the iron was hot. Although his strategy reduced revenues dramatically—gross sales fell roughly 79%—the company has cash and relatively low debt levels, putting Peebles in position that’s coveted by many of his competitors.

Peebles certainly is no stranger to the ups and downs and economic curveballs that come with being an entrepreneur. This February, the Miami Dade County Circuit Court ruled in Peebles’ favor in a lawsuit against the new owners of the Royal Palm and allowed him to reassume management of the South Beach hotel that helped him rise to prominence. He also helped raise funds for Barack Obama’s presidential campaign while successfully managing his real estate company through one of the most severe downturns the housing and hotel markets have ever seen. He has also significantly raised his profile on such networks as CNBC and CNN as an expert on spotting real estate opportunities. And this year received the Reginald F. Lewis Entrepreneur of the Year Award.

SETBACK IN THE BIG APPLE

It hasn’t all been golden, however. In March, Peebles learned that a project his firm was involved in to transform New York City’s Aqueduct Racetrack into an entertainment destination was

potentially put in jeopardy when the lead partner, Delaware North, failed to come up with the $370 million needed to get the $575 million project rolling. Delaware North, a Buffalo, New York-based operator of racetrack/casinos (or racinos) was selected by New York Gov. David Paterson to develop the project. However, the tightened credit market prompted Delaware North to request a restructuring of their agreement and delay a portion of the up-front payment. The state, however, declined the offer.

In August, the partnership with Delaware North dissolved, Peebles partnered with MGM Mirage and submitted a revised bid anchored by a $250 million commitment from Harbinger Capital Partners, a New York City-based investment firm to operate the Aqueduct.

TALK ABOUT TIMING
Right now, Peebles is sitting tight. With the dismal state of the real estate market and with tourism down, this isn’t a good time to develop the upscale resorts and residences that have propelled the company’s revenue growth. Peebles is currently sitting on nearly $300 million in nondeveloped property, having unloaded most of the company’s income-producing properties and pocketing the profits. Among them is 14 acres in Las Vegas that was acquired at about $5 million an acre. “At the peak of the market [the property] was worth almost $20 million an acre. So even in today’s depressed market where it’s closer to $10 million an acre, we’re still way ahead of the game,” Peebles says. “We’re getting everything ready so that as the market starts coming back, we’ll be poised to immediately begin construction.”

The sell-off strategy began in 2005 when the company sold the Royal Palm. Development of the property had been awarded to Peebles’ firm after the city included a minority participation clause in the development plan as a concession to the black community that had launched a tourism boycott, several years earlier, lead by prominent local attorneys H.T. Smith and Marilyn Holifield. The community was aggrieved by the actions of Miami city officials who they believe snubbed then-South African president Nelson Mandela when he visited the city because the former political prisoner made positive remarks about then-Cuban president Fidel Castro. That year, Peebles completed The Residences at the Bath Club, a 117-unit, 20-story luxury high-rise on 5.5 acres of beachfront property with six seaside villas, a project that netted the firm $90 million.

In addition to the Royal Palm, Peebles Corp. sold its last remaining office building in South Florida for $74 million. As the market was peaking in California in 2006, Peebles Corp. sold its office

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

apart and litigation ensues. When Peebles Corp. sold the Royal Palm to an investment group led by Guy Mitchell and Robert Falor (representatives would only comment off the record), the company retained a 27.5% stake that was later reduced to 12.5%. At the time of the sale, the South Beach real estate scene was hotter than Miami sand in the summertime. But as the market cooled, things soured.

A condominium component of the hotel never materialized and as the downturn began, occupancy declined and debt mounted. Making matters worse, court documents indicate that Mitchell pulled almost $4 million out of the hotel and transferred it into an offshore account controlled by a family trust. In an effort to recoup money loaned to senior investor Mitchell, Carbon Capital II Inc., an affiliate of global investment firm BlackRock, sued to take over the hotel. Peebles Development included a clause in the sale agreement in which the company would be able to re-assume management of the property should the hotel fail to meet certain objectives. In February, Miami Dade County Circuit Judge Gill S. Freeman granted Peebles control.

Peebles described the scenario as poor management. “It continued and last summer, we asked the court down here to make a change of management and appoint us the manager that owns the hotel,” says Peebles. “That litigation kind of stalled and in February the court removed the managing partner and replaced them with us.” Peebles says he will either look to restructure the hotel’s debt or to make renovation investments and possibly sell the beleaguered property again.

CARIBBEAN BOUND?
The million-dollar question these days is when the real estate market will turn around. While it’s hard to nail down a particular quarter; most agree it won’t be this year. “I don’t see the market turning around [for] another 12 to 15 months. That’s just the state of the economy,” says Andy Ingraham, president of the National Association of Black Hotel Owner, Operators & Developers. “I hope that some of the programs the administration does will help but until we begin to relax the credit market—particularly with consumers—you’re going to see a decrease in occupancy.”

But in the meantime, the author of The Peebles Principles and The Peebles Path to Real Estate Wealth is looking for the next deal. One of them is an $800 million project in the Caribbean. “We’re working on a deal in St. Croix for a 440-acre site on the ocean that will be gaming, conference/convention center, golf, hotel, residential,” he says.  Peebles adds the caveat: “We have to see where the financial markets are but we see that as a tremendous investment and opportunity.”

This article originally appeared in the November 2009 issue of Black Enterprise magazine.

Peebles

If the flames that forge successful, resilient enterprises are the fires of adversity and contention, one can call R. Donahue Peebles a master blacksmith of entrepreneurialism. The CEO of Peebles Corp. (No. 79 on the BE Industrial/Service companies list with $51.4 million in revenues) understands that his company’s business plan must be malleable and able to adapt with the times. His team has the skills to land the right deal, the fortitude to fend off rivals, and the moxie to ensure the company remains viable no matter the business environment.

When Black Enterprise named Peebles Corp. company of the year in 2004, a bit of the real estate company’s success had to do with the acquisition of the 417-unit Royal Palm Resort in Miami Beach, Florida—the first black-owned and developed luxury resort in the U.S. Since then Peebles Corp. sold the property for $128 million, and unloaded several of its other properties near the height of the market and is now buying up land at bargain prices to develop when the market turns and lending institutions loosen their purse strings—the opportunity within the crisis.

Peebles says his company was spared from the brunt of the real estate slump and managed to sell the lion’s share of its properties before the market tanked; thanks to a combination of luck and knowing to strike when the iron was hot. Although his strategy reduced revenues dramatically—gross sales fell roughly 79%—the company has cash and relatively low debt levels, putting Peebles in position that’s coveted by many of his competitors.

Peebles certainly is no stranger to the ups and downs and economic curveballs that come with being an entrepreneur. This February, the Miami Dade County Circuit Court ruled in Peebles’ favor in a lawsuit against the new owners of the Royal Palm and allowed him to reassume management of the South Beach hotel that helped him rise to prominence. He also helped raise funds for Barack Obama’s presidential campaign while successfully managing his real estate company through one of the most severe downturns the housing and hotel markets have ever seen. He has also significantly raised his profile on such networks as CNBC and CNN as an expert on spotting real estate opportunities. And this year received the Reginald F. Lewis Entrepreneur of the Year Award.

SETBACK IN THE BIG APPLE

It hasn’t all been golden, however. In March, Peebles learned that a project his firm was involved in to transform New York City’s Aqueduct Racetrack into an entertainment destination was

potentially put in jeopardy when the lead partner, Delaware North, failed to come up with the $370 million needed to get the $575 million project rolling. Delaware North, a Buffalo, New York-based operator of racetrack/casinos (or racinos) was selected by New York Gov. David Paterson to develop the project. However, the tightened credit market prompted Delaware North to request a restructuring of their agreement and delay a portion of the up-front payment. The state, however, declined the offer.

In August, the partnership with Delaware North dissolved, Peebles partnered with MGM Mirage and submitted a revised bid anchored by a $250 million commitment from Harbinger Capital Partners, a New York City-based investment firm to operate the Aqueduct.

TALK ABOUT TIMING
Right now, Peebles is sitting tight. With the dismal state of the real estate market and with tourism down, this isn’t a good time to develop the upscale resorts and residences that have propelled the company’s revenue growth. Peebles is currently sitting on nearly $300 million in nondeveloped property, having unloaded most of the company’s income-producing properties and pocketing the profits. Among them is 14 acres in Las Vegas that was acquired at about $5 million an acre. “At the peak of the market [the property] was worth almost $20 million an acre. So even in today’s depressed market where it’s closer to $10 million an acre, we’re still way ahead of the game,” Peebles says. “We’re getting everything ready so that as the market starts coming back, we’ll be poised to immediately begin construction.”

The sell-off strategy began in 2005 when the company sold the Royal Palm. Development of the property had been awarded to Peebles’ firm after the city included a minority participation clause in the development plan as a concession to the black community that had launched a tourism boycott, several years earlier, lead by prominent local attorneys H.T. Smith and Marilyn Holifield. The community was aggrieved by the actions of Miami city officials who they believe snubbed then-South African president Nelson Mandela when he visited the city because the former political prisoner made positive remarks about then-Cuban president Fidel Castro. That year, Peebles completed The Residences at the Bath Club, a 117-unit, 20-story luxury high-rise on 5.5 acres of beachfront property with six seaside villas, a project that netted the firm $90 million.

In addition to the Royal Palm, Peebles Corp. sold its last remaining office building in South Florida for $74 million. As the market was peaking in California in 2006, Peebles Corp. sold its office

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

apart and litigation ensues. When Peebles Corp. sold the Royal Palm to an investment group led by Guy Mitchell and Robert Falor (representatives would only comment off the record), the company retained a 27.5% stake that was later reduced to 12.5%. At the time of the sale, the South Beach real estate scene was hotter than Miami sand in the summertime. But as the market cooled, things soured.

A condominium component of the hotel never materialized and as the downturn began, occupancy declined and debt mounted. Making matters worse, court documents indicate that Mitchell pulled almost $4 million out of the hotel and transferred it into an offshore account controlled by a family trust. In an effort to recoup money loaned to senior investor Mitchell, Carbon Capital II Inc., an affiliate of global investment firm BlackRock, sued to take over the hotel. Peebles Development included a clause in the sale agreement in which the company would be able to re-assume management of the property should the hotel fail to meet certain objectives. In February, Miami Dade County Circuit Judge Gill S. Freeman granted Peebles control.

Peebles described the scenario as poor management. “It continued and last summer, we asked the court down here to make a change of management and appoint us the manager that owns the hotel,” says Peebles. “That litigation kind of stalled and in February the court removed the managing partner and replaced them with us.” Peebles says he will either look to restructure the hotel’s debt or to make renovation investments and possibly sell the beleaguered property again.

CARIBBEAN BOUND?
The million-dollar question these days is when the real estate market will turn around. While it’s hard to nail down a particular quarter; most agree it won’t be this year. “I don’t see the market turning around [for] another 12 to 15 months. That’s just the state of the economy,” says Andy Ingraham, president of the National Association of Black Hotel Owner, Operators & Developers. “I hope that some of the programs the administration does will help but until we begin to relax the credit market—particularly with consumers—you’re going to see a decrease in occupancy.”

But in the meantime, the author of The Peebles Principles and The Peebles Path to Real Estate Wealth is looking for the next deal. One of them is an $800 million project in the Caribbean. “We’re working on a deal in St. Croix for a 440-acre site on the ocean that will be gaming, conference/convention center, golf, hotel, residential,” he says. Peebles adds the caveat: “We have to see where the financial markets are but we see that as a tremendous investment and opportunity.”

This article originally appeared in the November 2009 issue of Black Enterprise magazine.