Peebles has a new real estate venture in the works

Real Estate mogul R. Donahue Peebles, owner of Miami-based Peebles Corp. spoke with Black Enterprise about his most recent venture, a majority ownership in The Mardis Gras Hotel & Casino, a 320-room hotel and casino located across the street from the  Las Vegas Convention Center. He plans to develop the property, along with 14 acres of land he owns nearby, and unveil it as the Las Palmas Resort and Casino when the market recovers.  The $2 billion development will be a full-scale convention center resort and casino featuring both a three-, four-, and five-star hotel which will be flagged and branded by Best Western.

• Watch: Power Player: R. Donahue Peebles

Currently, commercial real estate in the U.S. is stagnant and treading water, but there are still many opportunities that investors can take advantage of, says Peebles. Here are three things he says  to consider before venturing into commercial real estate:

The geographic market. “Obviously we look at what the national outlook is, but when we make a specific decision on what we are going to invest in, we look at location in a strategic sense,” says Peebles (No. 32 on the BLACK ENTERPRISE Industrial Service List). “We don’t look to buy in the best location. We look strategically at where it is right now and what it can be.” For example, Peebles points to the Paradise Road corridor off of the main strip of hotels in Las Vegas. It only housed the Hard Rock Hotel 10 to 15 years ago, but now it has been and continues to be transformed, says Peebles.

How it fits into your portfolio. “As an investor … we’re looking to get a good return in comparison to what we can earn placing our money in the financial markets or leaving it in the bank, or getting CDs and the like,” says Peebles. Peebles likes to buy properties that have inflation income potential and the potential for that income to grow as the market recovers. Because, ultimately, where you make big dollars is in redevelopment and a long term upside, he says.

Initial return on equity and revenue. “We’re looking for potential revenue to grow in the marketplace as it recovers. For the future upside/future development is why the strategic nature of location is important. “When that market recovers, then you have the opportunity to either develop it like we are,” says Peebles. “or if you’re an investor, sell it to a developer.” Since you are selling as a development parcel it will have greater value.

For more information about R. Donahue Peebles and commercial real estate:

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Peebles Corp. (No. 18 on the B.E. Industrial/Service 100 list with $245 million in revenues) and McKissack & McKissack, the nation’s oldest African American, female-owned, design and construction firm, were assigned to the project as prime contractors. Neither company was available to comment on the deal’s collapse.

“Since our bid was submitted in October 2007, there has been a deterioration of the credit and equity financial markets in this recession economy which has caused Aqueduct Gaming L.L.C. to restructure the timing for its financial offer,” said William J. Bissett, Delaware North president, in a statement. Aqueduct Gaming L.L.C. is a partnership between Delaware North Cos., Saratoga Gaming and Raceway, the Peebles Corp., McKissack & McKissack, and Mason Capital.

Gov. David Paterson selected Delaware North in October 2008 to develop the Video Lottery Terminal facility at the Queens, New York racetrack with the expectation that it would generate at least $8.2 billion for education over the next 30 years.

On Tuesday, Delaware North informed the Paterson administration that it would have trouble meeting a March 31 deadline to deliver the payment for the rights to develop the facility.

The loss of the project now leaves a $370 million hole in the NewYork state budget.

The Buffalo, New York-based company had been in discussions with state officials on altering the original deal that would have allowed it to revise its payment schedule, but the state rejected the restructuring proposal.

“The state remains committed to ensuring that Aqueduct is redeveloped,” Gov. David Paterson’s spokesman, Errol Cockfield, said in a statement Tuesday night. He added that the government will start a new selection process for the project.

Disappointed about the decision, Bissett said the rebidding of the project will cost New York even more in terms of added delays in construction and no assurance of a larger payment than Delaware North had offered. The company plans to submit a new bid for the project.

Delaware North identified the Peebles Corp. and McKissack & McKissack as prime contractors on the project, and together the three firms promised an upfront investment for the state gaming licensing fee that was significantly more than other bidders.

“Delaware North by far had the strongest upfront financial commitment of $370 million to the state,” says a spokesman in Gov. David A Paterson’s office. “In addition, the company has a proven track record in operating video lottery terminals in New York State.”

The New York State Legislature and Paterson awarded Delaware North the contract based on that investment and their previous success with Saratoga Gaming and Raceway, which was New York State’s first entrée into video lottery gaming. Saratoga generated more than $200 million in aid to education since it opened in 2004.

Delaware North and its partners hope to produce similar revenues by renovating the 192-acre dilapidated Aqueduct Racetrack. From the Aqueduct Video Lottery Terminal, $1 million per day will be distributed to the state to provide resources for elementary and secondary education. It will amount to an estimated $8.2 billion for New York State education over the next 30 years, according to the state.

“We hope the revenues would be sufficient to pay back the investment in the first 10 years,” says Don Peebles, owner and CEO of Peebles Corp., who says the racetrack and casino will be a world-class destination that will also include an upgraded grandstand clubhouse, restaurant, parking lot facility, and retail stores.

New York State will provide Delaware North with $250 million to build and operate the video lottery facility and renovate the Aqueduct Racetrack in Queens, New York. Once built, Delaware North estimates that they will invest an additional $170 million in capital to maintain the VLT facility over the life of the 30-year contract. All companies would not state their specific investment, but said that the ultimate cost of construction may have increased beyond $250 million as a result of increased cost of materials.

“We have a significant interest in the gaming side and an equal interest in the overall development of the project,” Peebles says. “Because of the close proximity to New York City, we hope to attract conferences and leisure customers interested in gaming, entertainment and shopping,” says Peebles, who hopes to reach 10,000 visitors per day immediately upon completion. He hopes that number will double over time.

Delaware North’s commitment to including minority firms also played a role in the state choosing them for the project, but William Bissett, president of gaming and entertainment at Delaware North Co., says they chose McKissack and Peebles based on the quality of their work.

“We’ve had scores of relationships with minority partners over those years. It is something that we do quite naturally. We didn’t just dream up minority participation. It is the way we conduct ourselves,” said Bissett of the Buffalo-based 95-year-old hospitality business. “After meeting with Cheryl McKissack and Don Peebles, I felt like the chemistry worked and they would be tremendous assets to the team.”

McKissack is the nation’s oldest African American, woman-owned professional design and construction firm, and Peebles Corp. (No. 18 on the B.E. Industrial/Service 100 list with $245 million in revenues) is the nation’s largest African American-owned real estate development company.

“We are delighted to be a part of this venture,” says Cheryl McKissack, president and CEO of the 103-year-old construction company that was founded by her grandfather, the first black licensed architect in the country. As a prime construction manager on the project, McKissack and Peebles can make certain that other minority- and women-owned contractors are included on the project.

McKissack will perform construction management services based on schedules and budgets, including cost estimating and check the collaboration between the various disciplines (electrical, mechanical, architectural, structural, plumbing, civil, and landscaping.)

Of the 2,000 new jobs that will be created during the first phase, 1,000 jobs will go toward construction and the remaining toward running the business. They hope to complete that phase of the project within 18 months of breaking ground, which is expected to take place early in 2009. Delaware North will set up an employment office and a business center during and after construction to provide jobs for the surrounding community and place local businesses into vending and contracting opportunities.

The second phase will incorporate a conference center, an entertainment/concert venue, hotel, nightclub, and more large-scale retail outlets. The construction costs for the second phase are estimated to cost between $200 and $250 million.

“I always wanted to have the opportunity to build a project in New York,” Peebles says. “The nice thing about Aqueduct [is that] it is a signature project that will have a tremendous economic impact.”