R. Donahue Peebles sits at the head of a conference table in a makeshift conference room. Just outside, it’s a cloudless spring day in Miami Beach, Florida, where golden sands meet the turquoise waters of the Atlantic under a sapphire sky. With temperatures already nearing 80 degrees before noon, it is perfect beach weather — a glorious day. But the CEO of Peebles Atlantic Development Corp. isn’t concerned about the weather. He’s focusing on business.
Peebles and his sales team are busy hammering out the sales and marketing strategy for the company’s Bath Club project. When the facility opened in 1926 as a private social club, African Americans weren’t even allowed on the premises. Nearly eight decades later, an African American is not only a member — he’s the owner. And while Peebles is keeping the club running, the entrepreneur’s adding a 20-story luxury high-rise with 112 units that will fetch almost $2 million each, on average. The project will cost some $155 million but is expected to net Peebles Atlantic Development as much as $225 million in gross sales and $80 million in profits.
Construction is under way everywhere on the property, which rests on Miami Beach’s swank Millionaire’s Row, where palm trees, manicured lawns, and multicolored million-dollar mansions are the norm. The task at hand is selling some of the remaining dozen or so units for the high-rise; Peebles wants most of the units sold before the property opens in December. Also included on the 5.3-acre property are six seaside villas — each sold for a hefty $5 million to $7 million.
Creating a pipeline for deals; securing financing; and buying, developing, and selling properties are all in a day’s work for Peebles. His company (No. 42 on the BE INDUSTRIAL/ SERVICE 100 list with $82 million in sales), has amassed a $500 million real estate portfolio. Without a college degree, this son of a single parent built a real estate empire with tremendous fortitude, business and political savvy, and a healthy dose of kismet. In addition to The Bath Club, Peebles’ firm owns a Marriott hotel in his hometown of Washington, D.C., along with several commercial properties there, and has a $350 million project in predevelopment on Singer Island in Palm Beach County, Florida, that includes retail space, a hotel, and condominiums. And he also happens to own the 417-unit Royal Palm Crowne Plaza Resort in Miami Beach — perhaps the first black-owned luxury resort in the U.S. In developing that property, Peebles took on competing developers, adversarial politicians, and local naysayers and mended a rift between a city and its black population.
But Peebles isn’t satisfied with that. He’s putting $15 million into renovating 160 units of the Royal Palm to put on the market for fractional ownership. In the time-sharing plan, the owner will have access to the suite and its amenities for one week per month for roughly $300,000 to $350,000. “We’re going to redo the furniture fixtures, redo the corridors,” explains the CEO, adding that he doesn’t expect the conversion to have a material effect on net hotel revenues, but does project the sale to raise $120 million that can be used for future acquisitions.
Such shrewd, audacious moves spurred the company to a phenomenal 141% revenue growth last year and made its dynamic founder a significant force on the red-hot South Florida luxury real estate scene. For this, BLACK ENTERPRISE has named Peebles Atlantic Development Corp. its 2004 Company of the Year.
A SIMPLE BUT LUCRATIVE STRATEGY
Peebles’ strategy is simple. He targets a market segment where people are more product-oriented than price-oriented — folks who if they like what they see, they buy it. It’s a niche market Peebles feels has tremendous growth opportunity. And he’s probably right. According to the Travel Industry Association of America, domestic leisure travel has slowly but steadily increased over the years, despite the aftermath of Sept. 11, the lagging economy, and the war in Iraq. The association, a Washington, D.C.-based nonprofit that represents the interests and concerns of the U.S. travel industry, is forecasting leisure travel volume to grow 3.2% in 2004, up from a predicted 2.8% annual increase last year.
The irony is that Peebles’ entry into the South Florida real estate market was somewhat coincidental. While on vacation in Miami Beach with his wife, Katrina, and their then-infant son for the 1995 New Year’s holiday, Peebles came across an article that would reshape his business. “I was reading the paper, and there was a story in The Miami Herald about how South Beach had grown and the real estate market is on fire, and they gave an example of the Shorecrest Motel that was owned by an investor who paid $900,000 two or three years ago and was now selling it for $5 million,” says Peebles. “And they said it was next door to the Royal Palm Hotel that was owned by the city, which was looking for an African American developer.”
It was the first time Peebles had heard of a project that was reserved for a specific race. “So I said to myself, ‘How many African American developers are in this county? Not many. How many have the capacity to do a project of this size? Even fewer. And how many are reading The Miami Herald right now? Probably not many.'”
There was a reason for the set-aside. Several years earlier, prominent local attorneys H.T. Smith and Marilyn Holifield led a tourism boycott by African Americans, claiming city officials had snubbed South African leader Nelson Mandela when he visited because the former political prisoner made positive remarks about Cuban President Fidel Castro. Miami is home to the largest Cuban population in the U.S. This made the city, which was segregated until the mid-60s, a hotbed for political and social unrest.
As part of the 1993 settlement to end the boycott, which gained national attention when the NAACP got involved, Miami Beach agreed to underwrite the development of a black-owned luxury hotel by putting up a long-term $10 million loan to acquire the property. But the deal stalled after four local African American would-be developers, known as the HCF Group, won the original bid but failed to secure additional financing for the estimated $60 million project. “Ultimately, in spite of H.T. Smith and other community leaders [urging] the city commission to reach a deal with HFC, the city commission terminated negotiations,” recalls Peebles.
A MARRIAGE OF BUSINESS AND POLITICS
Though an outsider to the dynamics of politics and business in Miami Beach, Peebles understood the importance of utilizing the former to benefit the latter. Exposed to real estate at an early age by his mother, a real estate agent who later launched a brokerage firm, Peebles was a page on Capitol Hill for former Rep. Ron Dellums (D-Calif.) and Rep. John Conyers (D-Mich.) while in high school during the late ’70s. After a brief stint in the premed program at Rutgers University in Newark, New Jersey, he decided he wanted to go into business for himself. Peebles returned to Washington and worked as a real estate sales agent and appraiser.
In the early ’80s, Peebles was also a fundraiser and supporter of then-Mayor
Marion Barry’s reelection campaign and was named to the city’s property tax appeals board, becoming its chairman at the age of 24. During that time, Peebles became a player in terms of political fundraising and then started a real estate appraisal business. But he really wanted to be a developer and own buildings. He got his opportunity in 1986, when the then-26-year-old entrepreneur closed on his first property, a vacant development site on which he built a 100,000-square-foot office building, with a project budget of $9 million. By 1989, he’d left the city’s tax appeals board to focus on his private enterprise.So, when the Royal Palm deal came along, Peebles was familiar with both the real estate business and the politics of public/
private partnerships. Even more important, he gained control of the Shorecrest hotel, which would become a pivotal part of sealing the deal. When the city of Miami Beach issued its request for proposal for the Royal Palm, it was conditional on the development of the adjacent Shorecrest property. However, the city had earmarked $10 million to acquire both properties and used $5.5 million of those funds to acquire the Royal Palm, leaving insufficient funds in the budget to meet the $5.5 million asking price for the Shorecrest. Peebles’ acquisition of Shorecrest turned out to be highly strategic, because any competing bids for acquiring and developing the Royal Palm had to include that property.
THE CAMPAIGN TO CAPTURE SOUTH BEACH
The city received seven bids, mainly from major hotel chains that had partnered with African Americans to meet the 51% black ownership requirement. Each bidder was connected to a different hotel chain, including The Ritz-Carlton, Hyatt, Regent International Hotels, and Doubletree. Peebles partnered with Crowne Plaza Hotels & Resorts, part of InterContinental Hotels Group PLC, a U.K.-based corporation that owns, manages, leases, or franchises more than 3,500 hotels. Peebles hammered out a contract in which Crowne Plaza would pay $6 million for the right to brand and manage the hotel.
As it turned out, the Hyatt team was named the top bidder by the city’s citizens’ selection committee, which was set up to make recommendations to the city commission. Peebles came in second, while Baltimore developer Otis Warren came in third. The three finalists were then invited to make presentations to the commissioners, but with the recommendation, Hyatt clearly had the edge.
Peebles knew politics was behind it all. “The city’s financial adviser had recommended us financially; we had three loan commitments and nobody else had any,” he says of the financial backing he received from Nations Bank, Ocean Bank, and Capital Bank. Peebles, however, had an ace in the hole: the Shorecrest property. The city wanted the Royal Palm and Shorecrest properties developed in tandem, and even if Hyatt won the Royal Palm, Peebles still owned the Shorecrest. “I knew that in the end, I’d either wind up with the whole project or Hyatt would have to pay me handsomely to walk away from the Shorecrest.”
Peebles was prepared for action. While he hired lobbyists to help him state his case, he personally developed relationships with city councilmen and pressed for their vote commitment. “I believe that when you go into battle for something, you cannot delegate that stuff,” he says. “People needed to connect to me. They needed to understand that I was going to deliver this project;
I was going to get it done. The black community had to understand that I was not going to embarrass us by not getting it finished — that no matter what happened, no matter what obstacles came up, I was going to be here, and I wasn’t walking, and we were going to get it done. And it was going to create opportunities that we can all be proud of.”He also had to contend with public opinion from many who thought he was getting a sweet deal because he was African American. Peebles is quick to point out that during that same time period, neighboring hotel Loews also received money from the city. Royal Palm received $10 million to build 400 rooms — some $23,000 per room — while the city invested $60 million in the 800-room Loews — or $75,000 per room. Loews also had 99 years to repay the loan, compared to 25 years for Royal Palm. “I brought this up to the city saying, ‘Look at the disparity between the two.’ And they said that the reason is that Loews is a Forbes 100 company, and ‘we feel our money is safer with them,'” Peebles says. “But the idea is that if you’re giving a subsidy, you’re supposed to subsidize something that wouldn’t have been able to be done without the subsidy, and there’s no compelling argument to have treated Loews better than us.”
Peebles’ strategy paid off. Not only was there a national spotlight on Miami Beach and the plight of an African American developer, but Peebles was able to woo the commissioners to vote in his favor and emerged as the winning bidder in June 1996. Though he was elated at the time, his joy would be short-lived. Then-Mayor Seymour Gelber, who had voted against the Peebles deal, assigned Arthur Courshon, a bank president, retired lawyer, and staunch opponent of Peebles, to negotiate the final contract for the project. Earlier in the voting process, Courshon had strongly recommended one of Peebles’ competitor’s bids. Talks between Peebles and his nemesis, Courshon, dragged on for months — Peebles says deliberately — while investors became impatient with the delays and mounting expenses. Peebles had hoped to complete the project by year-end 1998 — a hope that would quickly fade.
DEVELOPING THE ROYAL PALM
“When I get possession of the property, we find contaminated soil — when the city had given us an environmental report saying the site was clean,” Peebles says, adding that he also received a structural report from the city’s building department saying it was structurally sound. “So we were tearing down all the walls getting down to the concrete, and what happened is when the buildings were built, they used beach sand to make the concrete. So you had all the high sodium content of the concrete corroding the steel.” When the steel support structures were inspected, they were all corroded, and Peebles asserts that the same building department that certified the building as structurally sound came in and condemned the property.
In order to develop the property, Peebles had to tear down Royal Palm, but since it was a historic property, built in 1939, there was a requirement that the developers preserve it. He had to get special permission from the city’s historic preservation program to tear it down — halting all development on the project. “Finally, the city allowed me to tear it down but required me to build an exact replica of the original,” says Peebles.
When all was said and done, the project came in nearly two years late and costs totaled $82 million — more than $20 million over budget. The property celebrated its grand opening in May 2002 and currently has a year-round occupancy rate of approximately 70%. Though he was beset with political and financial pressures,
Peebles remained committed through it all. “The key was the building needed to be finished. I think any qualified African American developer would have done the same thing,” he asserts. “I was not going to allow my company or myself to be known as the person or company that got the opportunity to build an African American-owned hotel in South Beach and couldn’t get it done even though the city gave us $10 million.”The completion of the deal was heralded throughout the African American business community. “It was huge because it was the first time in the history of this area where you had a substantial development owned by an African American going up on the beach,” says Andy Ingraham, president of the National Association of Black Hotel Owners, Operators & Developers Inc. “Let’s not forget it was not too far in the distant past when people like Muhammad Ali could fight and train on Miami Beach but could not stay on Miami Beach.”
The boycott, which had tarnished Miami’s reputation and cost the county an estimated $20 million to $50 million in lost convention business and tourist dollars, was the spark that led to Peebles acquiring the hotel, but the fire was provided by the highly motivated CEO. “[Completing the hotel has] really been a great catalyst in creating a lot of energy,” says David Dermer, current mayor of Miami Beach. “The hotel and its neighbor, the Loews Hotel, have spurred on different refurbishments of some older hotels — some newer projects as well. It’s brought in a lot of energy
, a lot of new hipness to the beach.”
Focusing efforts in South Florida makes a lot of sense for a real estate developer. Going into 2004, there was nearly $3 billion in new residential and commercial projects under way in Miami Beach, according to Dermer. “This is probably the largest construction boom we’ve ever seen in this city. We’re doing very well economically.” Peebles plans to remain at the forefront of that boom.
That’s not to say everything Peebles touches turns to gold. Peebles entered a deal to build a convention hotel in Fort Lauderdale, Florida, in 1997. The deal fell apart in July 2001 after Peebles’ partner, Wyndham International, backed out. When the county refused to pay Peebles some $4 million in development expenses, he took the dispute to court. However, a Broward County circuit court judge ruled in 2003 that the county does not have to reimburse the developer. Peebles is appealing the decision.
A PIPELINE OF DEALS
With several projects in the pipeline and deals in the works, it’s easy for Peebles to wax positive, though it was a rocky road to success. “Peebles came into a market that was soft, he had tremendous obstacles, he had an unleveled playing field, and, frankly, most of us would have given up — white or black,” says Ingraham. “But he knew that he had what we call ‘an appointment with destiny’ to build this hotel.”
Peebles, for one, doesn’t believe fate played a part in completing the project. “I believe that I earned the right to build and open that hotel because I wasn’t a quitter, and nobody on my team was a quitter, and we were committed to a higher calling,” he says. “It wasn’t just a business deal, but it was a commitment to break a barrier.” He relies on his negotiating prowess and ability to identify hot properties before the competition and fight the battles that need fighting — on both the political and business fronts.