An investment firm led by developer Don Peebles and former Carlyle Group partner Doug McNeely seeks to raise ten figures for an office-to-residential conversion venture.
Donahue Douglas aims to raise up to $1.5 billion in its first fund, Bloomberg reported. The fund is already drawing interest from institutional investors, offshore investors and high-net-worth individuals, according to the founders.
The new firm will support the acquisition and conversion of properties in 10 cities across the country, including Boston, Washington, New York and San Francisco.
“There’s just a tremendous opportunity to acquire commercial office buildings at distressed conditions and produce outsized returns and produce valuable assets to the country,” Peebles, a well-known developer, said to Bloomberg.
Peebles’ eponymous firm, Peebles Corporation, has been involved in a number of conversions. In New York City, Peebles and the El Ad Group redeveloped Tribeca’s landmarked Clock Tower Building into a condo building.
Office-to-residential conversions are in vogue across the country as housing shortages persist nationwide and office leasing (and office values) continues to be volatile in the aftermath of economic upheaval and the pandemic. Many cities — including some Donahue Douglas are eyeing for its venture — have tax incentives for those who convert flailing office buildings and create a level of affordable housing out of it.
Conversions have drawbacks, too. Not every building is designed in a way that allows a developer to reposition it to be residential. Additionally, construction costs are likely on the rise as tariff chaos hits the country, though ground-up development will face the same problem.
“In the short term, tariffs could drive up certain costs, but in the long term, the fundamentals remain the same: There’s still a vast housing shortage in the markets that we are focused on,” said McNeely, who left Carlyle to start Donahue Douglas.
Still, developers must buy a building at a low enough price, then navigate challenges like relocating tenants that still have leases in place and dealing with unexpected costs. Developers who get in over their heads risk going bust.
— Holden Walter-Warner
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