Don Peebles, Founder, The Peebles Corporation

Don Peebles, founder of The Peebles Corporation, spoke with Invest: about public-private partnerships, real estate demand, and the forces shaping development in South Florida. “We need to create an economy that trains people to get better-paying jobs so they can earn a better living and get out of affordable housing,” Peebles said.

How has the public-private partnership model evolved in today’s changing political and economic environment, and where do you see the biggest opportunities going forward?

Public-private partnerships make up about 60% of our business. We focus on developments in cities and markets that have high barriers to entry, limited land availability, a more intensive regulatory environment, and high demand for housing and the products we develop. That combination makes it more difficult to acquire development sites. Many of those sites are in the public sector’s hands, whether they are underutilized buildings or public facilities.

One reason we got into Miami about 30 years ago was because of a public-private partnership in Miami Beach, when we developed the Royal Palm. At the time, the public sector was hyper-focused on job generation. Cities were looking to expand their economic base, grow revenue, and increase foot traffic as a response to the flight to the suburbs of the 1970s and 1980s.

Today’s politics are more about providing housing and addressing the needs of a larger portion of the population. Housing costs have continued to increase significantly in urban centers and highly desirable areas such as Miami. Many Miami residents are paying more than 30% of their income for housing costs, which means they are housing strained. There is a bigger push now to develop more workforce and affordable housing. Public-private partnerships today and tomorrow will be focused on addressing those issues.

How do you decide which asset classes to prioritize in your current pipeline?

The market generally drives that, along with construction costs. Nationally, there is about a 10 million-unit shortage for affordable housing, and for market-rate housing, it is over 7.5 million units. Real estate is an efficient market. You cannot make money building affordable or workforce housing because construction costs demand a much higher rent. Public subsidies are going to need to increase to incentivize developers to do that.

For us in Miami, or South Florida in general, we are focused on ultra-luxury residential because that is what the market will pay a premium for. Our focus is on finding great sites in markets and locations with high barriers to entry, but that are ultra-high-end locations and can justify the cost of construction.

With the shift from the Northeast and the West Coast, which are highly taxed environments and less hospitable to businesses, there has been much more of a flight to South Florida by companies relocating. There is a shortage of office space, so we are looking at developing office buildings. Our focus in Florida is ultra-luxury condominiums and office space. We are looking at potential hotel development, but the hotel market is a bit volatile right now, driven by high rates.

How do you evaluate which markets are worth entering or expanding in today’s economic conditions?

It is more about demand and the ability for the market to have enough price room to justify construction. There is no price ceiling in South Florida. In Miami, Mark Zuckerberg just paid $170 million for a home on Indian Creek that was not even finished. There have been several sales of over $100 million for homes. That tells you there is no price ceiling.

The same is true in New York City. If you build a great product, the chances are you can sell it and be paid for it. We look at markets that are conducive to that and where there is still demand. We are staying away from California because more businesses, high-income earners, and high-net-worth residents are leaving because of the threat of additional taxes and a wealth tax.

We think the future is in places that are more hospitable to businesses and to high-income and high-net-worth individuals. We are focused on states that have no state income tax or low state income taxes. Our focus is Florida first, Texas second, and we also like Atlanta because it has price growth and a diverse economy. I also like the Washington, D.C., metro area, mainly Northern Virginia, and we think Maryland will have some opportunities. Ultimately, the best markets for us are New York City, South Florida, and Texas, mainly Dallas and Austin.

Texas has been a wealth-generating state for a long time. People are there creating new wealth and generating new businesses. Florida has generally been a place where people come with their wealth already. That is beginning to change with firms like Citadel, Goldman Sachs, and others relocating parts of their operations to Florida. As that happens, Florida will become more of a wealth-generating state, which will create even more need for affordable and workforce housing.

How do you approach the broader community impact of a development?

In Miami, we are fortunate that it is a pro-business environment. Miami Beach has a bit more regulatory restriction. However, the initiative Governor DeSantis implemented called Live Local was helpful in driving real estate development because it reduced municipal discretion that restricted development.

Live Local allows more growth and development, and it takes a broader approach to what is in the best interest of the area, as opposed to the more narrow interest of a small neighborhood blocking developments that would have a positive impact overall in the region. We are looking at doing more under Live Local. The challenge in development is that it takes a long time. If the regulatory environment slows down development, developers will go elsewhere.

Where are the biggest execution challenges today for mixed-use urban development in Miami?

Workforce. I think it is a national issue. The limitation on workforce is driving up the cost of construction rapidly. The market is active, so there is greater demand for construction workforce than there was last year, the year before that, or the year before that. There is constant growth in demand.

Additionally, the workforce is shrinking because of restrictive immigration policies. America is a country based on immigration. It was built based on immigration, and this abrupt change is having a consequential impact on the ability to move our country and Florida forward.

The solution is to get to an immigration policy that accelerates access for people who are coming here to work in industries where we need workforce. We should be giving them priority because it is good for the country and the region for us to have workers so we can have progress. We cannot produce enough workforce domestically. We need robust immigration to provide that.

Labor is just like any other type of service or product. In the free market system, it is supply and demand. We have much more demand for construction workers than we have workers. We have to solve that, and we cannot produce them here. We need to import them for the good of the country, or no one will be able to afford a home soon. Homeownership will become unaffordable for most Americans because the cost will be too much, and that is self-inflicted.

What changes in real estate development will most impact the industry and your company over the next three years?

Our company is going to operate in environments where they are pro-business and where the government and political system are supportive of what we are producing. To the degree they are not, we are going to go to other markets.

The industry will have to address affordable and workforce housing because people have to drive an hour and a half to go to work each morning. Teachers may have to drive an hour and a half or two hours each way to go to school. They are tired and looking for jobs closer to where they live or in other industries.

We need people to live close to where they work. In many instances, especially in places like Miami, Palm Beach, Naples, and other expensive parts of the state, the workforce cannot afford to live near where they work. We have to figure that out.

We also have to provide affordable housing and make it more transitional. We cannot warehouse people who are low-income and keep them low-income in perpetuity. We need to create an economy that trains people to get better-paying jobs so they can earn a better living and get out of affordable housing.

For our industry, we have to deal with workforce and affordable housing. We need to look at how we reduce the cost of labor and construction materials, and the way we are going to do that is to reconsider our immigration policies. When people start being honest with the American public, they will get a sense of the consequences of some of these policies and how they are affecting them. I think we will see some change there.