Washington, D.C.-based developer Don Peebles and former Carlyle Group partner Doug McNeely have started investment firm Donahue Douglas to acquire and convert office buildings to residential properties.
The two are looking to raise up to $1.5 billion and target 10 initial cities, including Boston; New York; Washington, D.C.; Atlanta; and San Francisco, according to Bloomberg.
“We are focusing on an office conversion fund right now where we’re going to raise a billion and a half dollars and we’re about two-thirds of the way there,” Peebles, who is also chairman and chief executive officer of Peebles Corp., said in an interview with Bloomberg TV.
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Peebles said the top three markets are New York, Los Angeles, and Miami. “Right now, the U.S., for example, is about seven million units short of affordable housing. There is also a shortage of five million market-rate units.”
“We’ve looked at several things,” Peebles said of D.C. specifically. “We’re committed to the market we’re in and not doing just one-off deals, and Washington, D.C. is number one on the list. I think there’s an opportunity here to buy at prices we haven’t seen since the early 90s during the S&L and banking crises.”
According to the Bloomberg story, a large motivation for office conversions was the combination of many vacant office buildings on sale — the extra supply would drive prices down — and municipal tax incentives. Lower costs would provide a competitive benefit over new construction when the Trump administration’s tariffs are expected to significantly increase construction costs.
“In the short term, tariffs could drive up certain costs, but in the long term, the fundamentals remain the same,” McNeely said to Bloomberg. “There’s still a vast housing shortage in the markets that we are focused on.”
Last spring, Peebles called office investment a “once-in-a-generation opportunity to buy” and added, "We're an opportunistic company, so we look to develop when markets are supply-constrained, and then we like to buy when we think there's tremendous value.”
According to Bloomberg, McNeely was a former partner at the Carlyle Group who left the firm about a year ago to start Donahue Douglas. That would seem to roughly match when Peebles made his remark about the historically good opportunity to purchase office properties.
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