For 15 years, Harvey Yancey has been building and renovating market-rate homes, affordable housing and commercial spaces in Washington, D.C. During that time, his company, H2DesignBuild, has navigated funding challenges and leveraged its way into profitable deals. Have found the way.
But all along, Mr. Yancey, who is black, said he was aware of the industry’s racial symmetry and their limitations due to the color of their skin. “It was always a quiet conversation in the room,” he said.
Today, commercial real estate is an area in which most developers are white. Some reliable data are available, but the industry association NAIOP reported in 2013 SurveyThe most recent year available, that 4.4 percent of commercial real estate professionals were Black. This year, only 5 percent of the members of the Urban Land Institute are Described himself As Black or African-American.
There are many sources of inequality, including unfamiliarity with many African-American territory and later lack of connection. Black developers say the biggest challenge is access to capital, which includes loans, loan guarantees and equity. This can be a result of limited balance sheet, short track record or lack of a rich and influential network. As a result, their firms have to grow and struggle to stay on track as cities across the country are seen rearranging their down-town by other, deeper-pocketed developers.
Observers say this is not a new problem.
“It has a long history in real estate; It is arranged and pronounced over decades, over centuries. “People have talked about it, seen the fact, but a really strong commitment to something has been very much lately.”
The protests by George Floyd’s assassination last month and the subsequent Black Lives Matter have focused on racial disparities across the country. During the summer and fall, lenders and other financial services companies announced initiatives aimed at addressing racial disparities. As an industry, Financial Services is itself Heavy white, Although its leaders are promising a change.
Banking giants such as Bank of America, Citigroup and JP Morgan Chase, as well as smaller institutions have announced initiatives totaling billions of dollars that are largely focused on communities and entrepreneurs of color. Some funding has been earmarked for affordable housing and commercial development in low-income communities, which will benefit all real estate developers.
Longtime practitioners and analysts in the field say that if the new dollars are to reduce the industry’s racial imbalance, the money needs to be carefully designed so that more money is in the hands of black developers.
In October, JP Morgan Chase Announced A $ 30 billion initiative to advance racial equity that included substantial commitment to minority-led small businesses and black and Latino homes. The announcement listed $ 14 billion in new loans and investments over the next five years to expand affordable rental housing in low-income communities.
Observers appreciate the size and breadth of these initiatives, but some point out that such funding is often not specifically directed toward developers of color.
When funding is not done for minority developers, “history has shown us that it is going to majority developers,” said Ken McIntire, chief executive of the Real Estate Executive Council, which is a leader in commercial real estate of color. There is a trade association for the authorities. .
This is a disadvantage for black developers who focus on affordable housing – and for the communities themselves, Mr. McIntyre said. Black developers are more likely to hire black contractors and other workers, some of whom may live in those neighborhoods, thereby changing the money several times and gradually improving an area. But when the developers are white, “at the end of the day, they are taking the equity home,” he said.
“Unless you mandate that the money go into the community in such a way that you know it will stay there, it will disappear and you are doing the same old job,” he said.
JPMorgan Chase will continue to build on its efforts to identify and strengthen the Black Developers’ pipeline, a bank executive said on condition of anonymity spoken because the details were not public.
In September, Citigroup Announced Equity and financing of $ 200 million for affordable housing projects by minority developers.
Advocates say it is important to ensure that capital goes to the companies that need it.
“It’s much easier to distribute than to pay,” said Alicia Glenn, founder of real estate development platform MSquared and a former deputy mayor of New York for housing and economic development. “You have to find people who have relationships with minority developers or in minority communities.”
This may mean funneling capital through lenders designated as community development financial institutions, which are mandated to deploy fundings in marginalized communities and to have deeper relationships with developers and communities of color.
For example, City First Bank, a lender in Washington, closely cultivates relationships with its borrowers, finding a way to direct capital to promising but fledgling businesses. The bank has seen increases in interest from large financial institutions, its chief lending officer, Sonja Wells, said, “but it’s still on a smaller scale.”
No matter how well the initiative is designed, most loan funds for black developers focus on one thing: affordable housing. Many advocates agree that developers should look like the communities in which they are building, but steering developers of color for low-income or work force housing minimizes their potential impact – and benefits. Margins on affordable housing are limited, making it difficult for developers who work only to grow in that area.
“I have found that the funds that exist for developers of color push color into deeper power, or are completely banned,” said Modai Ture, founder of City Growth Partners, a Detroit development company.
Market-rate projects, however, require more private equity. And this is something that has traditionally been a challenge for black developers, who often have little connection to reproductive wealth. Before the epidemic, A. Total value According to a study by the Brookings Institution, one-tenth of a Black family in America belonged to a white family. Black developers say that it is often impossible to come up with multimillion-dollar equity in “friends and family” because their networks do not have that kind of money.
“Equity capital is not readily available,” said Craig Livingston, managing partner of Exit Capital and president of the New York Real Estate Chamber. He and his colleagues may have an incredible track record, he said, “but when competing with second or third generation developers, we don’t have access to the same financial phase or risk capital.”
Some initiatives have come up that focus on this problem. For example, in June, the Morgan Stanley and Ford Foundation launched a $ 26 million fund that provides equity to emerging minority and women-owned companies. The fund – which is the result of nearly a decade of strategists on how developers of color will get the best help – will be managed by TruFund Financial Services, a community development financial institution.
And Blue Vista, an investment management company in Chicago, is creating a $ 100 million private equity fund for minority and women-owned real estate businesses. In protest against racial justice this summer, Robert G. Byron, a co-founder of the firm, examined the company’s history and found deals in which the company provided capital to novice companies led by people of color and women, The women had worked well outside.
Blue Vista structured its new fund in response, with plans to provide seed capital and recommend a handful of talented new developers. Within a few years, recipients are likely to be prepared to receive capital from more established sources.
Blue Vista’s program is in a way that Don Peebles, a successful black developer in New York, has been announced in 2019. Mr. Peebles aims to collect $ 450 million in investment for underdeveloped developers in several major markets. But among private equity firms, Mr. Byron says, there is no real competition for these developers to find and invest.
“Just by scratching the surface, without marketing, we’ve found really capable people – smart, talented, experienced,” Mr. Byron said. And investors are also excited.
“I hear from both investors and potential users,” he said, “this is what we are struggling for,” he said. “It’s like a no-brainer.”