Hiring, Access To Capital Key To Bay Area CRE Diversity
More diversity in Bay Area development will need changes to zoning around the region and concerted efforts by the financial services industry to hire more people of color, panelists in Bisnow's Bay Area diversity, equity and inclusion webinar said last week.
"We have these global protests around the world surrounding racial and social injustice, and for the first time we saw companies who had never spoken out about this injustice issue statements," she said. "While that was great ... if you look at their leadership team and their board composition, there's really little to no diversity."
Commercial real estate as a whole was characterized by NAIOP as "the least-diverse industry on the planet" in a 2013 report that showed about 92% of senior executive roles being held by white men and white women. Progress since that point has been limited.
During the discussion, Greystar Senior Director of Development Jonathan Fearn pointed to prevalent zoning for expensive high-density residential housing and lengthy entitlements processes as impediments to Bay Area commercial real estate realizing more diversity.
But a bigger focus among current developers on hiring more people of color is also key, panelists agreed.
"There are a lot of ways to go about this, but it's really about intentionality and making sure that we put people in places that they can have an impact on the direction of the company," Fearn said.
Both Fearn and fellow panelist Erik Murray, co-founder of Oakland-based Oak Impact Group, said the lack of available capital for minority developers from institutional lenders and investors continues to impede diversity. Fearn called financial services "probably the second-least-diverse industry in the country" in describing that sector's racial makeup as a hurdle to more diverse development.
"Access to capital is 90% of the game, and that lack of access, particularly for minority developers, is always a challenge," Murray said. “The Bay Area has some of the most expensive real estate in the world. Frankly, I can’t afford to develop in San Francisco."
Fearn said the prohibitively high barrier to entry for non-institutional companies in Bay Area CRE development has stymied institutional developers for the past 15 years.
A long and complex entitlements process, the push in city planning for large projects and restrictive zoning "make it such that you only have institutional developers and institutional capital able to play in the real estate market," he said.
The cost to build in the Bay Area, which is often exacerbated by epic, multiyear delays, largely favors large, institutional companies, Fearn said. Traditional multifamily projects in the Bay Area see costs of about $400K per unit, and smaller housing types and smaller developments would allow a new, more diverse ecosystem of developers and contractors to rise up, Fearn said.
"It's like we're building top-of-the-line, Model S Teslas, and our policy response is, 'OK, Tesla, you have to sell 20% of those Teslas to people who can't afford them, or we're going to give people money to afford the Teslas that they can't buy,'" Fearn said.
“But what we aren’t asking ourselves is why aren’t we building Hondas. Why aren’t we building Toyotas? And that’s in large part because we don’t allow it. It’s been zoned out since World War II."