STUDY: Black And Hispanic Real Estate Developers Make Up Less Than 1% Of The Industry
Black and Hispanic real estate developers represent 0.56% of the total number of private U.S. developers, and only about 5% of owners in the real estate industry as a whole, according to a new study.
The study, conducted by the Initiative for a Competitive Inner City and the nonprofit Grove Impact, said that Black and Hispanic underrepresentation in real estate means lost economic opportunities. It estimates that removing the constraints on Black and Hispanic developers would create about 1.7 million jobs and more than $100B in new annual business revenues.
The study estimates that there are 112,046 private real estate developers nationwide. Of that total, 447 are Black and 175 are Hispanic. Because the study sought to identify each company's owners, the developer estimates do not include public corporations or nonprofits.
The paucity of Black- and- Hispanic-owned real estate developers identified by the study parallels data compiled by Bisnow over the last three years on diversity in commercial real estate, focusing on the industry's largest companies.
Among large developers, Bisnow found in 2022 that C-suites include 9.3% people of color, up from 7.5% the year before. There are still no CEOs of color among the two dozen development firms that Bisnow tracks.
The small number of Black and Hispanic real estate developers is part of a larger picture of underrepresentation in business. Black Americans make up 14% of the U.S. population but own only 2% of employer businesses with identifiable owners. Hispanic people make up 19% of the U.S. population, but own just 6% of employer businesses with identifiable owners.
Despite these small numbers, the ICIC study found that many Black and Hispanic developers are at least as successful as white developers of comparable size, and often more so, and thus have considerable potential to generate economic activity as they grow.
Small, Black-owned real estate development firms — those under $350K in revenue — for instance, had an average annual revenue of more than $170K, while Hispanic developers of that size average about $178K, the study found. White developers of that size generate an average annual revenue of about $159K.
Most Black or Hispanic developers have small or midsized operations with less than $17M in revenue, according to the study, which found only six Black-owned developers with annual revenue between $17M and $50M and only one Hispanic-owned developer in that range. The study estimates that there are 382 white-owned developers in that revenue range.
The study found no Black developers and one Hispanic developer with revenues of $50M or more. It estimates that there are 382 white developers with revenues of $50M or more.
“We're very aware of the drop-off when it comes to size and scale,” Menkiti Group CEO Bo Menkiti told Bisnow. “Until we moved through the growth stages of a company and become larger, we didn't realize how rarefied the air gets as you start to grow."
There are many proven enterprises looking to scale, Menkiti said.
“Why is it that the capital hasn't quite connected to them, and how do you close that gap?” he said.
Menkiti Group, a Black-owned developer and real estate brokerage, wasn't directly involved in preparing the report, but it has partnered with the report's creators on other projects, such as expanding their business networks, Menkiti said.
The research is part of a broader initiative to address the significant access to capital gap for Black and Hispanic developers in the United States, Menkiti said.
Menkiti Group is putting together the Obsidian Catalyst Fund, targeting as much as $100M to support Black- and Hispanic-owned real estate developers as they reach for further growth.
“The fund is for those folks that have gotten beyond the beginning, and who are now ready to scale,” Menkiti said. “They have a harder time accessing forms of private equity, family office and institutional capital.”
Removing the constraints on Black and Hispanic developers will require considerable effort among public, private and nonprofit entities, the ICIC study found.
The study recommended an update to the Community Reinvestment Act to mandate that banks report more information about business lending and applications for loans, including the race and ethnicity of applicants.
Also recommended are initiatives to support not only new entrants in development, but existing medium and larger Black- and Hispanic-owned companies, and to support efforts by existing developers to build a more robust pipeline of Black and Hispanic development talent.
Bob Johnson, founder of Black Entertainment Television and RLJ Lodging Trust, told Bisnow in an interview last week he thinks executives need to make more of an effort to hire diverse talent.
"Don’t bring me your buddy who plays golf with you every day or the recommendation from your buddy you play golf with," Johnson said. Rather, he said, executives and corporate hiring teams must go outside their typical circles to bring in more diverse employees.
"I have no problems telling my CEO friends, Black or white ... that gentlemen, you just have to work harder if you really believe there are talented African Americans out there who can compete just as well or maybe even better than some of the white talent that you instinctively go after," Johnson said.
