November 30, 2023 by Miriam Hall

Political Backlash Against DEI Having A ‘Chilling Effect’ On CRE's Diversity Push

This is the fourth annual installment of Bisnow's DEI Data Series, an ongoing investigative project that examines the diversity of the boards and executive leadership of the biggest companies in commercial real estate. Over the years, this award-winning series has amassed a cache of data that continues to shine a spotlight on racial and gender inequality at the highest ranks of the industry. To read this year's data analysis, please click here. To read the entire series, please click here.

More than three years removed from the murder of George Floyd, the attitudes inside commercial real estate firms toward diversity, equity and inclusion have morphed from initial enthusiasm to fatigue, and now fear of backlash.

With the Supreme Court's decision to strike down affirmative action at universities and what is expected to be a contentious election year — combined with the slowest commercial real estate market in over a decade — proponents of diversity in commercial real estate are pushing harder than ever to keep their agenda from coming under attack.   

“The Supreme Court's ruling … put a stake in the ground that has really taken the wind out of the sails for diversity across the landscape,” said Ken McIntyre, the CEO of the Real Estate Executive Council and a director on the boards of Newmark and Acadia Realty Trust.

“Even in corporate boardrooms, their companies are now wondering whether they should embrace diversity initiatives,” he added. “And if they do, they are being counseled to do it very carefully.”

Political Backlash Against DEI Having A ‘Chilling Effect’ On CRE's Diversity Push

The Supreme Court’s June ruling against race-based university admissions spurred lawyers to warn of a possible wave of litigation against companies' use of race in training, leadership and mentoring initiatives. And while hiring practices based on race are illegal, the wider effects in business have been felt already.

The same group that sued to have affirmative action overturned, The American Alliance for Equal Rights, has this year filed lawsuits against two law firms over their diversity fellowships. In August, the group sued the Fearless Fund over its grant for Black women entrepreneurs. Last month, that program was temporarily halted by a panel of judges while the matter plays out in district court.

Meanwhile, America First Legal, a conservative group led by former Donald Trump adviser Stephen Miller, has lodged civil rights complaints to the Equal Employment Opportunity Commission against more than 20 companies, including American Airlines and Salesforce, over efforts to hire more women and people of color. 

“Does that have a chilling effect? You certainly have seen some of that, I think, already,” said Reginald Livingston, the chief investment officer of Acadia Realty Trust.

McKinsey study released this week shows the rate that Black professionals are being promoted into management has slowed to 2019 levels. That is despite the studies that have shown diversity makes for better-performing companies.

“The more negativity around it potentially, or pushback, some companies may feel like it's not the thing to do,” Livingston said. “But if you want to focus on profit and loss and business plan execution, then team is critical — and diversity is critical to team.” 

Efforts to push diversity forward have proliferated in recent years, but gains are hard-won and incremental. 

Bisnow’s annual analysis of the racial and gender diversity at the top levels of the biggest companies in commercial real estate shows the industry made small but significant gains this year.

Across 89 of the industry’s largest companies, 12.8% of C-suite roles are held by people of color, up from 11.6% last year. Boardrooms include 19.6% people of color, up from 18.3% in 2022. Women make up 26.2% of the C-suite, up from 25.6%, while they hold 32% of board seats this year, up from 29.6% in 2022. 

But diversity advocates and executives of color in CRE say the backlash puts even those small steps at risk.

“I'm concerned about threats to DEI, in the commercial real estate industry in general,” said Lamont Blackstone, the chairman of Project REAP, one of the largest and oldest diversity and inclusion programs in commercial real estate.

“I recognize in the aftermath of the George Floyd murder there was a reaction in many ranks to get on a bandwagon as it relates to social justice. But the bottom line is DEI,” he said. “The commercial real estate industry was never exclusively about any type of consideration of social justice. It was about broadening the industry’s talent pool.” 

Those who are committed to making changes in their organization aren't bowing to external pressure and removing their diversity initiatives, DEI experts said. The business imperative and the need to cater to customer demands are still driving many diversity programs, rather than a feeling of moral obligation. 

But what is changing is the way these programs are positioned and the terminology they use, according to Melina Cordero, a former CBRE executive who now runs P20, a leadership and DEI consulting firm. 

She said she is getting more calls for her services, not fewer, as companies grapple with the new environment. She said companies are following how universities have adapted their programs to focus on adversity rather than race.

“Yes, innately, that does slow down progress, because you're adding another layer of administrative or logistical steps,” she said. “But does it fundamentally slow down or stop progress? I don't think it has to.” 

Some 80% of executives in corporate social responsibility have reduced external communications about their work or changed the language they use for their programs, according to a survey released in October by the Association of Corporate Citizenship Professionals. A Bloomberg analysis of earnings calls showed that companies have spent less time talking about diversity in the wake of the political backlash.

McIntyre said he is certain that general counsels at companies across the country are telling management boards that diversity programs may not be worth the risk. 

“It doesn't necessarily mean they change what they're doing, but the words they use will be different, and how vocal they are about pushing towards those goals will be a little more circumspect,” he said. “It’s affecting every industry, everybody who wanted to embrace diversity as a means to create more equity and create more inclusion.”

But this backlash also provides a convenient excuse for leaders who don't see diversity as a core value, real estate players said. Leaders who have failed to diversify their businesses will have a way to shift the blame onto the political climate — and claim they have a fiduciary duty to hit pause on any DEI planning.  

“The backlash has as much to do with where we are as a country politically and the polarization as anything,” said James Simmons, the CEO of Asland Capital Partners. “Whenever there is a movement, there's always a backlash, and that's been true throughout the history, certainly, of this country.” 

Political Backlash Against DEI Having A ‘Chilling Effect’ On CRE's Diversity Push
A rendering of the new campus that Tishman Speyer is developing for Harvard University in Boston's Allston neighborhood.

Making sure the economic climate doesn't undermine diversity efforts is proving challenging. Deals have slowed, driving down profits and putting strain on companies across the board. Brokerages, now with fewer commissions, have decided to lay off staff. The financing environment, too, means everyone across the industry is trying to do more with less. 

“When things start to turn down, you cut back to, ‘What is the absolute priority?’” said Joe Ritchie, the chief diversity officer at Tishman Speyer. “I think that has caused some organizations who don't look at DEI as a priority in the same way that we do to maybe deprioritize those in favor of some other things.”

But some companies are pressing forward. Tishman Speyer is developing Harvard University's new 14-acre Enterprise Research Campus in Boston, which will ultimately feature life sciences space, housing, and a hotel and conference center. As part of the developer selection process, the university mandated that at least 5% of the funding come from Black and Latino investors. 

Tishman Speyer tapped Simmons to help raise capital, and some 150 people of color put up money for the project. Tishman Speyer raised $500M for the 900K SF first phase, and of that, some $30M came from individual Black and Latino investors — more than than the 5% goal — and $800K came from white women, Ritchie said. 

Simmons said he plans to take a similar approach with other projects, although the lack of transaction volume has slowed those developments. Ritchie, who is also Tishman's managing director for business development, considers the Harvard project a way of injecting diversity into the business focus for the company. 

He said the firm has more projects in the pipeline with slices of equity from diverse investors, individuals and minority-owned investment managers. It has partnered with Basis Investment Group, run by Tammy Jones, to build more than 600 apartments and 31K SF of retail space in Downtown Santa Monica, California. Basis is bringing $30M, or 11% of the total equity, to the development.  

“We're actively looking to do that elsewhere,” Ritchie said. “It's part of what we're doing that is good for our business, regardless of the point where we sit in the cycle. … I think further it provides an opportunity for us to cement ourselves more as a leader in this space.” 

Acadia's Livingston said that in some cases, companies have a tendency to drop diversity in favor of a focus on profit and loss. He called that approach misguided.

“If I am focused on delivering for my investors, delivering for my board, delivering for all of the various stakeholders, I will find a way to make sure that I am focused on putting the best team on the field,” he said. “A part of that is making sure that I'm having an eye towards diversity.” 

But the challenging environment isn't likely to lessen anytime soon. Many business leaders, such as JPMorgan Chase CEO Jamie Dimon this week, forecast a recession in 2024. The upcoming presidential election is likely to make the political environment even more charged.

“The threats, the critiques that have happened this year and what continues to happen this year will probably continue into 2024,” Blackstone said. “Because of the progress that has been made, I think to some extent it's going to be difficult to reverse those trends. But we can't afford to sit on our hands.”