New Funds For Black Developers Fronting Millions For Their Success
The inequity between White and Black real estate professionals has long been stark. But in the last few years — especially in recent months — a number of institutions and companies have established initiatives to promote and fund the projects of Black developers.
Inspired in many cases by the national conversation about race amplified in the wake of George Floyd’s killing, these investments by leading community development groups and financial institutions now measure in the hundreds of millions of dollars in total.
They carry a promise of chipping away at historical wrongs and providing more access and opportunity to oft-overlooked BIPOC entrepreneurs. In 2019, the Urban Land Institute found 5% of its U.S. members are Black, even though Blacks represent more than 13% of the population at large.
“You need skills, equity, access to financing, relationships, and really great attorneys, and that burden is just too big for those in the African American community to build that skill set,” said Mosaic Development Partners co-founder and co-principal Gregory Reaves.
He and his partner, Leslie Smallwood-Lewis, are using a $10M January investment from Josh Harris — the billionaire co-founder of Apollo Global Management and the managing partner of the Philadelphia 76ers — to “foster an ecosystem that supports minority- and women-owned business enterprises.”
Beyond Harris' Mosaic investment, the range of companies and funds is fast, including substantial contributions from leading financial institutions such as $550M from Citibank supporting minority homeownership and developers, announced in September and Goldman Sachs investing $75M to launch its Black Developers Initiative Affordable Housing Fund.
The New York City Housing Authority and different entities in the city of Boston have made a more concerted effort to award contracts to Black-owned businesses, including NYCHA's recent award of a 1,300-unit renovation contract in Harlem to Genesis Cos. and Lemor Development, both local, minority-owned firms.
“While 95% of these firms doing the work are majority-owned firms, who lives in this housing?” Genesis founder and Managing Member Karim Hutson said. “There’s not a dearth of Black developers who can compete for these projects. The problem was they weren’t being awarded the projects.”
Enterprise Community Development launched its Let’s Build Accelerator last November, a joint venture with BIPOC developers to assist with capital access and moving projects forward that began with a $5M investment. In addition, its parent organization Enterprise Community Partners started the Equitable Path Forward initiative, a five-year, $3.5B initiative to dismantle the legacy of racism in housing and support BIPOC developers, which has deployed $150M of the $350M it has raised thus far. Enterprise will also manage a $5M grant from e-commerce giant Amazon to support developers of color.
The chasm in opportunity between White and Black developers in commercial real estate has been and is significant. Bisnow reporting has found significant gaps in representation among industry leadership: In 2021, 104, or 12.9%, of all C-suite roles were held by people of color — and a far smaller percentage of those titles are held by Black executives.
Those gaps carry through the industry to entry-level jobs and new business formation, a particularly painful issue for new business leaders trying to make connections, establish their bona fides, and most importantly, obtain capital and equity for deals.
“Lots of times, I’m the only Black person in the room, even in a Black-majority city,” said Curtis Doucette Jr., CEO of New Orleans-based Iris Development. “I hope programs like these can become a great equalizer. It’s a shame they can only help so many developers.”
Instead of following in the tradition of efforts of large firms investing directly in Black communities — which many argue worsens displacement and gentrification — the institutions behind these programs are investing in Black developers who are already investing in the community, seeking to spur entrepreneurship, expand business opportunities and help build generational wealth.
Predominantly focused on affordable housing, these funds help solve the No. 1 issue cited by real estate professionals of color why the industry is still dominated by White men and women: access to capital.
“Having a great project and having a great idea comes down to funding and partners,” Enterprise Community Development President Brian McLaughlin said.
But, like previous attempts to bridge a discriminatory divide, these programs ask some significant questions about achieving equity: What is the definition of success? Are they following through with their promises? And ultimately, can these programs also successfully lead to empowerment?
McLaughlin said the problem for decades has simply been that many developers of color were locked out of the industry. What’s different now is that, for the first time in his 25-year career, people are finally asking the question why, and looking for an answer.
McLaughlin brought in Aziz Housseini, CEO of Sage Asset Partners and a developer himself, to help design the Enterprise accelerator program. During the course of Housseini’s research, he called a number of Black and minority developers and asked them the open-ended question: “What do you need?”
It wasn’t always money, he said. Some wanted the “horsepower to take a deal,” to navigate the long development cycle. Equity is the riskiest capital, McLaughlin said, and its presence makes a project happen or not happen.
“When you say you’re giving away $100M, you’re assuming everybody needs money,” Housseini said. “Fundamentally, we try to structure each joint venture around what the partner needs and what they bring to the table.”
Monica Warren-Jones, director of strategic initiatives at Enterprise, said the affordable housing firm needed to rethink conventional underwriting standards to reflect the fact that a lack of access has hindered many Black firms from meeting traditional credit standards. They want to encourage Black firms to get credit and equity access, instead of needing to take a joint partnership stake in a project.
Take Doucette, the New Orleans developer whose firm received $2M from Enterprise’s Equitable Path Forward program. Doucette cut his teeth renovating homes post-Hurricane Katrina, and he started developing affordable housing via a city program that utilized a land bank of Katrina-damaged homes. He has since done home rehabs and a $20M residential and commercial project in the Bywater neighborhood.
The program’s support allowed his firm, Iris Development, to keep $100M of projects in the pipeline afloat during pre-development, he said, including a project with the Housing Authority of New Orleans to create 110 units of scattered site rentals, as well as make plans to hire three more people this year to help share responsibilities in the office.
“The challenge has always been, my natural network doesn’t give me enough access to capital,” he said. “Most of what we raise that in equity is friends and family capital. The hardest to raise is pre-development, when you can’t offer security to an investor. That’s where these funds have been the most useful.”
With paydays in affordable housing being so far away, he said it’s nice to have some certainty of salary for himself, his partners and his employees. As he looks at future projects, he is more certain he can put a good faith deposit or do pre-development work on an up-and-coming deal.
“When you prove yourself on a high-profile deal, you have to prove less next time, and it speaks well of us that Enterprise had belief in us,” Doucette said. “But for us, adding employees means we can start to look at more deals. Our next main hires are acquisitions and construction management, because that’s what we’ll need for the next level of growth within our company.”
Doucette’s experience with the program has underscored his belief that “we don’t have a talent disparity in the Black community, we have a wealth disparity.”
Real estate is a capital-intensive business. The need for funding is real, and the Mosaic team believes making these types of initiatives work for those it is trying to help requires more than money. The system needs to be reconsidered, not just better funded.
“People who say, 'We need to build a relationship first before we do business with you,' is code word that we’re not going to do business with you,” Reaves said. “I don’t believe you need to go to the country club together before you do business.”
BIPOC businesses should be given the runway to grow, the ability to make mistakes and vehicles to build knowledge, Reaves said. Potential partners should be evaluated fairly based on their ability, getting beyond the insular networking common in the industry. Opportunity needs to be open-ended. Mosaic leadership spends extensive time building out BIPOC and women-owned contractors and vendors, and training and mentoring developers to teach them the business.
But developers in need of support also shouldn’t be pigeonholed into certain project types, Reaves added.
The overwhelming focus of programs like this on supporting developers working in affordable housing, often a lower profit sector compared to other facets of real estate, “almost marginalizing them,” he said. He hopes future programs focus on bringing people of color more into all sectors of commercial real estate.
“If you’re going to pigeonhole me, pigeonhole me into biotech or life sciences,” he said. “But this is what happens. Here’s a Black or Hispanic person, they want to do affordable housing because it’s their people. I believe that’s a problem everybody has to solve, not just people of color. So why are you positioning us in that way?”
CORRECTION, FEB. 16, 6:00 P.M. ET: A previous version of this story incorrectly described some of the details of programs initiated by Enterprise Community Development. The details and funding amounts have been updated and corrected.