Black CRE Leaders Say 'The Moment Is Now' To Drive More Funding To Minority Developers
Pressure is building on the private and public sectors to back projects led by people of color in order to move toward racial equality in the industry.
“It’s our time,” The Peebles Corp. founder and CEO Don Peebles said on a Bisnow webinar on capital access for minority developers Tuesday. “There has not been an environment conducive to transformative change [like this] since the 1960s.”
The historical — and current — lack of equity capital distributed to developers of color has resulted in the dearth of diversity in the industry, the panelists said. It is significantly more difficult for people of color to climb the ladder in the real estate world for two reasons: Many who provide financing only fund projects backed by developers with experience, and the relative lack of wealth in communities of color, due to the legacy of racist economic policies.
Peebles was joined by Walker & Dunlop Senior Vice President and Chief Production Officer Stephanie Wiggins, BOS Development Managing Partner Beatrice Sibblies, Dabar Development founder and Managing Partner Dawanna Williams and JPMorgan Chase Head of Diversity and Inclusion Brian Lamb on Tuesday’s webinar.
In order to reverse this issue, money in the private and public sector needs to be intentionally funneled to minority developers, the panelists said.
“If there was ever a time in our history that we have to rise to the occasion and respond … particularly to the Black community, that moment is now,” Lamb said.
Wealth inequality is a major reason for racial inequities in real estate. The wealth disparities in the United States and around the world are stark. Out of the $69 trillion in private equity and venture capital globally, only 1.3% of it is controlled by women and people of color, Peebles said.
Across the country, the average income for white households is over 10 times that of Black households. The average net worth of a Black household is $17K while the average net worth of a white household is $171,500, he said. In Boston, where Peebles is planning a large public-private partnership project, the average net worth of a Black household is $8 while the average net worth of a white household is at $245K, he said.
“We have these growing disparities where the burdens of poverty, and everything associated with the burdens of poverty are carried by Black Americans,” he said.
The speakers said access to capital at the private and public level was the greatest barrier to diversifying the industry because a project — and the wealth that comes with it — cannot start before all of the money needed is lined up.
“The challenge with real estate is you have to start fully grown,” Sibblies said. “Real estate is a zero-sum game. When you’re doing a real estate development deal, before you can even break ground, you have to have 100% of your deal in place, which is different than a lot of emerging businesses.”
Public funding has an even higher threshold for what it takes to qualify for partnership on the public level.
Those in charge of distributing public funds tend to give that funding to well-capitalized developers with experience. While white developers can often rely on generational wealth and family experience to wedge their way into public financing for a project, developers of color cannot, putting them at a significant disadvantage, Sibblies said.
Many of the biggest developers made their name through being chosen for private-public partnerships, including the Trump family, which still runs Central Park's ice skating rink for the city, and most recently Related Cos. Its Hudson Yards project was funded in part by $3B in public investment, which came largely from public pension funds that people of color and women contribute to at a significantly higher rate, Peebles said.
“What makes them so special? They have access to capital, because capital is deployed by a club,” Peebles said. “The vast majority of the allocators of Black [people] and women’s retirement money are white men, and who do they deploy that capital to? Other white men. And that is why there is this constant struggle.”
When these types of firms do work with minority developers on projects, it is often not an equal partnership, the speakers said.
“If they’re requirements for a municipality and the lead developer just wants to check the box, we end up not playing as significant a role as we really should be,” Sibblies said.
Instead of a partnership, Peebles said, it becomes a “philanthropic exercise” with a “difference in power dynamic.”
Despite the disproportionate amount of public funding that goes to white developers, there is no data-driven reason for the public sector to not invest in Black developer-led projects, the speakers said.
“Black and brown fund managers did not perform any worse than majority fund managers,” Williams said. "There is no data to show that the risk is not worth taking."
Peebles said the performance for Black asset managers is actually 27% higher than their white counterparts, although he didn't cite a source for that statistic.
“Because we all know there are no second chances for us, we gotta bat .900 to 1.000 in a game where you can get into the Hall of Fame of wealth batting .275 to .300,” he said.
Putting more public money into the hands of developers of color could be a way for the industry to begin to equalize, the speakers said.
“I think this may be a time where we can finally get a change in that regard,” Sibblies said.
In the private sector, Lamb said the key is to create programs and funds specifically targeted to uplift developers of color, he said.
JPMorgan Chase has done so through several successful programs, Lamb said, including the Entrepreneurs of Colors Fund.
The conversation took place amid a reckoning in the real estate industry and throughout the country on how to combat the systemic racism and inequity that has plagued institutions since before the Declaration of Indepence.
The coronavirus pandemic has shined a bright light on the economic, health and social disparities that people of color face.
The contemporary movement for racial equity rose to a fever pitch in late May when George Floyd, a black man, died in police custody in Minneapolis. Unrest that continues through today erupted, prompting widespread interrogation of how racism manifests.
In real estate, the lasting impacts of racist real estate policy in the 1940s and '50s has left Black developers particularly vulnerable to economic fallout as a result of the coronavirus.
Contact Kelsey Neubauer at firstname.lastname@example.org.