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REPUBLICA PRESS
Your Business & Political News Source

To Help Black Developers, Programs Start With Access to Capital

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For 15 years, Harvey Yancey has been building and renovating market-rate homes, affordable housing and commercial spaces in Washington, D.C. During that time, his company, H2DesignBuild, has navigated funding challenges and found its way into beneficial deals.

But all along, Mr. Yancey, who is Black, said he was aware of the industry’s racial homogeneity and the limitations he faced because of his skin color. “It was always the quiet conversation in the room,” he said.

Today, commercial real estate remains a field in which the vast majority of developers are white. Few reliable statistics are available, but the industry association NAIOP reported in a 2013 survey, the most recent year available, that 4.4 percent of commercial real estate professionals were Black. This year, just 5 percent of Urban Land Institute’s members described themselves as Black or African-American.

The disparity has many sources, including many African-Americans’ unfamiliarity with the field and subsequent dearth of connections. But the biggest challenge, Black developers say, is gaining access to capital, including loans, loan guarantees and equity. That may be the result of limited balance sheets, short track records or a lack of wealthy and influential networks. As a result, their firms struggle to grow and remain on the margins as cities around the country see their downtowns reshaped by other, deep-pocketed developers.

overwhelmingly white, though its leaders are pledging to change.

Banking giants like Bank of America, Citigroup and JPMorgan Chase, as well as smaller institutions, have announced initiatives totaling billions of dollars that are largely focusing on communities and entrepreneurs of color. Some of the funding is earmarked for affordable housing and commercial development in low-income communities, which will benefit all real estate developers.

Longtime practitioners and analysts in the field say that if new dollars are to redress the industry’s racial imbalance, the funds need to be carefully designed so that more of the money winds up in the hands of Black developers.

In October, JPMorgan Chase announced a $30 billion initiative to advance racial equity that included substantial commitments for minority-led small businesses and Black and Latino households. The announcement also listed $14 billion in new loans and investments over the next five years to expand affordable rental housing in low-income communities.

announced $200 million of equity and financing for affordable housing projects by minority developers.

net worth of a typical Black family in America was one-tenth that of a white family, according to a study by the Brookings Institution. Black developers say that coming up with several million dollars in “friends and family” equity is often impossible because their networks don’t have that kind of money.

“Equity capital is not readily available,” said Craig Livingston, a managing partner at Exact Capital and the chairman of the New York Real Estate Chamber. He and his colleagues may have incredible track records, he said, “but when competing with second- or third-generation developers, we don’t have the same financial footing or access to risk capital.”

A few initiatives have emerged that focus on this problem. In June, for instance, Morgan Stanley and the Ford Foundation started a $26 million fund that provides equity to emerging minority- and women-owned companies. The fund — which is the result of almost a decade of strategizing about how to best help developers of color — will be managed by TruFund Financial Services, a Community Development Financial Institution.

And Blue Vista, an investment management firm in Chicago, is creating a $100 million private equity fund for minority and women-owned real estate businesses. Moved by the racial justice protests this summer, Robert G. Byron, a co-founder of the firm, examined the company’s history and found that the deals in which the company had provided capital to novice companies led by people of color and women had worked out well.

Blue Vista structured its new fund in response, with a plan to provide seed capital and mentoring to a handful of talented newer developers. Within a few years, recipients are more likely to be ready to seek capital from more established sources.

Blue Vista’s program is similar to one that Don Peebles, a successful Black developer in New York, announced in 2019. Mr. Peebles is aiming to gather $450 million in investments for undercapitalized developers in several key markets. But among private equity firms, Mr. Byron says, there doesn’t seem to be any real competition to find and invest in these developers.

“Just by scratching the surface, without marketing, we’ve found really capable people — smart, talented, experienced,” Mr. Byron said. And investors are excited, too.

“What I hear from both investors and potential users is, ‘This is exactly what we’ve been clamoring for,’” he said. “It’s kind of a no-brainer.”

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