Developers Of Color Come Together To Tackle ‘Representation Crisis' In CRE

The commercial real estate industry has been grappling with its lack of diversity for years, and developers of color say the ability to access capital to fund projects and grow their companies remains one of the top challenges holding them back today.

The inequality of capital access was among the main issues raised Wednesday at the inaugural Developers of Color Summit held by the New England arm of the Department of Housing and Urban Development. More than 300 industry professionals attended the event in downtown Boston to discuss the hurdles they face and how they can overcome them.

“As we all know, we find ourselves in the center of a representation crisis in real estate development,” said Tony Richards, vice president of equitable business development at MassHousing. “This disparity is rooted in various factors, most prominently access to public and private resources, which are crucial for the growth of developers of color.”

Black and Latino commercial real estate developers make up less than 1% of the total number of private developers across the country, according to the Breaking the Glass Bottleneck report conducted in March by the Initiative for a Competitive Inner City and the nonprofit Grove Impact.

“Only about 1,000 of the 112,000 real estate development companies in the United States are owned by people of color, so encouraging and supporting a pipeline of emerging developers of color is critical to increasing diversity in real estate development, bridging racial wealth and housing gaps and easing the national housing crunch,” HUD New England Regional Administrator Juana Matias said in a statement.

A Bisnow analysis of the 24 largest development firms in the U.S. last November found that people of color accounted for 9.4% of their C-suites, up from 7.5% the prior year. 

Nationally, smaller Black and Latino developers have seen success in some instances. Small or midsized Black and Latino developers saw an average annual revenue of $171K and $178K, respectively, compared to white developers of the same size earning $160K, according to the study. 

However, these same companies face challenges scaling operations, with only six Black developers and one Latino developer making an annual revenue between $17M and $49.9M, with 382 white developers in the same range.

“As an emerging developer, as you scale up, you need capital,” said Adler Bernadin, president of Norfolk Design & Construction. “You might be doing one-to-four-unit deals to get up to 20-unit deals, but if you don’t have the capital, you can’t get there.”

The state’s housing finance agency compiled the Massachusetts Affordable Housing Emerging Developer Report, which identified key opportunities and challenges developers of color have faced in the state. The report used survey responses from 300 real estate professionals who said that they faced challenges in allocating pre-development funding, submitting proposals, navigating the local zoning and planning processes and connecting with other real estate professionals.

“The Northeast market trails behind all other markets in the country as it relates to ownership of real estate assets as it relates to people of color,” said Colleen Fonseca, executive director of the Builders of Color Coalition. “Without serious intervention in our policies and processes, we will continue to see serious economic inequality throughout our market.”

MassHousing set a goal of people of color accounting for 10% of all multifamily borrowers in its lending portfolio, as well as lending 5% of its total portfolio balance to minority borrowers. MassHousing also announced it would launch its Equitable Developers Fund, a $50M pot aimed at helping these developers with pre-development costs and providing grants and low- or no-interest loans.

“The world tries to tell us all that we are unicorns and we are special,” MassHousing Executive Director Chrystal Kornegay said. “I don’t care about being called a unicorn. To the point of getting things done, it takes a group.”

Boston has made efforts to diversify the development teams that are bringing forth bids for public requests for proposals. In 2021, a report from BBC Research & Consulting found that just 1.2% of the $2.1B in city contracts went to Black- and Latino-owned businesses.

“One of the barriers in [pre-development], in terms of responding to an RFP, is the money it takes to get to that point,” said Chanda Smart, founder of the Onyx Group Development. “All of the other costs associated with it are usually out-of-pocket, so to ask an affordable housing developer to front that cost is really difficult.”

Last year, Mayor Michelle Wu began pushing development teams to submit details on their diversity efforts for every project over 20K SF. 

For developers of color in Boston, partnerships and teams are working together to build other developers up and close the wealth gap that has held back the community.

In January, a new investment fund was created by prominent Black Boston developers to close the racial wealth gap and provide new opportunities to emerging developers of color, the Boston Globe reported. The Boston Real Estate Inclusion Fund was created by Darryl Settles, Kirk Sykes and Richard Taylor. The fund was formed by New York-based Basis Investment Group to invest in Boston development and seeks women and investors of color with a minimum investment of $50K.

There are other opportunities proposed coming. Last week, Gov. Maura Healey unveiled the historic $4.1B Affordable Homes Act that would aim to increase housing production across the commonwealth.

Lt. Gov. Kim Driscoll spoke at the Developers of Color Summit and said that part of the aim of the bill is to bring more opportunities to housing developers of color and build on the state’s MassPort model, a policy introduced to prioritize diversity on bids for properties owned by the state's port authority.

“We also have this historic opportunity to secure inclusive growth,” Driscoll said at the event. “We know we need to grow, and how are we making sure we are doing that in a way where there is diversity in our development sector at every point in that chain?”