Affordable Housing, Developers Of Color Need Each Other, But Also So Much More

For developers like Maria Gonzalez, building affordable housing in the neighborhood in which she grew up means seeing a version of herself in that development.

“My mantra is that I will only build spaces that I want my family to live in,” said Gonzalez, who serves as president and CEO of hybrid community advocacy group and nonprofit developer HACE Community Development Corp. in the Fairhill neighborhood of Philadelphia. “Growing up poor in Philadelphia, you really see how living hand to mouth affects the trajectory of your life and family. 

“Being able to improve the quality of life in this community affects me personally because these are my friends and family, and I naturally want to help lift people up in this neighborhood.”

Affordable housing has a higher percentage of people of color than any other sector of commercial real estate, multiple sources told Bisnow, attributing it partly to the connection so many developers of color have to lower-income neighborhoods where they grew up. Empathy is key for developers to forge the type of connection with a neighborhood that breeds successful projects, and having shared experiences is a central facet of building those bonds.

“When you have people of color building in certain neighborhoods, they may have a more sensitive ear in responding to locals [because] they’re coming from the same background,” Philadelphia City Council Member Kenyatta Johnson told Bisnow. 

Having a person of color behind an affordable housing project doesn’t guarantee anything about that project or the community engagement surrounding it, but it helps the relationship between developer and residents start from a better place, according to Johnson and multiple developers of color.

“If you mess up, you’re just like everyone else,” said Mansur Abdul-Malik, vice president of development for the nonprofit developer NHP Foundation. “But for a second, they at least can put their defenses down and see if a person is genuine. And I think that’s more likely to happen for a person of color.”

Consensus among those interviewed for this story is that the affordable housing industry would benefit from having more people of color in its ranks, but it remains among the most difficult areas to navigate within commercial real estate. Developing affordable real estate means dealing with more complex financing structures and more onerous government regulations than developers of office buildings, warehouses or market-rate housing. 

In many ways, it’s a familiar path to people of color: work harder, make the most of fewer opportunities and lift up your community when you can.

“I think the affordable housing industry, especially when we talk about nonprofit organizations, embraces building a pipeline of professionals more,” Gonzalez said. “I think we create the space to be able to develop talent that otherwise would not get a chance in the market-rate arena, where you have to have all the diplomas or the influence to get those introductions.”

The Only Way Into Commercial Real Estate

When a development company owned by people of color needs to raise capital for a project, it is faced with a laundry list of disadvantages compared to companies owned by their White counterparts. Without access to the social networks of major private equity and debt firms, developers of color rely more on friends and family for equity in financing their projects, and on banks for debt. Both come with serious limitations.

“The biggest concern we’ve heard [from developers of color] was the friends and family issue,” said Wilhelmena Norman, co-head of ACCESS, the Community Preservation Corp.’s targeted lending program for developers of color. “While someone might have an uncle with some money, the emotional tax from using that money is great. Often, that’s all the money they have to give, so there’s not any extra capital to draw from [for cost overruns]. Then there’s the extra stress of borrowing from a friend and needing to be successful, because you’re essentially carrying your family on your back.”

When it comes to debt, Black business owners in all sectors are more likely to use banks than any other ethnic group, according to a 2021 study by the Federal Reserve Bank of St. Louis. Banks tend to be risk-averse and, in the real estate industry, risk calculations have not yet been completely divorced from the legacies of redlining in minority communities, The Washington Post reports.

“What I’ve found is that it still takes a lot of convincing to get institutional capital to invest in low-income communities,” SoLa Impact founder and CEO Martin Muoto told Bisnow. “The same perceptions historically, that they’re high-risk, high-delinquency and other legal liabilities, work against those neighborhoods.”

Being a firm owned by people of color compounds the issue. Among businesses of all kinds with good credit in the 12 months ending last June, Black-owned firms only received the amount of financing they requested 24% of the time, compared to 48% for comparable White-owned businesses, according to the Fed survey. Hispanic and Asian-owned businesses also reported receiving the financing they requested significantly less frequently than White-owned businesses.

The affordable housing sector alleviates some of those issues through federal programs like Low-Income Housing Tax Credits and grants sponsored by the Department of Housing and Urban Development, as well as subsidies offered by state and local governments. With specific goals of addressing historic inequities, government programs come with a more level playing field in terms of access to capital, ACCESS co-director Lawrence Hammond said.

Though they may be more equitable in distribution of funds, government-subsidized programs rarely cover the full cost of a development, resulting in capital stacks much more complicated than for market-rate projects.

“For me, [working in affordable housing] was about crunching the numbers, and I heard from mentors and peers in the industry that if I could figure out the financing for affordable housing, I could figure out financing in any part of commercial real estate,” Abdul-Malik said.

Gonzalez started her professional career in banking and finance but had an interest in commercial real estate. She found that HACE, which develops affordable housing in the neighborhood it also represents as a Registered Community Organization in Philadelphia, was perhaps her only way into the industry on the whole. Though she has remained at the organization, she told Bisnow she has seen others use it as a launching pad into other areas of commercial real estate.

While affordable housing can be an entry point into commercial real estate, making the jump to another sector may not be as straightforward. Having experience does not insulate a person of color from the systemic issues that have kept commercial real estate disproportionately White. Understanding how to put together financing packages including tax credits, bonds and other subsidies doesn’t necessarily expose them to the high-powered money managers that fund much of commercial real estate.

“Affordable housing sort of lends itself to [greater racial diversity] because of the other assistance provided through government subsidies and resources,” Hammond said. “It’s both a positive and negative, because the opportunity is there, but it kind of pigeonholes those developers to that sort of development and doesn’t expose them to the larger, more lucrative world of commercial real estate outside of affordable housing.”

Yet there is substantial value in getting a foot in the door. At ACCESS, Hammond and Norman’s focus is on identifying developers of color in affordable real estate, providing them financing, and furnishing connections and assistance in navigating its intricacies. Helping such developers get established and build track records can have a multiplier effect for diversity in the industry, Hammond said.

“I think one of the things for us is that we’ve seen how developers can grow from small to large with the right resources,” he said.

Building For The Community, With The Community

In low-income communities of color, residents welcome new affordable housing projects as platforms for upward mobility, but they remain wary of developers’ willingness to engage with the community to ensure a project benefits residents rather than increasing their risk of displacement. 

The vast majority of developers who operate in low-income neighborhoods in Philadelphia are from outside the neighborhood, Johnson said. Verna Tyner, who serves as treasurer and board member of the registered community organization Tioga United, has lived in the Nicetown-Tioga neighborhood of Philadelphia since 1970. The neighborhood, which is 75% Black according to 2021 census data, has among the lowest average income of any in Philly, and it has seen an uptick of developer interest in recent years, Tyner told Bisnow.

“From what I’ve experienced so far, they’re from outside the neighborhood,” Tyner said. “Where they’re coming from, I really can’t tell you.”

For disadvantaged neighborhoods in urban areas, which are disproportionately populated by people of color, seeing a developer who looks like one of their own creates a level of implicit trust that wouldn’t be granted to a White person in the same position, Muoto, Gonzalez and Abdul-Malik agreed. 

“Everybody’s reason for being cautious [with White developers] is different, but it coalesces into a ball of skepticism,” Abdul-Malik said. “And that ball is normally one that a White developer is largely faced with in the beginning.”

Being able to more easily engage with the community provides a rare thing for people of color in commercial real estate: an edge.

“When you are a minority-led firm investing in Black and Brown communities, there’s certainly a competitive advantage,” Muoto said.

Tyner’s organization denied that it favors developers of color in the community engagement process, but she acknowledged that they are more likely to have awareness of a neighborhood’s concerns.

“White developers don’t know or understand why we would be fearful of them putting in [larger buildings],” Tyner said. “They don’t know what that would be like, because they think they’re saving the day by adding more density. It’s like they don’t even care.”

For those who feel a sense of responsibility to the communities in which they operate, meaningful engagement is a logical result of that feeling. 

“You’re talking about the basic need of a human, which is shelter,” Abdul-Malik said. “If I didn’t understand the [development] process, I would want someone to walk me through it intensively and intimately so that I could learn as best as I can. I can’t understand how that would happen without a one-to-one conversation where I get to hear answers.”

The need for a nuanced approach in how to talk to residents is heightened for White developers, who have to be wary of feeding into a perception that they would talk down to residents of a low-income neighborhood of color, said Philadelphia developer Brennan Tomasetti, who co-founded and runs Civetta Property Group with her husband, Mike.

Civetta directs prospective residents in the for-sale homes they build to counseling programs like the one offered by the Neighborhood Assistance Corporation of America, which is sponsored by the U.S. Department of Housing and Urban Development, with financing help such as down payment assistance. 

“It’s about that education, and doing that in a sensitive way, and not trying to tell them what’s best for them, but to show them the [NACA] opportunity in a helpful way so that these families are able to see that this could be a great thing,” Tomasetti said.

Perhaps the most common misconception that affordable housing developers bring to community relations is their idea of what defines affordable housing. Qualifying for many local incentive programs, such as inclusionary zoning, often means setting aside units for residents making 80% of a metropolitan area’s median income or even more, but such calculations are inflated by the inclusion of an area’s wealthy suburbs.

“Sometimes neighborhoods react poorly because something is being pitched as affordable housing, but it’s not affordable to them,” said Rick Sauer, executive director of the Philadelphia Association of Community Development Corporations. 

A developer doesn’t need to have grown up in an area to be a good neighbor to longtime residents, but establishing an approachable presence in the community, rather than showing up just long enough to reveal blueprints and win zoning disputes, is what residents appreciate more than anything, Tyner, Gonzalez and Abdul-Malik said. That said, having one fewer barrier to break down can only be a good thing. 

“I’ve had a ton of responses like, ‘It’s good to see you,’” Abdul-Malik said. “And what that means is, it’s good to see someone that they may be able to relate to. And that’s what the benefit of the doubt is … There’s something to be said about knowing that the owner of a building is someone who looks like them. And someone who can be chill, who asks questions and can be as kind to people as possible.”