Why Redlining Made Black Property Owners More Vulnerable To The Pandemic’s Economic Fallout

Nationwide, the impact of the coronavirus has disproportionately fallen on the shoulders of Black people. It has affected their wages, imperiled the survival of their businesses and infected their communities more dramatically than those of any other race or ethnicity.

Black property owners have been hit hard, too, as many of their incomes and rent rolls are dependent on those same communities. 

The racial wealth gap, a result of centuries of racist government policies, has led Black people who want to break into development to start with affordable housing since government subsidies allow them to purchase and build affordable real estate with little to no equity, these developers say. That path is now in jeopardy, as lower-income renters have struggled to make payments.

Beyond collecting less rent, the costs prompted by construction delays and the need for new equipment to prevent the spread of the virus falls on the backs of developers. For Black developers, this weight is even heavier.

“I think there are going to be many Black developers that don’t survive,” said Thomas Campbell, the founder and principal of developer Thorobird Cos. “That means that the effort towards building capacity of Black minority developers just got a heck of a lot harder. It’s almost like starting back before square one.”

Affordable housing owners have been hit harder than their market-rate counterparts: Nearly 25% of rent-stabilized units in New York didn’t pay rent in June, according to the landlord group Community Housing and Improvement Project. Nationwide, 92.2% of market-rate apartment units paid rent this month, according to the National Multifamily Housing Council, which surveyed owners of more than 11 million units.

Though redlining, the practice by which the government allowed banks to discriminate against people living in Black neighborhoods when approving loans, was outlawed in 1968, developers of color still face barriers in accessing loans to help fund their projects that go beyond their relative lack of wealth, they told Bisnow in multiple interviews this month.

Black property owners and developers make up a relatively small portion of the commercial real estate world. While over 13% of Americans identify as Black, 1.3% of senior executives in commercial real estate firms nationally are Black men and less than 1% are Black women, a 2016 study by Florida A&M University found. 

“Black people have experienced disenfranchisement, through in particular property ownership, and that’s affected the wealth in the black community,” said Campbell, who is Black. “So the wealth in the Black community is an extremely small fraction of the level of wealth in our country. Because of that, that affects real estate professionals, because real estate is an extremely capital-intense profession where wealth matters.” 

Overcoming History 

Shaun Covington bought his first building on 123rd Street in 1996 through the city’s Neighborhood Entrepreneurs Program, which aimed to improve the quality and scale of affordable housing by backing loans for people to buy and develop affordable housing in their communities. 

“With market-rate housing, you had to come with money in hand,” Covington said. “With affordable housing, city agencies were backing you through your initial loans … That was our avenue to ownership.” 

Covington, a Black property owner and developer who hails from Queens but now lives in Harlem, has since developed 400 units and currently manages around 500 apartments in Harlem and the Tremont neighborhood in the Bronx.

The founder and president of Covington Realty Services, Covington is not the only Black property owner to build his business on affordable housing stock: Many got their start by acquiring or building affordable housing, he said.

Much of the draw to affordable housing has to do with the country’s racial wealth and equity gap. While the net worth of a white family is roughly $171K, the average net worth of a Black family is $17,150, a February 2020 Brookings report found.

The modern wealth gap is largely attributed to racist housing and economic policies in the 1930s, 1940s and 1950s, said Council of Urban Real Estate Treasurer Sonya Rocvil, a real estate entrepreneur who specializes in multifamily. 

Efforts by Black people to build wealth historically have been met with violence and negligence since slaves' emancipation. Congress mismanaged the Freedman’s Savings Bank set up to provide former slaves with access to capital, resulting in $3M in losses in 1874, Brookings wrote. While there were discussions of land and financial reparations during Reconstruction, they never came to pass, and many freed slaves wound up working for their former owners or moving north with nothing.

In the 20th century, wealth inequality is largely linked to laws around housing and real estate borrowing during the interwar and postwar years, redlining chief among them.

The practice, created in the 1930s, rated neighborhoods from “best” to “most hazardous” in segregated America. The “hazardous” label largely fell on Black communities. The policy made it essentially impossible for people overall to obtain loans in those neighborhoods, but the burden fell disproportionately on Black people, who were effectively barred from owning property in their own neighborhoods, according to a Redfin analysis of the impact of the practice.  

While the Fair Housing Act of 1968 prohibited redlining, the policies’ impact is still felt in the present day. Nationally, homeowners in areas that were redlined have accrued 52% less personal wealth than those in areas that were greenlined, according to a Redfin homeownership analysis of 41 metropolitan areas, including New York City. 

“The expanding homeownership gap between Black and white families can in part be traced back to diminished home equity due to redlining, as it’s one major reason why Black families today have less money than white families to purchase homes, either as first-time or move-up homebuyers,” Redfin Chief Economist Daryl Fairweather wrote. 

In New York, the analysis showed that home equity within areas that were previously deemed “hazardous” by the redlining system is 33% lower than areas that were deemed the “best” neighborhoods in the system.

Black families are still twice as likely to be denied a mortgage than white people are, a 2018 Zillow report showed. It is also harder to secure financing for a new property in urban areas than it is in suburban areas. 

There is currently no data on how redlining and the wealth gap have directly affected multifamily property owners and developers or commercial real estate owners in general, nor is there available data on what percentage of commercial properties are owned by Black people.

“As a society, we really have to absorb and understand and accept our own history: Black property ownership was curtailed by redlining,” Rocvil said. “That’s always going to impact your overall net assets for your wealth and your potential wealth.” 

‘I Don’t Know What We’re Going To Do’

As the coronavirus devastated New York’s health and economy this spring, the city’s over 2 million Black residents disproportionately bore its brunt. In New York City, Black people were more likely to get the virus and were more likely to die from the virus by double the rate of whites. Nationally, one in 1,500 Black Americans have died, compared to 1 in 3,600 white Americans. 

Experts attribute the high contraction and death rates to systemic racial inequalities that continue to plague the city and country. 

Black New Yorkers were also disproportionately impacted economically, an analysis from the Center for an Urban Future found in May. The neighborhoods that were hit hardest in the shutdown were lower-income Black and brown neighborhoods in upper Manhattan and the outer boroughs, where service workers predominantly live.

Meanwhile, hundreds of thousands of people in Manhattan’s wealthy, majority white neighborhoods left the city between March and May, decamping to suburban homes with yards and space, a striking echo of the “white flight” out of U.S. cities after World War II.

“Layoffs related to COVID-19 for Black and Latino workers are also more likely to lead to housing instability, as they already reported higher rates of financial insecurity and lower savings to draw from to weather economic shocks before the crisis began,” a June 2 report from the Urban Institute said. 

Because of where Covington owns property, many of his residents are people of color who work in the service industry and were laid off when the city shut down in March, he said. Covington’s rent collection losses through this time have been between 20% and 30% lower than they usually are, he said.

Covington prides himself on providing his tenants with top-of-the-line housing conditions at an affordable rate. That has become a taller task these days.

“My income is going down considerably,” he said. “Fortunately, we built up a reserve that we can tap into.” 

He is able to handle the losses he is seeing now and maintain his buildings, he said, but he implored the government to step in and provide relief. If the situation gets any worse, he and other affordable housing owners will be in trouble, he said. 

“If this is a time when we continue to spiral, I don’t know what we’re going to do,” he said.

‘Ownership Is Key’

In a city where 57.3% of residents are nonwhite and 24.3% are Black, all of the New York City’s largest apartment developers and property owners are companies run by white men. Meanwhile, Black people are twice as likely to rent than white people are.

“I definitely think that COVID has shone a light on the lack of Black property ownership in the Black community,” Harlem-based Lemor Realty Corp. President Kenneth Morrison said.

Growing and maintaining Black property ownership is important to the Black community, developers told Bisnow, especially as neighborhoods like Harlem, Bedford-Stuyvesant and the South Bronx become increasingly gentrified.

“People want to feel ownership of their community and they want the ability to build and accumulate wealth, that’s why Black property ownership is so important to Black communities,” Rocvil said.

Morrison, whose company owns and manages more than 1,000 apartments in Harlem and the Bronx, said the pandemic has shown how important it is to have a landlord who knows the community. 

Morrison said he understands what his residents are going through because he knows them, and he has helped them navigate through the pandemic, creating ways for them to pay their rent and showing empathy. 

“I live in the community my buildings are in, so when I walk the streets, I am walking by my property,” he said. “There’s a difference when you don’t have that. It shows.”

Doing so has shown Morrison just how important Black property ownership in Black communities is and how there is not enough of it, he said. 

“Of all of the capital that is managed in the world, 1% is managed by people of color,” Project Destined founder Cedric Bobo said on Bisnow’s “Make Yourself At Home” podcast this month. “Ownership is key.”

Covington’s deep knowledge of and participation in Harlem is what first got him into real estate, he said. He has been working with his tenants to help them navigate the uncertain financial times they are living through now, he said. It is important to him that he shows his tenants they matter.

“Society says if you’re a minority, you have to live in a certain class of housing, I want my tenants to have first-class housing and I want them to know that they deserve that housing,” he said. “We’re going to need some assistance, in order for us to survive, knowing that we provide housing the most vulnerable, we are going to need assistance.”

Campbell is among the developers pushing for a public fund at some level that helps propel Black developers out of their financial woes as a result of the virus in the way that white institutional wealth will help white developers. 

“There needs to be a dedicated operating fund to support these Black developers if we’re serious about building their capacity, well over $100M,” Campbell said. 

All of this comes as the nation is in a state of social unrest after George Floyd, a Black man living in Minneapolis, died in police custody. The nearly nine-minute video of his death traumatized and motivated people of all races to demonstrate, placing the country in a period of reckoning as racism in nearly every sector of American life is exposed. 

Despite the inequality in the commercial real estate industry that persists, the past month has presented the real estate industry with an opportunity to change.

“I think folks are now recognizing what Black Americans have been going through. It’s not just prejudices at work, it is a system, and it is all coming to light,”  Morrison said. “We’re seeing the economic conversations happen that should be happening.”