Source: The New York Times —
Out of roughly 112,000 real estate development companies in the United States, about 111,000 of them are white owned. Those numbers are bad, but at the top of the market, they’re even worse: Of 383 top-tier developers that generate more than $50 million in revenue annually, one is Latino; none is Black, according to a new report.
Economists, social-impact strategists, and social entrepreneurs spent the last year studying the for-profit real estate development industry, trying to understand the stark representation crisis. Their report focuses on Black and Latino developers, because the theme of these groups’ lack of access to capital emerged in preceding qualitative research. They hope to look closer at other underrepresented developer groups, like women and Asian Americans, in the future, one of the report’s authors said.
The dearth of diversity at the top matters because that’s where developers can have the most impact on communities and drive the most economic growth. The lack of representation begins with lack of capital, as Black and Latino people hoping to break into real estate development often can’t even access the seed money to get started.
“A lot of times, developers, myself included, start out raising money from friends and family,” said Cecily King, 35, a structural engineer turned developer based in New Jersey and Detroit, who founded Kipling Development, which focuses on multifamily residential properties across income levels. “In order to raise money from friends and family, you have to have friends and family that have money and knowledge of investing and a desire to invest in real estate.”
A racial wealth gap means that many aspiring Black and Latino developers don’t have such investment-savvy friends and family with discretionary dollars: The median net worth for white families is $188,200, compared to $24,100 for Black families, and $36,200 for Latino families. Nearly three-quarters of white families own a home, but fewer than half of Black and Latino families do.
“Most people in our community don’t have an uncle or a friend that could bring that to the table up front,” said A. Donahue Baker, 50, a developer based in central New Jersey. “So that automatically reduces the number of minority applicants available.”
Victor MacFarlane’s eponymous company is currently codeveloping the proposed $1.6 billion Angels Landing, a high-rise, residential, commercial, hotel and retail development in downtown Los Angeles. Mr. MacFarlane, 71, began his real estate career more than 40 years ago at Aetna Life & Casualty Company. Holding a law degree and master’s degree in business, he initially funded his first development project in the 1980s, a 208-unit market-rate apartment community in Denver, with all of his savings from a commission-based job with a real estate syndicator, creative bond financing for the equity, and a construction loan from a Savings and Loan. He went on to found MacFarlane Partners in 1987.
He’s now one of the most successful developers in the country, known by name from city to city. With his decades of experience in the industry, Mr. MacFarlane is troubled that lack of capital remains a barrier for would-be developers. “I happen to know for a fact that there are a lot that are trying but aren’t being successful,” he said. “A lot of that is around capital and inaccessibility of capital.”
Don Peebles, 63, another top developer with decades of experience, whose Peebles Corporation is codeveloping Angels Landing with MacFarlane Partners, points to stark numbers. “There is $82 trillion currently invested in venture capital and private equity,” he said. “Of that $82 trillion, less than 1.3 percent of that money is invested in firms run, owned or founded by women and people of color combined. So that means 98.7 percent of all venture capital and private equity goes to white men.”
When Mr. Peebles set out to start a fund for women and minority developers in 2020 and 2021, he had trouble finding investors. “They kept coming up with excuse after excuse because no one really wants to make a change,” he said. “We’d get some good lip service, but then they would say it’s too risky to back minority developers.” Ultimately, Mr. Peebles gave up on the fund.
Twice as Good
The small group of Black and Latino developers who manage to pierce the ceiling at the top of the market often outperform their white counterparts in terms of typical transaction size, the study found. And on the lower end — developers that make up to $350,000 annually in revenue — Black and Latino developers also surpass their white peers in terms of average revenue.
These achievements counter a narrative that the lack of representation in the industry can be attributed to an inability to develop projects successfully, said Laura Maher, head of external engagement at the Siegel Family Endowment, which funded the report that was written by the Initiative for a Competitive Inner City (ICIC), an organization focused on using research to propel “inclusive economic prosperity,” and Grove Impact, a social-impact consulting group.
The report’s researchers “anticipated that argument, they looked into it, and they debunked it,” Ms. Maher said.
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