By Franco Faraudo
We have all been affected by racism. Right now, we are hearing from those that have been directly affected by it. The Black Lives Matter movement has pushed racism, both implicit and inherent, into our national conversation like never before. But the rest of us have been affected as well. While many of us have not had to endure the harm and humiliation of racism, we have been affected by racism too, we have seen our cities and our societies held back by it.
There has been a palpable societal shift calling for the end of racism, of racist policy, of racist legacy, of racist privilege. So many have now vocally enlisted to fight for racial equality with fervor that comes with the right side of history. The problem is that to achieve the equality we feel we are destined for, it is not fighting that is needed, it is payback.
So many of our institutions have been an accomplice to the tilting of the scales towards the White and privileged, few more than the property industry. I came to realize how deep-rooted racism is in our country’s real estate while researching for a previous article about the historical legacy of racial discrimination in America. From zoning to lending to predatory sales techniques, there are plenty of examples of how one of the pillars of the American dream, property, was pushed out of reach for all but the most fortunate of minorities. As a career path and as an investment class, real estate has been overwhelmingly dominated by White males, likely at the expense of many people of color.
I did my research and tried to make the case in the article as best as I could. But when I published the piece I noticed something disconcerting. I was pleased by the attention it received on social media, but was shocked by the disproportionately low amount of people who actually read it. First, as every writer tends to do, I figured it was my fault. It must have been too long or convoluted or boring. I suspected, though, that there might be another reason. I suspected that ending racism in our industry was a topic that most people agreed with, were willing to cheerlead for, but didn’t want to confront head on.
The plain truth is that the property industry is still an unfair and racist institution. Despite the good intentions of so many of us, there are inherent flaws in our systems and our businesses, that are perpetuating an unfair system that is keeping so many people of color marginalized. These lingering economic problems are one of the main reasons that, despite all of the support for the Black Lives Matter movement has been able to create, we are still dealing with so much racial unrest.
By the way, this is not a theory. There is plenty of hard evidence to back this up. Currently, Black home ownership is the lowest it has ever been. Even before the pandemic, a study came out that showed that “homes in neighborhoods with a high concentration of White borrowers on average have seen their homes appreciate three percent from 2006 through 2017.” While on the other hand, “homes in neighborhoods with a concentration of Black borrowers on average are worth six percent less than they were in 2006.”
Now, as I am sure many of you have guessed, things are even worse. The COVID-19 virus has disproportionately affected Black communities and Black borrowers have had the hardest time making their mortgage payments. As hard as it is to believe, there is less Black property ownership now than before the Fair Housing Act was passed in 1968 when it was completely legal for lenders, brokers, and landlords to give White people preferential treatment. The historical nature of how we value property has systematically undervalued real estate in minority neighborhoods.
The hard truth is that if we want equality then we need to fight for it. Unfortunately, this fight isn’t against racists. That would be too easy. No, the battle against racism is a fight against ourselves. If we want equality in our country we have to make amends with the past and support a more inclusive future. The property industry needs to pay back what it owes to those that have been harmed by it, even if that means investing our money and our time in them, which it inevitably does.
Paying back the debt
If you do almost any research on racial inequality in America you will likely come across a book called The Color of Law: A Forgotten History of How Our Government Segregated America. The author of this book is Richard Rothstein. He spent most of his career as a journalist covering education where he came to the painfully obvious conclusion that the biggest problem facing our education system today is the achievement gap between White Americans and people of color. “I learned that our schools were still segregated because our neighborhoods were segregated,” he told me. “It was then and there that I realized it wasn’t about the education system, it was about housing policy.”
Rothstein himself was in the middle of writing a piece himself called The Black Lives Nextdoor. He asked me to help him research the racism behind the birth of what we know today as suburbs, large development tracks of similar single-family homes. What we found is that many of the country’s first and largest suburban developments had “whites only” policy written into the terms of their original deeds.
While none of these policies exist anymore, their effects still linger. Many of these tracts of homes are still predominantly White owned. By keeping African Americans out of these neighborhoods it prevented many of them from participating in their growth in property value. The question Rothstein poses is: Shouldn’t the entities that helped create this inequitable situation help to erase them? He even goes as far as calling for those that profited from the sale of one of these segregated developments called Hillsdale in San Mateo, California to help diversify it. “Fox & Carskadon [the broker] advertised its Hillside houses for $5,450, about $100,000 in current dollars. But today, those homes sell for about $1.5 million, sometimes more. Shouldn’t Bohannon [the developer], Coldwell Banker, and Wells Fargo [the financers] find the funds to enable African-Americans who qualify for a mortgage on a $100,000 property to purchase Hillsdale houses worth $1.5 million,” he wrote in the piece.
Outright discriminatory practices like what happened with Hillsdale, coupled with decades of implicit racism in property sales and lending, has led to the low amount of Black homeownership that we see today. This has forced many people of color to the rental market, which is also fraught with discrimination based on race. A recent study by Suffox University Law Center called Qualified Renters Need Not Apply: Race and Voucher Discrimination in the Metro Boston Rental Housing Market tried to quantify how race affects the ability of a potential tenant to find a rental property. They sent both Black and White prospects to different properties and recorded the results. What they found was the “results indicate that White market-rate testers—meaning White testers not using vouchers—were able to arrange to view apartments 80 percent of the time. Similarly situated Black market-rate testers seeking to view the same apartments were only able to visit the property 48 percent of the time.”
This disparity is rather irrefutable evidence that racism isn’t just an economic legacy, it still plagues the industry today. Sometimes this racism can hide under the surface of status quo and social construct. In my previous life as a property manager, I heard plenty of clients say things that seem harmless but could easily lead to discrimination. “I just want to rent to a family like ours.” Or, “I would love to find a young, professional couple.” By law, this is not allowed. But in practice, it happens all of the time. It is the responsibility of those of us in the property industry to help reverse the effects of racist policies and to educate people on the consequences of their actions. It is the duty of the real estate industry to act in an equitable way and advise our clients to do so as well. Doing so can make for difficult conversations, but this inconvenience pales in comparison to the damage felt by those who are not able to find a place to live for no reason other than the color of their skin.
Investing in equality
The commercial property industry generally overlooks Black and Brown communities. We applaud developers for their latest high-end complexes, but making a nice neighborhood nicer is just nice. Turning a poor, blighted neighborhood into a vibrant one is much more important and, because of construction lending practices, often much harder. If the property industry wants to make up for the hardship it has caused many minority neighborhoods, it will need to start investing more in them.
One of the strongest voices for the case of investing in Black communities is Ayesha Selden. She has described herself as a “serial hood investor” and has written a book called Mud 2 Millions. She caught my eye with her candid Twitter persona where she tweets about her business and her beliefs. “So much real estate investment advice says to steer clear of ‘bad’ neighborhoods,” she told me after I, as the kids say, slid into her DMs. “When I got into real estate after being a financial advisor I wanted to invest in neighborhoods that looked like places where I grew up. I wanted to buy multiple houses on a block and clean them up because I knew what kind of impact that could have on a neighborhood.”
She has done this without, as she puts it, “killing people on rent.” She sees value in not only the appreciation that she can create with her investment strategy, but by enforcing the possibilities of this type of investment in the community. “I always try to meet with my tenants in person, and I almost cry every time I see how surprised their children are that I am their landlord,” she said. It seems racism isn’t just ingrained in the culture of the perpetrator, it can also become a self-fulfilling sentiment in the hearts of the marginalized as well. By being a vocal advocate of investment in Black communities she hopes to open up the eyes of the investment industry to the value of the properties and expose the residents to the possibilities of investing themselves.
The lack of investment in Black communities goes beyond rehabbing its residences. Many poor urban neighborhoods have a lack of commercial buildings, limiting local employment options and creating food deserts that can lead to very serious public health effects. To understand why commercial developers haven’t typically seen the same kind of opportunity that Selden preaches about in her Twitter rants, I spoke to Professor John Loper. He teaches real estate development at The University of Southern California and explained that “developers like to know as much as possible about the people in the areas where they develop. Because of this they like to look for demographics that are similar to ones that they already service. That means that they go to the same type of areas that they already are in—usually that means focusing on suburban and affluent areas.” Loper admitted that this practice wasn’t completely the fault of developers, they usually have an easier time selling safe bets to their lending partners. His worry is that the recent looting and destruction of retail locations during the protest might exacerbate this problem as developers and lenders associate more risk with these areas.
Professor Loper also explained that some of the things that make it difficult to develop in poor neighborhoods has to do with the way that they were zoned. “Many areas are much harder to develop into things like retail because the lot sizes are so much smaller. Downtown Los Angeles has had a huge resurgence, but the development has not spread to some of the poor neighborhoods to the east because it is much harder to develop space for retail and its associated parking with lots that are only 150 feet wide,” he said.
The impact of zoning on inequality and housing affordability is no secret. A new breed of “urbanists” have argued against the type of restrictive regulations that prohibit higher density and mixed use developments. They call themselves YIMBYs, an acronym for “Yes In My Backyard” and see themselves as the antithesis of NIMBYs (Not In My Backyard) when it comes to approving new inclusive development. YIMBYs are trying to organize in a way that can make them an opposing force to the often vocal opponents to change at the community meetings that city officials use to gauge sentiment for new development. “The problem with a community meeting is that it is easy to dominate,” said Karin Brandt, founder of the community engagement tool coUrbanize. The platform helps developers understand what the community as a whole wants, rather than just what some of the select few vocal voices at a community meeting oppose.
Even with all of the energy around changing the makeup of our neighborhoods, there is still quite a bit of opposition to development, often pitting groups with similar goals against each other. Gentrification can have very different connotations depending on who you ask. Many see new development as a sign of rising rent that leads to an exodus of the area’s most vulnerable residents. Brandt thinks that inclusive development is the answer, but to do so means trying much harder to understand and communicate how to best improve a community. “Developers and community board members don’t have the shared experience of the people in a neighborhood,” she said, “so they need to work hard to try to understand the repercussions of their decisions to everyone in the neighborhood, even those that don’t voice their opinions.”
Industry of inclusion
There is a lot that can be done by simply reviewing the way our organizations promote equality. But no amount of company policy audits or diversity and inclusion training can replace the power of having more people of color participate in commercial real estate. Without at least some representation of the communities in the teams that build, sell, and manage the buildings that a community occupies, there will never be a full understanding of the externalities of the decisions they make. The people tasked with creating the future of our cities need to work hard to erase the racist legacy or else our cities will remain segregated, unequal, and unstable.
“Before I got into real estate, I had not seen many people that looked like me in the industry, so I hadn’t even considered it as a viable option,” said Dustin Sutton. He is a commercial property manager in my hometown of San Diego. “After the Black Lives Matter movement I spent some time with my family and realized that I needed to do more. I wanted to be a part of the solution.” So, he started the Black Commercial Real Estate Network. He thinks that by educating young Black people about commercial real estate and by creating a community of mentors and colleagues to help them along the way, he can play his part in making the industry a viable career option for more Black people.
Creating a more inclusive industry isn’t just about changing the layout of the people working in it, it is also about encouraging investment and ownership in the properties themselves. A financial stake in a neighborhood can create both wealth and a feeling of community ownership. There are a lot of hurdles for Black ownership in commercial real estate. One of the biggest being rules requiring investors in most syndicated deals to be accredited, which is a fancy way of saying that they are worth over a million dollars or make $250,000 per year. But even for those that do qualify, they often find themselves unable to find and participate in deals that sometimes require millions from each investor. A number of platforms have been developed to help break commercial real estate into smaller, more accessible ownership shares. One of those platforms is RedSwan CRE, a deal syndicator that uses blockchain technology to facilitate the ownership of commercial buildings. The founder, Ed Nwokedi, hopes that this will go a long way in helping cultivate Black ownership. “Property is something that many African American investors really understand the value of, they just have not been able to participate. It is all about access and affordability. Equality starts with equal opportunity and that means sharing information and making it easier and more affordable for everyone to have direct access to investments in their community.”
Reparations by any other name
The talk about giving direct payback, or reparations, to African Americans that have been harmed by slavery has been going on for a 150 years. Governmental paybacks for past injury is a contentious topic and, even with new public sentiment towards equality, might never come to fruition. Rather than writing a check to those harmed by slavery, we might see a change in policy that favors African Americans when it comes to property. Vice presidential candidate Kamala Harris has already proposed a plan to promote African American homeownership. On the federal, state, and local level we could see new regulations aimed at leveling the property paying field for African Americans. We might also see much more enforcement of the equal housing laws that are already in place, as Rothstein had called for. But this puts the onerous task on the victims to identify and prove any wrongdoing.
Even if we don’t see formal legislation, property companies might be held accountable by the court of public opinion. Bradley Tusk, founder of Tusk Ventures and long-time political strategist, said, “Almost every consumer good has seen support for initiatives around diversity and inclusion, why wouldn’t we see the same in real estate? Right now, many of the big real estate companies think that if they stay silent, they can avoid controversy, but that is not how it works anymore.” He pointed to backlash against The Related Company, a large owner of real estate and many well known brands like Equinox gym, when its President Steven Ross was singled out for throwing a lavish campaign fundraising event for President Trump.
As property companies look to grow their brand they will need to be more aware of the blowback from any non-inclusionary practices they partake in, knowingly or unknowingly. The market has a way of punishing bad actors, but only if people vote with their bank accounts. For a long time, we have been in a seller’s market when it comes to real estate, so social issues were a non-consideration for most people when buying or leasing a property. As the property market softens consumers have more choices. This would create an advantage for companies that have taken on diversity and inclusion as both corporate and mainstream America has shown that they are willing to spend on companies that strive for social good.
The original article can be found here.