What will fair real estate finance look like? – News from non-profit organizations

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The art of repeating how to be human. ”Lola Odu

“Real estate is America’s defining problem,” says Avery Abron, who leads operations at Guild in Atlanta. Ebron made these remarks in a press briefing last month upon release Inclusive Capital Team (ICC) the first “black paper” called Social Welfare Creation: Changing Power and Capital in Real Estate Financing… Ebron co-authored this article with Guild Director General Nikishka Iyengar and Chicago Trend CEO Linair Richardson. The report provides an important framework not only for identifying how structural racism disadvantages and for real estate development by BIPOC communities, but also for identifying specific changes that can significantly reduce these obstacles.

ICC defines himself as “a growing network of public fund managers and entrepreneur support organizations who design and develop a common technical and financial infrastructure to pool and leverage financial capital and other resources for entrepreneurs and communities of color in the United States.” Founded in the fall of 2019 at a meeting in Denver, the group is incubated Cooperative Zebras Uniteestablished in 2015 and aims to expand access to capital for socially oriented businesses, especially those owned by women and people of color.

Often, when discussing real estate, the focus is on residential property and the difference between black and white home ownership rates. However, the emphasis here is not so much on residential real estate as on its own development. As Amanda Abrams wrote in The newspaper “New York Times earlier this year, “Commercial real estate remains an area where the vast majority of developers are white.” Abrams noted that a 2013 industry study found that only 4.4% of commercial real estate professionals were black. More recent survey 2020 City Land Institute found that only five percent of its members were black and 82 percent were white.

In their article, the authors note that “current practices and institutions for community development tend to focus on outcomes (especially affordable housing) rather than outcomes that cause structural change.” In their report, Iyengar and her co-authors argue that the commercial real estate industry, in which blacks and other colored real estate entrepreneurs have played a large role, will not only be more diverse and inclusive, but place the goal of creating social welfare at the center. According to the authors, the community-driven real estate market is:

  • Bet on an affordable local business workspace owned by BIPOC
  • Be more democratic and involve community organizers, small business owners and residents in the development process.
  • Focus on providing space for basic public goods such as groceries and meeting places.
  • Leverage development to support affordable rent and home ownership that stabilizes existing BIPOC neighborhoods
  • Create opportunities for blacks, indigenous people and other people of color to own a share of commercial property.
  • Better link residents and businesses with government resources such as technical assistance, financial literacy programs, and business grants

Real estate redesign in exchange for equity

An important contribution to the report is that it provides a thoughtful list of both obstacles to fair property development and potential solutions. As Joe Neri, CEO of IFF, a leading Chicago-based company, said community development financial institution (CDFI), explainedOne of the many ways structural racism affects real estate is that valuations in BIPOC quarters are lower than in white quarters, which makes it difficult to finance projects (since loans are maximum as a percentage of the assessed value), which requires the developer to raise additional funds. …

As Neri put it: “old government-sanctioned banking regulations reduced the value of property / land for decades, and now Current banking regulations do not allow investment in areas where the appraisal value is low. ” Building on Neri, the ICC report calls for “income-based lending” (ie, lending based on the percentage of income that is expected to be generated by the project), which is predictive rather than estimated, which is based on past discrimination. …

The authors describe specific loan products that can reduce the cost of financing for BIPOC developers. This includes patient equity, which the authors of the report define as having long-term horizons (for example, 10 years), low interest rates (between zero and five percent), and provisions that protect development projects from upfront costs (for example, having only interest rates). payments for the first 12-24 months of the loan). The authors indicate that the foundations will be the likely providers of such funding, and this funding could be five percent of the project cost. Another 20 percent of the funding structure could be “friendly debt” such as low-interest loans from CDFIs. The remaining 75 percent can be standard bank loans. In other words, while the need for charitable support is clear, the report also shows how limited charitable dollars can contribute to more standard commercial funding.

The authors also describe additional steps to overcome obstacles, such as easier access to credit lines, reduced zoning restrictions, loan guarantees (possibly provided by CDFI or foundations) to reduce interest costs, and public partnerships. land banks help BIPOC developers get land at a low cost.

In concluding the report, the authors note that “there are many black developers creating fair and contextualized real estate solutions for their communities – transforming the way real estate is developed and transforming it into a wealth creation vector for all Americans.” In the appendices to the report, the authors document this based on case studies of real estate businesses led by BIPOC in four cities – Philadelphia, Chicago, Atlanta and Fort Myers in Florida.

During the presentation of the report, Kevin Williams, Member Black Squirrel Collective in Philadelphia they talked about the urgency of the work. “You see there is a lot of research going on about the plight of minorities in America,” Williams said. “But you don’t see any further action. Someone writes a newspaper and says that black people are poor. Yes, we know that. But has anyone followed up to see what has been done to address this issue? … We must keep talking loudly … and we must continue to insist that justice must take place. “

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