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Addressing The Great Divide: Black Developers, Access to Capital

Lack of capital can hamstring even the most ambitious developer. Less liquidity means less likelihood that a project can get off the ground. A recent article published by Urbanland indicated that this is even more problematic for Black developers who are “often competing against generational wealth, expansive real estate development experience, and perception bias.” As a result, this makes “already-hard-to-secure capital even tougher,” the article said.

The article tapped into insights from Black developers. Malcolm Johnson with Langdon Park Capital, who had previously worked at a large financial institution, noted that these developers are viewed with less respect because they might not have 15 years of experience. “Trying to get capital to understand that our relatively short time in the space doesn’t mean that we don’t have advanced technical skills, it just means that we’ve been sitting at different seats,” he told Urbanland.

Thomas Webster with Black Squirrel Collective agreed, noting that even when diverse developers receive capital, they tend to pay a higher premium due to that lack. The challenge, however, is that such developers are attempting to invest in lower-income communities. And these communities tend to be more distressed. Because of this,  Urban Key Capital Partners’ Tyrone Rachal suggested that equity capital should be patient in such situations.

Grayson Capital’s Michael Collins explained that because financial institutions might not understand how certain submarkets operate, they’re unsure how to underwrite those deals. “If you talk to private equity in certain markets in higher-end districts, they just don’t know the economics, and what you don’t know, you fear,” Collins told Urbanland. “Thus, don’t go into it looking for equity unless you have a deal.”

The developers also said other challenges include unfairly assessed risks and stigma against low-income housing.

The article explained that funding programs are changing the situation to an extent. For example, Wells Fargo awarded $30 million in 2021 to the Growing Diverse Housing Developers program to work with 27 diverse developers established in the building space. Community Development Financial Institutions are starting to respond to the needs of Black and other diverse developers. Meanwhile, Bank of America and Enterprise Community Partners invested $30 million in loans and $30 million in equity financing to support the latter’s Equitable Path Forward, which helps facilitate racial equity in housing and increase Black developers’ access to capital.

The article offered suggestions to Black developers, including ensuring sources of income until they spearhead projects with significant cash flow, advice provided by Derrick Tillman with Bridging the Gap Development. Building both credibility and capital is key.

Also important is relationship building. “Also reach out to other developers of the same scale and get their advice, ask how they raised equity on their first deal,” Deborah La Franchi with SDS Capital Group told Urbanland.


Inside The Story

UrbanlandBlack Squirrel's Thomas WebsterSDS Capital's Deborah La FranchiLangdon Park Capital's Malcolm JohnsonGrayson Capital's Michael CollinsBridging the Gap's Derrick Tillman

About Amy Wolff Sorter

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