‘Enhance And Enrich’: The Push To Grow Black Wealth Taking Hold In CRE

February 16, 2024 Steinbridge

‘Enhance And Enrich’: The Push To Grow Black Wealth Taking Hold In CRE

BISNOWBlack leaders in commercial real estate are driving a new and growing wave of investment in the country’s communities of color, leveraging assets owned by Black institutions like historically Black colleges and universities.

Similar efforts have gained traction over the years in residential real estate but have been slower to catch on in CRE. But with millions of dollars committed to growing wealth and reducing inequality in majority-Black areas by investing in commercial property, that is changing.

“We’ve seen, by way of gentrification, or by way of slumlords or just by way of mismanagement, a lot of degradation over the years,” Haltere Group Vice President Mikael Pyles said. “It’s integral that companies like ours, Black-owned companies, come in and enhance and enrich these communities.”

The Haltere Group, based in Los Angeles, brings together private investors, including relatively small ones, to establish single-asset LLCs that typically invest in Class-B and C multifamily with at least 50 units. The company targets assets that are a 6% or 7% cap rate or better. Its largest property so far is the acquisition of Arbors on the Lake, a 132-unit multifamily property in New Orleans.

Much of the focus on building wealth in Black communities in recent decades has been through residential ownership, since Black homeowners trail well behind other demographics in that regard. As of the end of 2023, 73.8% of white-only U.S. households owned their homes, while 45.5% of Black-only households owned theirs, according to Census Bureau data.

This discrepancy is due in large part to decades of racist policies in governments and organizations that kept Black people from purchasing homes. This diminished the ability of many Black people to accrue wealth through homeownership, the most common way most Americans grow their bank accounts.

A pair of Brookings studies, one in 2018 and another in 2021, found that homes in neighborhoods where 50% of the population is Black are valued at roughly half as homes in neighborhoods with no Black residents.

On the commercial front, a 2022 Brookings study found that 3% of Black households own nonresidential real estate, while 8% of white households do. The average white household that owns CRE has $34K in holdings, compared to $3.6K for the average Black household.

Black communities have an opportunity to capitalize on the assets they possess, according to Tawan Davis, CEO of Steinbridge, which in November announced the launch of its $100M investment fund aimed at land owned by HBCUs and minority-serving institutions.

Earlier this month, the company made its first investment using the fund, placing $40M into a partnership with Virginia Union University, an HBCU with 100 acres in northern Richmond, Virginia. The investment will go toward the university’s efforts to bring economic activity to its land through commercial and residential development, according to a release from Steinbridge.

“The ability to activate the institutional holdings is really a unique opportunity in African American history,” Davis said. “Institutions can activate their real estate for economic and social growth.”

Institutions in growth markets, such as in the Sunbelt, are in a good position to capitalize on their real estate holdings as local populations grow and demand for residential and commercial real estate expands, according to Davis.

Initially, Steinbridge will develop 130 to 200 market-rate and affordable residential units on university-owned parcels. Davis said the developments will help address the funding gap HBCUs and MSIs can face. The developments will bring not only new revenue for the institutions but also community growth as a return for Steinbridge and its investors.

Nonprofits are also spurring efforts to build Black wealth through CRE. Brookings Metro kicked off an initiative called Buy Back the Block Lab, with the goal of fostering the efforts of developers and others in Baltimore, Cleveland and Detroit to purchase commercial real estate in corridors within majority-Black neighborhoods.

Nonprofits are also spurring efforts to build Black wealth through CRE. Brookings Metro kicked off an initiative called Buy Back the Block Lab, with the goal of fostering the efforts of developers and others in Baltimore, Cleveland and Detroit to purchase commercial real estate in corridors within majority-Black neighborhoods.

So far, entities advised by Buy Back the Block Lab have acquired five retail properties using funds from about 300 investors, over half of whom are people of color and more than 42% women, according to Lyneir Richardson, an assistant professor of professional practice in the Department of Management and Global Business at Rutgers Business School.

“So we know that we have achieved that goal of inclusive ownership,” Richardson said, adding that the properties are being renovated for a seven- to 10-year holding period with an estimated 12% return to investors. Richardson is also co-founder of Chicago TREND, a social enterprise funded by impact investors to stimulate urban retail development.

Improving retail properties in Black neighborhoods is about more than providing returns to individual investors, as important as that is, said Tracy Hadden Loh, a fellow with the Anne T. and Robert M. Bass Center for Transformative Placemaking at Brookings Metro.

“The wealth-building opportunity here is not just the 12% return to his investors,” Haddon Loh said. “It’s that well-managed commercial real estate is the anchor of a community, and the wealth-building opportunity is also for adjacent residential property owners because there’s robust evidence of a relationship between vibrant commercial, vibrant retail and home values.”

Read the full article at Richmond Bisnow.