How Developers of Color are Overcoming Hurdles Trying to Access Capital
This article originally appeared in Boston Business Journal, and has been modified for use here.
April 20, 2023 | by Greg Ryan
Marie Morisset has been in the real estate business for more than a decade. She and her husband started by flipping homes on the South Shore and buying property in Boston.
More recently, she has consulted on bigger projects like the Olmsted Green multifamily development in Mattapan.
“I’ve done a lot of redevelopment. I would like to do more ground-up,” Morisset said. “My ideal project range is 30 units and up.”
GARY HIGGINS / BOSTON BUSINESS JOURNAL
A project of that size requires a level of upfront capital that’s a high bar for Morisset. She’s not alone: In Greater Boston, real estate professionals of color cite a lack of access to capital, particularly early in the development process, and navigating municipal permitting and zoning among their chief career obstacles. That’s according to a recent MassHousing survey focused on affordable housing, though developers say it is true more broadly as well.
Such obstacles have helped to keep the real estate development industry overwhelmingly white. Only about 1,000 of the estimated 112,000 real estate developers in the U.S. are people of color, according to a study published last month by Boston- based nonprofit Initiative for a Competitive Inner City and another organization.
For those few developers of color, it’s not that any level of success is out of reach: The ICIC study found that small Black and Hispanic developers generate more revenue, on average, than similarly sized white peers. It’s scaling up, or striking out on their own, that can prove problematic.
“When you do transact, the balance sheet requirements are tremendous. It’s very difficult to be in the driver’s seat, and those who are able to succeed in this area tend to have either a large net worth individual backing them or family wealth,” developer Zeina Talje said.
Like Morriset, Talje wants to begin working on larger projects. Her firm now has a portfolio of dozens of apartments and condos in Boston and southern New Hampshire, including two ground-up, market-rate condo buildings with “net zero” carbon emissions in Mission Hill.
“The hardest thing is the first deal. The banks are scared of not knowing you,” she said.
Efforts to help developers of color
Talje, who started her career in design, had the benefit of working for well-known names like Elkus Manfredi Architects and Skanska before starting her own firm six years ago. “Even with that, it was so difficult,” she said.
State agencies like the Massachusetts Port Authority and the city of Boston have made a development team’s diversity a key criteria in selecting project teams to build on public land. Still, many developers of color may find it difficult to compete because of a lack of experience on projects that sizable and a lack of relationships with larger developers who lead such efforts.
There are efforts underway in the region to deepen the pool of developers who handle larger real estate projects.
MassHousing and MassDevelopment expect to launch a $50 million fund in the fall that is designed to help developers of color with pre-development costs like site planning and traffic studies and to provide grants and low- or no-interest loans. The funding was authorized last year by the Legislature as part of its allocation of federal American Rescue Plan Act dollars.
Ahead of the fund’s launch, MassHousing officials have spent months compiling a list of more than 300 real estate professionals of color in Massachusetts, including developers, consultants, property managers and more. The agency looked for those with at least three to five years of experience who had completed or would soon complete up to 20 housing units. By 2026, MassHousing wants at least 10% of its multifamily projects and 5% of its portfolio balances to go to minority-owned or minority-led firms.
“There’s a saying: The best time to plant a tree is 20 years ago, and the second-best time is today,” MassHousing executive director Chrystal Kornegay said of the agency’s efforts. “So we’re planting trees today.”
Finding partners
Many of the professionals participated in five listening sessions in different parts of the state, to talk about the hurdles they face. In addition to the funding and permitting challenges, participants have had trouble finding a joint-venture partner who offers equitable terms.
Some of the developers, particularly in metro Boston, said they were relied upon for community engagement at the beginning of the partnership, and leasing at the end, but not for everything in the middle, said Tony Richards, MassHousing’s vice president of equitable business development.
“They weren’t trying to negotiate a (financial) equity play. They were trying to negotiate more of an access play,” Richards said. “They just wanted to be along for a ride that was meaningful and engaging, and they walk away with a significant amount of learning and understanding that comes with that.”
For the Boston-based nonprofit Builders of Color Coalition, part of the mission is to help developers build networks that will strengthen their skills and further their careers. Morisset has been involved with the coalition since its inception six years ago.
“I can honestly say that if it wasn’t for the Builders of Color Coalition, the network and industry contacts I have today, that wouldn’t have been feasible,” she said.
The coalition recently ran two six-month fellowship programs — one for affordable housing that wrapped up last month for 15 minority-owned firms, another with 11 firms for market-rate housing last year — with funding from the Boston Foundation, MassHousing and the Boston Planning and Development Agency.
As for access to capital, Colleen Fonseca, executive director of the coalition, is glad to see the MassHousing fund roll out. The organization will soon host a “Meet the Banks” session to connect developers with financial institutions interested in diversifying their client portfolios.
“We do hope more institutions will rise to the occasion,” Fonseca said of assisting developers with financing.
