Breaking the Glass Bottleneck
The Economic Potential Of Black And Hispanic Real Estate Developers And The Constraints They Face
Peter Eberhardt and Howard Wial, Initiative for a Competitive Inner City
J.B. Schramm and Derwin Sisnett, Grove Impact
Laura Maher, Siegel Family Endowment
Standing at the intersection of real estate ownership and business ownership, the real estate development industry has the potential to be a powerful engine for Black and Hispanic Americans to build wealth.
This commissioned report, created by the Initiative for a Competitive Inner City (ICIC) with Grove Impact as part of its Obsidian Ecosystem Initiative (OEI), presents the findings of first-of-its kind research on Black and Hispanic real estate developers.
The report sheds light on the current state of Black and Hispanic real estate developers by identifying a representation crisis among real estate developers, a revenue gap for mid-sized Black developers, and revenue cliffs facing large Black and Hispanic developers. This report estimates the potential impact of removing the constraints on Black and Hispanic developers and recommends steps that real estate developers and their organizations, investors, public policymakers, and foundations could take to increase diversity in the real estate development industry.
According to our data, Black and Hispanic real estate developers together make up less than 1 percent of their industry. This is a representation crisis and a critical constraint on Black and Hispanic developers’ total impact and wealth creation. Black and Hispanic developers also face additional constraints, including a revenue gap for mid-sized Black developers and revenue cliffs for large Black and Hispanic developers. Removing the constraints on Black and Hispanic developers would be an important step toward addressing the injustices that have made it harder for many Black and Hispanic people to own businesses and real estate. And it’s an enormous opportunity to address the nation’s profound racial wealth gaps; making the industry more diverse could create more than 50,000 new Black and Hispanic developers, almost two million new jobs, and more than $100 billion in new business revenue.
These new developers could build the millions of houses and apartments that we need to address the nation’s housing shortage. These new homes could help ease the burden of rapidly rising home prices and rents. New Black and Hispanic real estate developers could potentially help under-resourced communities become more resilient to the pressures of gentrification. It’s long past time to make real estate development more diverse; we can’t afford not to.
This first-of-its-kind report documents the constraints that Black and Hispanic developers face, shows the enormous economic potential in removing these constraints, and suggests solutions. The report finds that:
There Is a Representation Crisis in the Real Estate Development Industry.
- According to our data, Black developers represent 0.40 percent of the industry, while Hispanic developers represent 0.16 percent of the industry.
Despite Their Underrepresentation, Many Black and Hispanic Developers Are Successful.
- We estimate that, small Black and Hispanic developers (those generating $350,000 or less in annual revenue) generate more revenue, on average, than similarly sized white developers.
- Based on the best available data, Black and Hispanic developers are involved in larger deals than white developers, at the top of the market.
There Is a Revenue Gap for Medium-Sized Black Developers.
- We estimate that medium-sized Black developers (those with more than $350,000 but less than $17 million in annual revenue) generate less revenue on average than both their Hispanic and white peers.
Black and Hispanic Developers Face Revenue Cliffs At $17 Million and $50 Million Annual Revenue.
- Our data included only six Black developers with annual revenue between $17 million and $49.9 million and only one Hispanic developer in this range. In contrast, we estimate that there are 382 white developers in this revenue range.
- At or above $50 million in annual revenue, our data included no Black developers and only one Hispanic developer but we estimate that there are another 382 white developers with $50 million or more in annual revenue. (The fact that there are 382 white developers in both categories is a coincidence.)
Removing the Constraints on Black and Hispanic Developers Would Generate Large Economic Benefits.
If we removed the constraints on Black and Hispanic developers—by fixing the representation crisis, closing the revenue gap, and leveling the revenue cliffs—there would be:
- More than 23,000 new Black developers and more than 31,000 new Hispanic developers.
- More than $106 billion in new revenue each year in the real estate development industry.
- 1.7 Million New Jobs at Black and Hispanic real estate development companies.
The report’s Conclusion and Recommendations suggest ways for research, public policy, philanthropic initiatives, investors, and existing developers to help remove the constraints on Black and Hispanic developers:
- Research. Future research could engage individual real estate developers to better understand their experiences and challenges in starting and growing their businesses. Do these developers have more difficulty accessing capital after a certain stage? Is it more difficult for medium and large Black and Hispanic developers to access the markets and projects that are common for medium and large developers? How do the barriers vary across groups and stages of growth?
- Public Policy. Congress or regulatory agencies could update the Community Reinvestment Act (CRA) and mandate that banks report aggregate information about business lending and applications for loans, including the applicants’ and borrowers’ race and ethnicity. This would help policymakers, journalists, and researchers better understand how banks lend to Black and Hispanic business owners.
- New Public, Private, and Philanthropic Initiatives. Initiatives to increase diversity and inclusion in the real estate development industry should not only aim to support new developers and encourage more developers to enter the industry, as some philanthropic initiatives have done in the past; they should also help existing medium-sized and large developers grow. New programs aimed at existing developers could play important roles in both growing the industry and helping to increase the numbers of Black and Hispanic developers at the top of the industry, where they are especially scarce. These initiatives could be aligned with philanthropic interests and investors looking to create societal benefits while also generating a financial return.
- Expand Networks. Current developers, real estate investors, and other capital providers should expand their networks to include more developers from groups that have been historically excluded from the real estate development industry. We have started a publicly available map and directory of Black and Hispanic developers to assist those who want to connect and do business with these developers. Although we aimed to be comprehensive, our list of Black- and Hispanic-owned real estate development companies is not exhaustive. As we explain in our methodology section, our list is based on a sample of companies and we intentionally limited it to those companies for which we could find public statements about the owners’ identity. We invite Black and Hispanic development companies across the country to contribute to this growing database.
- New Efforts by Existing Developers. Current developers (including Black and Hispanic developers) can help build a pipeline that leads to more Black- and Hispanic-owned development firms. Current developers should examine their employee recruitment, hiring, retention, and promotion practices to ensure that they are reaching and including Black and Hispanic candidates. By increasing the numbers of Black and Hispanic real estate professionals, current developers can help build the skillsets of future Black and Hispanic developers.
The report also includes:
- A section “Why a Report on Developers?” that explains our motivations for conducting this research.
- A Methodology section that explains how we created this report.