There Is a Representation Crisis in the Real Estate Development Industry
The real estate development industry’s low diversity is striking. While those who know the industry may not be surprised, the problem is more severe than in most other industries, including the broader real estate sector.
Underrepresented as Business Owners
First, Black and Hispanic people are underrepresented as business owners. Census Bureau data show that Black Americans are 14 percent of the U.S. population but own just 2 percent of employer businesses with identifiable owners and 1 percent of “real estate and rental and leasing” businesses. Hispanic people make up 19 percent of the U.S. population but Hispanics own just 6 percent of employer businesses with identifiable owners and 4 percent of businesses in the real estate and rental and leasing sector.
As the chart below shows, Black and Hispanic business owners are also underrepresented in several related industries, including construction, finance and insurance, and professional, scientific, and technical services. Black and Hispanic business owners are even more severely underrepresented in the real estate, rental, and leasing sector than they are in those related industries.
FIGURE 4 – BLACK AND HISPANIC PEOPLE ARE UNDERREPRESENTED AS BUSINESS OWNERS
Only 1% of businesses in the real estate sector are Black-owned and only 4% are Hispanic-owned.
Underrepresented as Real Estate Developers
Second, they are underrepresented as. We estimate that there are 112,046 real estate developers in the U.S., of whom 111,013 are white. In contrast, our data included just 447 Black real estate developers and 175 Hispanic real estate developers in the entire country. Based on our data, Black developers represent 0.40 percent of the industry, while Hispanic developers represent 0.16 percent of the industry. Black and Hispanic developers combined represent 0.56 percent of the industry according to these data. Because we are interested in identifying each company’s owners, our real estate developer estimates do not include publicly traded firms and nonprofits.
It is also important to note that these estimates are based on a sample, as explained in our methodology section. These estimates are not based on an exhaustive list of all real estate developers but are instead based on one of the largest samples available outside of confidential government data such as Census Bureau responses and IRS filings.
FIGURE 5 – BLACK AND HISPANIC PEOPLE ARE ACUTELY UNDERREPRESENTED IN REAL ESTATE DEVELOPMENT
Black and Hispanic real estate developers combined represent less than 1% of their industry.
Despite Their Underrepresentation, Many Black and Hispanic Developers Are Successful
Many Black and Hispanic developers are at least as successful as their white counterparts. We divide real estate developers into three groups based on their company’s:
- Small real estate developers – Real estate developers with less than $350,000 in annual revenue.
- Medium-sized developers – Developers with at least $350,000 but less than $17 million in annual revenue.
- Large real estate developers – Developers with $17 million or more in annual revenue.
As we show below, small Black and Hispanic developers generate higher average revenue than small white developers. Our also data suggest that the Black and Hispanic developers at the top of the market engage in larger deals than comparable white developers.
Small Black and Hispanic Developers Outperform Their White Peers
The small Black and Hispanic developers in our datatheir white peers. In the small size category, Black developers generate an average revenue of $170,563, Hispanic developers generate an average of $178,319, and white developers generate an average of $159,591.
FIGURE 6 – SMALL REAL ESTATE DEVELOPERS’ AVERAGE REVENUE
Small Black and Hispanic real estate developers generate more revenue than their white peers.
Although these differences in revenue are not large in absolute terms, they are important for two reasons. First, about half of both Black and Hispanic developers are small developers. Second, the greater success of Black and Hispanic developers runs counter to the general pattern for all Black- and Hispanic-owned businesses. Census data show that Black and Hispanic businesses as a whole generate approximately half as much average revenue compared to the total for all businesses. If small Black and Hispanic developers continue to be successful as the industry grows, then real estate development could be an important tool for wealth building in Black and Hispanic communities and for closing racial wealth gaps.
At the Top Of the Market, Black and Hispanic Developers Are Involved in Larger Deals Than White Developers
At the top of the market, Black and Hispanic developers are involved in larger deals than their white counterparts. Our analysis of Preqin datathat the median (or typical) deal size for Black and Hispanic developers in the Preqin data is $60.42 million, compared to $43.88 million for white developers. We don’t know how much revenue these companies generate but their typical deal sizes suggest that they are among the largest real estate developers.
Although these data may not be representative of all Black and Hispanic real estate developers, they suggest that the few developers who make it to the top end of the market are involved in larger deals than their white counterparts.