Breaking down racial barriers in real estate
The real estate industry has long had a problem with whiteness. An emerging black developer in Baltimore is challenging the state to help fix the rating gap and other injustices.
Bree Jones rides deep. His nonprofit real estate company, Parity Homes, has a buyer collective of 60 households. They all completed an exclusive six-month program that Jones built from the ground up, covering everything from financial planning and maintenance, to community building and the history of redlining — and how those factors continue. to shape the Baltimore neighborhood where they all want to buy homes.
“It’s about building an intentional, mission-driven community,” Jones says. “We talk about common principles – anti-gentrification, the importance of shared cultural assets, the assets of green spaces, things that are no longer part of our common dialogue in America. Older generations did it in the 1940s, ’50, 60s.
Jones says members of his buyer collective have all come by word of mouth so far. She talks about her work wherever she goes, such as volunteering at a local church, where a pastor’s family is now part of her collective. Some come from the West Baltimore area where Parity Homes focuses its work; others are from the area but moved when they were teenagers and now want to return.
Parity Homes keeps an architect under contract to help buyers select one of six floor plans for Baltimore’s iconic townhouses. Options include splitting the house into two apartments to create additional income for the owner and another affordable housing unit. Three members of the buyer collective have made their selection and Jones hopes to deliver their homes later this year, hopefully by July.
“They call me every week [to ask] how is the house,” says Jones.
For everything Jones has made possible so far, it’s not yet sustainable. For now, Parity is selling the homes for less than the company paid to acquire them. Indeed, homes suffer from the valuation gap, which disproportionately affects historically black neighborhoods. After generations of divestment, beginning with redlining in the 1930s, homes today require significant rehabilitation, the cost of which can far exceed the values the homes will appraise even after rehabilitation.
Help may soon arrive. Last year, Maryland state legislators passed a bill to create the Appraisal Gap From Historic Redlining financial assistance program. Jones says it started with a conversation between her and Maryland Senator Antonio Hayes.
“He had asked me to testify about a related issue, and after that he asked if he could help me, and I didn’t know any better, so I raised the valuation discrepancy,” says Jones. “He was a bit of a rookieit’s luck.
The funds would fill the gap between the costs of rehabilitating a vacant home or building a new home on vacant land and the estimated price at which the home ultimately sells. However, the bill did not take effect until the start of the fiscal year in Maryland on July 1, meaning the new program was never part of budget negotiations for that fiscal year.
Jones is counting on his funding in this year’s budget, which is currently being negotiated. She knows that other potential emerging developers like her, especially other women of color, would appreciate the support to do similar work in other disinvested areas of Maryland.
“Funding mechanisms for entry-level housing stock are still scarce,” Jones says. “Big federal programs, like the social housing tax credits or the new market tax credits, don’t really do that. Why not try to do something that looks like us?
The real estate industry has long had “a whiteness problem”. According to Enterprise Community Partners, only 2% of businesses in the real estate sector are run by black people. At the Urban Land Institute, one of the nation’s leading real estate developer networks, just 5% of its members are black or African American, while 82% are white and 69% identify as male.
Even the community development and affordable housing real estate subsectors that serve many black and Latino neighborhoods have helped perpetuate these disparities. In New York, where Jones was born, the nonprofit Community Preservation Corporation has funded tens of thousands of affordable housing units in communities of color since 1974, but according to its internal analysis, less than 10% of its loans are went to promoters of color. .
Often, lenders cite the lack of collateral. But it’s a chicken-and-egg situation, given that the lingering history of redlining means that white homeownership rates and wealth levels of typical white households in general remain well above those of non-white households.
Jones wants to help break that cycle by putting the homes she develops in the hands of primarily, but not exclusively, black households. When otherwise talented but less experienced developers of color approach lenders with little or no wealth from family or friends as a starting point, most lenders find it difficult to work with them while satisfying their regulators or rating agencies. . These calculators come in regularly and look at every loan a lender has made since the last time they were there for a review or rating update.
It’s not impossible, but it’s very difficult for lenders to fight again and again with regulators or rating agencies to defend multiple acquisition and construction loans to multiple emerging developers of color with little or no personal guarantee, especially when everyone can see on the road that the developer may not be able to sell the properties at a price that can cover the cost of acquisition and construction. Often the lenders who are most willing to work with borrowers in these situations will also charge the highest market interest rates as compensation for taking on the perceived “risk”.
Banking regulation is not inherently bad. This is to ensure the safety and soundness of the banking system. But relying on personal guarantees as a risk management factor to dominate all other risk management factors isn’t necessarily set in stone, although it may seem so if you don’t have any collateral.
Jones relied on corporate donors, state grants, philanthropic scholarships and a few personal connections with “very patient” seed investors to launch Parity Homes. She amassed a portfolio of 40 properties, half through foreclosure auctions or private sales, and the other half through Baltimore’s annual tax lien sale. The lien sale is currently undergoing a major overhaul after complaints that it has become a predatory way for big developers to grab large lots of properties.
Jones says the tax lien process could also be a lot friendlier for smaller, mission-driven developers like her. In an area of about 10 blocks she examined closely, she says she identified at least 300 properties with tax liens, perhaps 70% of them with liens in the six figures. Properties can take up to two years to drag through the foreclosure process. “There’s so much inventory in Baltimore City, but it’s all locked behind liens, encumbrances, and other barriers,” Jones says.
The most recent statements from City Hall count 15,032 vacant homes in Baltimore. Jones says the actual number could be much higher, possibly four times as much. For 50 vacant properties, Jones says, there can be 50 different owners, half of whom are deceased, a third in defunct LLCs with outdated contact information, if any, “and the rest belong to speculators trying to profit off the market.” trauma of others.
The situation bears similarities to other predominantly black urban areas, such as Chicago’s South Side, where local community organizations and emerging small developers face a maze of tax liens on mortgage liens layered on top of a tangle of LLCs. and dead-end brokerage phone numbers.
In this post-COVID housing market boom, Jones is seeing more speculators rushing in with all-cash deals in neighborhoods where she has properties underway. Blocks where empty shells used to cost $5,000 are now selling for nearly $100,000. These sales could be tied to the tech-fueled “passive real estate investing” boom in single-family rental properties.
In its sales, Parity Homes puts in place a “second mortgage” – essentially a tranche of seller financing that the buyer doesn’t have to pay back unless they later sell the home or refinance their mortgage. It helps keep the main mortgage affordable for the homeowner while serving as a deterrent against house flipping.
Given all the cards stacked against her — female, black, new to real estate development, focused on neighborhoods with property issues — Jones takes all the help her time is worth. She is an alumnus of the Equitable Development Initiative, a program of Capital Impact Partners, a community development finance institution (CDFI) based in the Washington, DC area. The initiative is one of a host of similar initiatives created by CDFIs in recent years to help diversify their developer base.
JPMorgan Chase funded the Equitable Development Initiative, which recently awarded a recoupable grant of $2 million to Parity Homes, in conjunction with a larger commitment of $20 million for Baltimore-focused investments, intended to support more women of color in real estate.
“We’re building the bench for various developers in this region,” says Dekonti Mends-Cole, vice president for Mid-Atlantic at JPMorgan Chase Global Philanthropy.
The $2 million infusion allows Jones to finally hire his first full-time staff and allow him to acquire and sell at least 200 formerly vacant homes. If the state’s assessment gap program goes into effect, or perhaps new federal support for the proposed neighborhood home investment tax credit, Jones might be able to acquire, to rehabilitate and sell even more.
Jones also hopes that with greater institutional support, the city will take emerging mission-driven developers seriously as part of the solution to solving long-standing vacant property issues.
“The issue is so big it creates a sense of helplessness, but an institutional partner gives the impression that we can actually do something about it,” Jones says.
This article was originally published by Next city. It has been slightly modified to YES! Magazine.
Oscar Perry Abello
is a New York-based journalist who covers community development and economic justice.