ULI Los Angeles, celebrating the 20th year of its Urban Marketplace program, has launched a series of five online events around the theme of “A Reflection on Progress and a Vision for the Future,” with the first, “Making a Deal, Making a Difference,” held on September 10. The program is dedicated to promoting real estate and development in underserved communities and is the longest-running program for that district council.
The principal session consisted of a conversation between Michael Banner, president and CEO of Los Angeles LDC, which is a U.S. Department of Treasury–certified Community Development Financial Institution, and Manuel Pastor, director of the University of Southern California (USC) Program for Environmental and Regional Equity, about the challenges and opportunities of the urban marketplace of the past, present, and future.
Banner, a member of ULI’s Americas Executive Committee, noted that a childhood in the Watts neighborhood of Los Angeles was quite different from that experienced by most colleagues in his decades-long banking career. “Having spent the time working in those communities, when I left and eventually left banking altogether and got involved in this community development space, I was just working in the places that I’ve always worked.”
His was a front-row seat on the difficulties of access to capital in minority and poor communities. “I knew how hard it was having been a banker for people like me to get money. It was hard in the ’70s and ’80s and it probably hasn’t gotten much better, frankly. I decided that if I didn’t take the time to take my skills and put them to work in my own community, shame on me.”
It is not merely direct obstacles but many indirect ones, said Banner: “The inequities in that thing are just mind boggling because you don’t know the hidden rules and the secret handshakes and all those things that they leave out of the textbooks.”
Pastor pointed out that wealth differences in the Los Angeles area are even more dramatically imbalanced, saying: “In Los Angeles, the median net wealth of white families is 100 times what it is of black families, mostly because of real estate. It’s a mere 88 times the wealth of Latino families.”
Pastor mentioned a recent McKinsey study that outlined a gross domestic product (GDP) loss of “one to one and a half trillion dollars” from racial inequities in access to capital and economic opportunities. “So, if you think about it that way, it’s in everybody’s best interest if we want a prosperous global economy to solve this problem because it creates more upsides for everybody.”
His USC program just released a more local report. “Our calculation was that there’s over $300 billion just in the Los Angeles regional economy that goes to waste because of racial disparities. . . . That’s money we’re just leaving on the floor. This is wasting money for all of us. We need to be making the business case for equity, not just the fairness case.”
Banner reinforced the same point, stressing that the problem is not merely one of equity but also one of opportunity. “The real estate adage is ‘buy low, sell high,’ so when you’re around markets that are deemed to be undervalued, there’s always going to be money and people floating around. ‘Can you make deals that make a difference?’ was our credo at the time.”
Banner said, “People said that couldn’t be done,” but that “the banks that invested got back 100 percent of their capital and made [a profit of] five and a half percent.”
Banner attested that there is better research and information, if support is still needed. “You say we’re going to help low-income communities as an example and you create something like the new market tax credit as an example, then you never put enough resources in because it’s oversubscribed. The problem’s massive. Why are we just putting peanuts towards it?”
A number of industry professionals joined for a follow-up conversation on the topic. Don Peebles, chairman and CEO of the Peebles Corporation, which has worked in developing many large-scale projects such as Angel’s Landing on Bunker Hill, said, “I’ve been frustrated throughout my career at the limited representation in terms of commercial real estate development opportunities for minorities and women and also frustrated by the lack of diversity in the hospitality industry. So, we have started a private-equity fund that will provide equity capital to minority- and women-owned businesses.”
Theirs is a robust commitment to minority- and women-owned contracting. He noted that their own 20 percent minority- and women-owned contracting on a New York project raised eyebrows at a point when city Women and Minority Business Enterprise requirements were 3 percent, but said his company reported superior results.
Said Peebles, “Minority- and women-owned firms understand that opportunities are hard to come by, so when they get them, they treat them with more care.”
Steven Lewis, principal at ZGF Architects, noted a similar dynamic in the architecture world.
“If a Black firm is in existence today and has been around for any length of time, it’s because they haven’t made a single mistake. As soon as you make that first mistake, it confirms everyone’s expectations that you are destined to not perform.” This was an element of an environment in which “licensed Black architects in this country have hovered at 2 percent of all licensed architects for over 50 years.”
Lewis said that some progress seemed at last at hand. The Large Firm Roundtable of the 60 largest firms in the country made several commitments, including direct donations to seven historically Black colleges with architecture programs, assistance with graduates obtaining licenses, and new scholarships. Said Lewis, “We need to hold the current power structure accountable for dismantling the current power structure that’s responsible for preventing us from achieving equality on our own merit.”
Charisse Bredmond Weaver, president and CEO of Brotherhood Crusade, a 50-year-old grassroots organization based in South Los Angeles, spoke to extensive vetting of minority-focused philanthropic enterprises as compared with other nonprofit organizations. Said Weaver, “We have to break down these old systems because they’re not helping.”
Banner outlined two key elements of these discrepancies, one being data and the other decision-making. Several panelists noted that pension funds are frequently wielding funds from substantially or majority-minority members, and yet “they have no idea where their money’s going.” He continued, “If you have many members in XYZ communities and we can see that your investments have nothing to do with their communities, why are you putting it over there instead of where the members might benefit from it.”
The second question is decision-making. “Who gets to make the decisions and who implements it?” In his experience, Banner found that “in the ’70s and ’80s, I was downtown at some point and [a deal] would come to me and sit on my desk, so if it was from a branch manager or someone I trusted, I almost wouldn’t read it. If it was someone I didn’t have a relationship with, someone I didn’t trust, there were 50,000 questions I had to answer before they’d get even close.” An absence of trusted interlocutors through lack of effort or engagement can substantially impair communities. In many cases, this last obstacle frustrates the use even of ready funds. “They might have allocated the funds, but they didn’t change the decision-making process,” said Banner.