On the lending side, minority professionals have gained positions of influence by mastering elements of the Community Reinvestment Act of 1977, the world of tax credits, and arcane IRS rules. These executives say they are driven by a mission to give back to their communities. But a systemic bias steers people of color toward community development rather than the more lucrative sectors of commercial real estate and private equity.

“I’ve been on the rate side of the market for two decades, and when I go to (real estate) conferences, I don’t see too many faces that look like mine,” says Jerry Lumpkins, senior real estate manager commercial in Chicago. at Bank Leumi USA, who is biracial. “People bring in people who are like them. Even though real estate is big, it’s very united, like a private club. You have to know the right people, have the right mentor, the people who will open doors for you. . When that doesn’t happen, you get more of the same.”

“Yet there are reasons for optimism after George Floyd, as long as lenders and investors stick to their commitments,” adds English Dixon. “And everyone has to have patience because these things take time.”

It’s hard to get rich

The legacy of slavery and Jim Crow as well as discriminatory practices, such as redlining, have prevented black families from building wealth. Careful development work is difficult on the south and west side because many residents, largely black and Latino, often lack family wealth and access to the capital to start a project.

White GIs returning from World War II received loans to build homes in the suburbs, while loans for black GIs went to mortgages in the inner city, notes Torrence Moore, senior manager at the office of Chicago of Local Initiatives Support Corp., a national CDFI. .

“Fast forward, these suburban loans have appreciated more than downtown homes,” Moore said. The city’s minority developers may be offered SBA loans, which require borrowers to pledge their home as collateral. “They want your firstborn,” he said.

With no money in the bank, minority developers will be directed into community development, where there is a lower barrier to entry and the opportunity to get tax credits or grants, executives say. But it’s hard to get rich that way.

Much of the development on the south and west sides is being undertaken by black or Hispanic operators investing in six apartments, says Stacie Young, CEO of Community Investment Corp., a CDFI that funds unsubsidized affordable rental housing. A typical client is a maintenance manager from Beverly, who is rehabilitating a building in Auburn Gresham at $60,000 per unit and isn’t driven by a mission, she says.

“Everyone took them for granted,” Young says. “Now more resources are open.” But they’ve struggled during COVID, with some tenants not paying rent. Will they be the ones to capitalize on the opportunities and make an impact?

Larger business ventures require complex capital stacks that include traditional bank loans, tax credits, government grants, and foundation grants. Raising the funds can take two or three years, or even longer. “Who has time to do this if you’re not making money on something else?” said the English Dixon.

Well-capitalized real estate companies have multiple developments underway at the same time, using revenue from one project to fund the next. Even when capital is available to a promoter, terms can be onerous and risky. Full-recourse loans give lenders the right to sue borrowers’ personal assets, including their home, in the event of default.

The Pullman redevelopment, which is considered the area’s greatest success, took more than 10 years to complete and involved a $110 million investment by US Bank, including the donation of more than 16 acres of land.

French Dixon says it’s good to have a sponsor like US Bank, but will you get the same kind of sponsorship for Woodlawn or Englewood? “There are several pieces to put together,” she says. “Deadlines make it hard to make a ton of money.”

“There are no more than five minority developers actively pursuing high-impact commercial developments in our neighborhoods,” says developer Leon Walker, known for his iconic mall in Englewood that includes a Whole Foods, Starbucks and Chipotle. Walker was the first Chicago developer to use tax credits for new construction and used other grants, but adds, “Our communities are starving for investment capital, the missing key that unlocks the door to prosperity. .”

Developer Bill Williams dreams of building big, transformative projects, but says he’s often steered toward less ambitious deals, such as small-scale residential projects.

“You need a track record coupled with patient capital to match the opportunity,” he says. “My counterparts with bigger balance sheets are doing bigger deals. And the wealth gap is getting bigger.”

Widen the circle

The Community Reinvestment Act of 1977 requires financial institutions to meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods.

But neighborhood projects don’t provide the opportunity to fund trophy buildings that make magazine covers. According to executives, it takes about as much effort to take out a $100,000 loan as a $1 million loan. Large loans for projects generate large fees and deposits, which pave the way for larger bonuses.

“It takes a special kind of person to be in community development,” says Lumpkins of Bank Leumi, which runs market-priced apartments and some commercial projects. “It’s almost like a vocation.”

Bankers on the community development side of the business may not benefit from bonus opportunities on the market rate side, but can still earn salaries in the hundreds of thousands. “You can make a good living, raise a family in commercial banking,” says Moore, who has held positions at First Chicago, LaSalle Bank and Bank of America. “At the VP level, there’s salary, bonuses, and stock options. It’s just not as abundant as in other areas.”

Community development was more diverse in the 1980s and 1990s, when banks were locally owned and there were also black-owned institutions, says Pamela Daniels-Halisi, managing director of community lending at BMO Harris. Bank.

“We could focus on neighborhoods,” says Daniels-Halisi. “After years of bank mergers, the banks are bigger and the footprint is multi-state. You can’t focus on one particular neighborhood. The work is scattered.”

After George Floyd, banks are reviewing their long-established lending requirements “to allow capital to flow in a different direction,” she says. Are all the criteria on the banking checklists, such as credit scores, net worth, home value, necessary, she asks, or are they obstacles? When you have someone outside the circle, can you widen the circle a bit to let them in?

While Daniels-Halisi and his counterpart on the equity side at BMO Harris, Carl Jenkins, are African American, industry executives say they are probably more the exception than the rule.