Manifesto for Social Purpose Real Estate: Closing the equity gap means closing the
real estate gap
Since its inception, the United States has been significantly oriented towards the ownership and control of real estate. Indeed, the first article of the Declaration of Independence was drafted to describe the inalienable rights to be life, liberty and the “means of acquiring and possessing property.” [i]
Roughly one third of the $162 trillion of wealth in the US is held in real estate with white families controlling 75 percent of those assets. Black and Latine families own only ten percent of real estate despite making up over 30 percent of the population. Indeed, while overall home ownership has increased by 3.5% percent in the past four decades Black ownership has fallen to levels not seen since race-based discrimination was legal.
It seems hard to imagine this gap in ownership narrowing when private equity ownership of single-family homes is rising dramatically with some estimates of its market share at over 25% in the US. The recent rate of private equity funded acquisitions is significantly increasing in the residential and commercial sectors as hedge funds are able to quickly deploy cash to acquire property at low valuations. Significantly, the term used to refer to those funds is the loathsome “dry powder.” That term does have the benefit of being unironically apt for its use in the war by the high net-worth folks on the rest of us.
While we often think of housing as the indicator of real estate wealth, US commercial real estate is valued at about $20 trillion or about half of the housing market. And in commercial real estate we see even higher levels of disparity between racial representation in ownership as the vast majority of ownership is held by white-led banks, insurance companies and via securities.
There is an answer to creating greater equity in ownership and control of land. Community spaces are on the ascendancy. Almost as a reaction to the isolation of the pandemic, investment and interest are rising in shared spaces that bring neighbors together. Community spaces are all around us but we don’t think of them as a class of real estate. They are unified by the themes of improving community, civic and personal health, building power and lifting up voices of those disenfranchised by capitalism and systemic racism.
Community spaces are part of ‘buy back the block’ efforts and a solution to how to activate street level spaces in urban housing projects. They’re homes to workforce development and social service hubs. They’re refugee settlement centers. They’re safe spaces for marginalized groups such as trans youth. They’re power building strategies in neighborhoods with a history of absentee ownership. They’re places that incubate locally owned businesses. Increasingly, they’re climate and disaster resiliency centers, grid independent and ready to support those displaced by environmental disasters, and to sustain our vulnerable neighbors during times of extreme heat and cold. They’re nonprofit centers that foster collaboration and long-term affordability and stability. They’re arts and culture facilities providing access to under-resourced areas. They’re re-entry centers improving lives and reducing recidivism. They’re affordable child-care options near employment centers. They’re health care facilities providing high-quality care to neighbors without access to consolidating hospital systems. They’re food pantries providing access to healthy food for our most vulnerable neighbors. They’re youth hubs providing safe spaces and growing our future leaders.
In many places in the country, community spaces constitute facilities that would otherwise be provided by the government, i.e. access to human services that form the backbone of the safety net for millions of our neighbors. The privatization of our social safety net is not new, but it has grown to new depths under small government proponents and an atmosphere of fear and propaganda-stoked division. Underfunding our safety net has created a crisis that is evidenced by increased housing instability, the opioid epidemic and widespread food insecurity.
For these reasons, support for these facilities should and must start to be capitalized by local, county and state government. Philanthropy must also commit to providing the upfront capital to fully fund community space projects. This approach is easily justified as a long-term strategy to making nonprofits sustainable and preventing their displacement during booming real estate markets.
This time of depressed commercial real estate values is a perfect time for funders to step up and capitalize projects that create permanent value and benefit. This funding must go beyond double digit-returning “impact investment.” In order to compete with private equity in a competitive market this capital should be made readily and quickly available for deployment.
What we’re doing about it:
Community Space Solutions supports creators and operators of community-serving real estate by providing professional development and a platform for peer learning around best practices and creative solutions.
We work to grow the infrastructure that makes community spaces happen. This includes bringing together a network of real estate practitioners ready to work in tandem with local communities to deliver impact without an extractive motive.
By working alongside local leaders and demystifying commercial real estate development we help establish an environment where community-serving spaces can come to fruition. We also build local knowhow needed to create more spaces so that community control of land becomes a rule rather than an exception.
Community Spaces Network is part of a landscape of organizations seeking to move ownership and control of real estate into local hands. Others in this field include Community Development Financial Institutions (CDFIs) such as loan funds and credit unions that are committed to keeping wealth inside communities. Community Land Trusts build local ownership and support generational wealth creation and prevent displacement.
In a nutshell we:
• Provide Systems and Tools for Community Lead Initiatives that Create Permanent Community Serving Real Estate Assets
• Prioritize Under-resourced Communities that have been Historically Excluded from Real Estate Ownership
• Build Power in Local Communities by Increasing Wealth & Control of Community Assets
• Prevent and Reverse Displacement of Community Residents and Nonprofits
• Create Spaces that are Designed, Operated & Governed well and with Equity
• Strengthen Local Capacity to Encourage Continuing Impact
• Provide a Platform for Voices of Those Promoting Social Purpose Real Estate
Real estate projects are extremely capital intensive. Communities are excluded from investment vehicles that were designed by and benefit the wealthy such as investor pools that are restricted to “qualified” investors. Luckily there are a growing number of organizations that are tweaking the tools of capitalism to be more community friendly. New sources of funds such as community bonds and crowd sourcing are bringing limited amounts of new capital to under-invested areas. Tax credit investments normally geared only to institutional or wealthy investors are being made accessible through creative structures.
Community-serving real estate also often faces greater challenges to structuring finances because we are trying to create affordability and sustainability which limits the amount of debt that we want in the project.
This leads to complex “capital stacks” with many sources of funding. Often these sources have competing requirements and some even dictate the structure of the ownership of the project. One of the primary national sources for these projects is the New Markets Tax Credit Program. NMTCs have provided a catalyst to some social purpose real estate projects but the program that once promised to provide 15-20% of project costs now sometimes provides half of that. This increases the reliance on debt financing with its incumbent life-cycle cost burden and unrelated business income tax implications. The erratic issuance of credit allocation by the US Treasury and the highly competitive nature of the program limits its application to more developer driven projects rather than those imagined by local communities.
Philanthropy is critical to completing most of these projects but capital grant making saw a decline over several decades and has not recovered. Philanthropic dollars are often the last to come into the project to fill any gaps.
There is so much room for foundations to show up in a better way for organizations taking on a larger scale capital projects. There are opportunities to be the first dollars in so that those funds can be leveraged to attract additional support. This can even be in the form of a commitment contingent on attracting that additional financing, Foundations can use their balance sheets to help underwrite financing from banks and CDFIs either by providing guarantees or investing directly into CDFI funds. Philanthropy can also create better systems for integrating mission and program related investments into their annual giving plans and overall strategy.
We must, as a movement, challenge philanthropy and government to show up for these transformational projects and acknowledge them for what they are; legacies of positive change for our communities.
[i] Benjamin Franklin convinced Thomas Jefferson to drop the land reference because Franklin thought land should be taxed so couldn’t be an inalienable right.