What You Need to Know About Investing in America’s Black Neighbourhoods
Investing in America’s black neighbourhoods can be a complex and challenging endeavour, often requiring determination and resilience to overcome systemic barriers.
In this article, we explore the difficulties faced by real estate developer Brian Rice as he attempts to revitalize Birmingham, Alabama’s Ensley neighbourhood and delve into broader issues that hinder investment in predominantly black communities
The State of Ensley:
In 2018, Brian Rice embarked on an ambitious project to revitalize downtown Ensley, a neighbourhood within Birmingham. He purchased nine dilapidated buildings on 19th Street with the aim of breathing new life into the area.
The neighbourhood, once thriving, had fallen into disrepair, characterized by vacant, crumbling buildings and declining commerce.
A Glimpse Inside Decay:
During a walking tour of Ensley, Rice and observers encountered the grim reality of the neighborhood’s decline. One of Rice’s buildings revealed a crumbling interior, with collapsed roofs, scattered debris, and decaying infrastructure.
This deteriorating structure served as a reflection of the unemployment, divestment, and devaluation prevalent throughout the entire neighbourhood.
Overcoming Perception:
Outsiders often questioned Rice’s investment in Ensley, citing low incomes, high unemployment rates, and high crime as reasons to avoid such endeavours. However, Rice’s focus was not on these negative statistics; he saw potential where others saw despair.
Vision for Transformation:
Rice outlined his vision for the neighbourhood, including an outdoor pavilion, space for food trucks, and buildings dedicated to nonprofits and mentoring programs. He aimed to create a vibrant community by fostering businesses, entrepreneurship, and community development.
Barriers to Financing:
One significant obstacle Rice faced was securing financing to develop the properties. Despite his initial investors’ support, traditional banks proved hesitant to provide loans.
It took months for Rice to secure a mere $50,000, which fell far short of the funding required for the project.
Discriminatory Appraisals:
Rice’s struggle extended to the appraisal process. When he finally received an appraisal after eight months, it shockingly undervalued his properties, considering them almost worthless.
The appraisers used inappropriate property comparisons that did not reflect the true potential of Ensley.
Appraisal Discrimination:
During a Congressional hearing, the issue of property appraisal discrimination was raised.
Andre Perry was the only one on the panel who raised his hand when asked if he believed discrimination played a role in devaluing properties in minority-dominated neighbourhoods, particularly those inhabited by Black people.
Denied Financing for Black Business Owners:
Data from a 2020 report by the U.S. Federal Reserve revealed that Black business owners are denied bank financing at a significantly higher rate than their white counterparts.
More than half of loan applications from Black business owners are rejected, far exceeding rejection rates for other demographics.
Lack of Investment in Black Communities:
Historically, redlining and discriminatory lending practices have resulted in a lack of investment in Black neighbourhoods.
Banks have been slow to support development initiatives in these areas, which further exacerbates disinvestment.
The Role of CDFIs and Opportunity Zones:
Community Development Financial Institutions (CDFIs) can play a pivotal role in financing projects in underserved areas.
However, Birmingham had limited access to CDFIs at the time of writing. Furthermore, Opportunity Zones, intended to promote investment in distressed areas, may not benefit Black-owned developments due to the scarcity of such projects and fund managers.
Investing in America’s black neighbourhoods is fraught with challenges, including biased appraisals, limited access to financing, and historical disinvestment.
Real estate developers like Brian Rice, who envision revitalizing these communities, face an uphill battle.
To truly address these issues, systemic changes in lending practices, more equitable appraisal processes, and increased support from government agencies are needed.
It’s essential to recognize the potential of these neighbourhoods and invest in their transformation to create thriving, inclusive communities.
YOu can always talk to a professional about your real estate plans.