2024 Winter Issue of Urban Land - 57

Trying to get capital to understand that our relatively
short time in the space doesn't mean that we don't
have advanced technical skills, it just means we've
been sitting at different seats.
- MALCOLM JOHNSON, LANGDON PARK CAPITAL
developers. He says that even when access to
capital is given to diverse developers, they're
paying a higher premium, because they don't
have the same experience or their projects
aren't as profitable, all of which becomes a
cycle.
" They also have to make sure that they
account for every penny, which means they
have to watch every dollar, " he says, adding
that any setback translates to losing money.
Webster notes that Philly Rise provides 85
percent of the debt, and it's coming in at a
reasonable cost of capital, which automatically
means the project is going to be more
profitable.
Tyrone Rachal, founder and CEO of Urban
Key Capital Partners in Atlanta, says that, in
the early stages of a project, there needs to
be patient equity capital from institutions
which understand his community. " We assume
that BIPOC developers are just investing in
our communities, which tend to be distressed,
and have even higher hurdles for attracting
traditional capital, so [even that] exacerbates
the issue, " he explains.
Equity possible
Ask Black developers about funding
challenges and they all agree that raising
equity is especially difficult. Michael Collins of
Grayson Capital in Kansas City, Missouri, says
that debt thinks much differently than equity
does. " Raising equity is always difficult, and
when you add the component of color, we
have to do a little bit more, so we're always
anticipating a no, " he says.
Collins believes that many financial
institutions don't understand how specific
submarkets work, to the point that they're
unsure of how to even underwrite deals in
some areas. It's difficult to get equity in your
corner to underwrite the deal when [investors]
don't believe the economic returns will be
in their favor, once you sell the assets. " If
you talk to private equity in certain markets
in higher-end districts, they just don't know
the economics, and what you don't know,
you fear, " Collins says. Thus, don't go into it
looking for equity unless you have a deal.
Urban Key Capital Partners' Rachal uses
two neighborhoods in Atlanta as an example
and notes that investing in the affluent
Buckhead community is different from
investing in the community of Bankhead.
However, there are grant programs that
sometimes offer capital for predevelopment
dollars, which Collette English Dixon, executive
director of the Marshall Bennett Institute of
Real Estate at Roosevelt University in Chicago,
says are sometimes a part of that equity
contribution that's needed.
Deborah La Franchi, founder and CEO of
SDS Capital Group in LA, says that most real
estate funds exceed a billion dollars, so if
you're just starting out and need $3 million to
$5 million in equity for a project costing $10
million to $20 million, none of the big funds
will even look at you.
La Franchi's firm has money available to
smaller developers. For example, SDS Capital
provided New Orleans-based developer VPG
with $2.7 million of preferred equity for a
project whose cost was just under $20 million.
" That was [small, even] for us, frankly, " she
says. " But it was a really talented team [whose
founders] all came out of Tuskegee University
with engineering degrees and wanted to have
their own company. We hope to keep funding
them year after year to help them grow. "
The extremely high cost of capital inhibits
the possibility for Black developers' projects.
" For example, the capital may be needed at
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URBAN LAND
57
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2024 Winter Issue of Urban Land

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