For those paying attention, it’s not a surprise to learn that the median wealth of white households is roughly eight times that of Black households – $188,200 for white families versus $24,100 for Black families (according to research done by the Federal Reserve). The research also found that Black households have $2,000 or less in liquid savings, while white households have closer to $8,000. The median household income of Black households is substantially lower as well at $38,183 versus $61,363 median household income of white households.
Only 24% of Minnesota Black households own their home, compared with 77% of Minnesota white households. The gap is even larger in Minneapolis where the Black homeownership rate is the lowest of any US metro area with 1 million residents or more.
But wealth isn’t only built through homeownership. Small businesses create opportunities for families to generate and pass on wealth to next generations. Small businesses need capital investment to establish and grow. One primary source is Small Business Association (SBA) loans, namely SBA 7(a) loans, the SBA’s most popular loan program and one intended to help businesses when other lending options have been exhausted.
According to a recent examination of Small Business Association (SBA) loan data by The Business Journals, the annual number of SBA loans to Black businesses decreased by 84% since 2008, far more than the SBA’s 53% overall decline in SBA 7(a) loans during this period. From the report: “the decrease came despite 48% growth in the economy, a 101% increase in bank deposits and an 82% jump in commercial loans.” (Link to the article here although you may need a subscription). Without continual capital investment, small businesses can’t grow. In Black and Brown communities like the Northside, traditional forms of capital (banks, friends and family) have been rare and inaccessible. Traditional interventions are becoming less and less available as the SBA data shows.
We at the Foundation had been hearing the lived experience of these statistics from Northsiders for years. Residents and small business owners had been telling us they lacked access to affordable working capital and that property ownership was out of reach despite significant numbers of available vacant buildings and sites that could be converted to good use if resources were available. A different approach was needed – something new and innovative.
“Several Black economists told MarketWatch that the only way to solve the race problem in America is to narrow the wealth gap, which they said has its roots in slavery and was exacerbated by government policies like red-lining that kept Blacks from growing their wealth through ownership of homes as they appreciate in value.”
“Long-standing wealth gap between Black and white Americans remains substantial,” Sept 29, 2020, MarketWatch)
So, when the Foundation decided in 2017 to move our offices to the Northside, we knew we had an opportunity to do it alongside community partners, helping build wealth for local community members. We didn’t know exactly what that might look like, but we knew, with the right partners, we could figure it out together. We built a partnership with TRI-Construction and NEW RULES to redevelop 927 West Broadway, a 130-year old vacant building owned by the City of Minneapolis.
I took it as my responsibility to make this partnership work. I spent countless hours with Calvin Littlejohn and Lester Royal of TRI-Construction and Chris Webley of NEW RULES, getting to know one another and spit balling ownership structures and partnership models. We shared meals and happy hours together just talking and telling each other stories of our lives. Lester, Calvin and Chris talked about what ownership meant to their families and future generations, and the possibilities that this opportunity opened up for them.
I talked about what our role as a foundation should be in facilitating ownership opportunities within the community, using our financial muscle and political capital to secure financing where underwriting rules would often reject small, undercapitalized but stable businesses like TRI and NEW RULES. In the end, our unlikely three-way partnership offered some creative ways to build on each other’s strengths and shore up our weaknesses. We ultimately needed each other to get the project done.
Here’s how the partnership works. The 927 Building is a $6.5-$7 million project. Financing includes New Market Tax Credits (Sunrise Banks), Livable Communities Demonstration Account (Met Council), Commercial Property Development Fund (City of Minneapolis) and Partner Equity. TRI is converting its General Contractor fee into equity and NEW RULES is converting a portion of its Project Developer fee into equity. The Foundation is making a $1.5 million equity investment that will be sold to the other partners over a ten-year window. With each passing year, TRI and NEW RULES ownership stake will increase and eventually the Foundation will exit the partnership. The three partners share governance equally from day one, and the partners will occupy roughly 90% of the building as tenants.
The non-equity financing was more challenging. TRI & NEW RULES couldn’t finance the project alone because they didn’t have sufficient working capital despite both being successful Black-owned businesses. The funding sources we were able to secure needed all three of us. Sunrise couldn’t lend to TRI & NEW RULES without the Foundation’s $1.5 million equity investment and our project guaranty. The City preferred to sell the building to a local development team and used a commitment to equity and diversity to make their loan because of TRI & NEW RULES. The Met Council LCDA funded our innovative model of ownership. Neither one of us could have secured any of the financing sources alone.
It can’t be overstated that this partnership is anything but transactional. It is a symbiotic relationship of shared values and goals, built over three years of difficult and intense work. We have agreed at times, and vehemently disagreed at other times, all with the goal of finding common ground in the end. It hasn’t been easy, but it has been one of the most satisfying experiences of my professional career.
For our partners, TRI-Construction and NEW RULES, and their principles Calvin, Lester and Chris, this is about building wealth and financial security for themselves and their kids. This is about continuing to invest in themselves so they can grow businesses that hire from the local community and source from local vendors. This is about planting deeper roots in a community they love and call home.
For the Foundation, this is about Tikun Olum – repairing the world one relationship and one project at a time. It’s about continuing to make good on a promise that Jay Phillips made in 1987 when he said in a speech, “I don’t like the word give. I say share, and I think a hairline separates people who make good and people who don’t, and those who make it should help the ones who don’t, because we are the custodians of worldly goods, not the owners.”
The last These three years of hard work and relationship buildng have paid off. On September 11, 2020, we closed on our financing. Then on October 6, 2020, we broke ground. Construction has started. Look for the work to be completed and for the three partners to move in sometime in late summer, early fall of 2021. One more step forward in community development that centers local ownership and wealth creation opportunities.