Commercial Real Estate Development and the Need for Inclusivity

Quintin E. Primo III is one of relatively few African Americans operating at the highest level of the commercial real estate business. His company, the Chicago-based Capri Investment Group, boasts more than $14 billion in real estate investment transactions completed – with more high-profile deals in the pipeline.

In late 2021, Capri Investment Group and commercial and residential real estate development company, The Prime Group, acquired the James R. Thompson Center, an historic building in Chicago’s Loop District. The center, built in the mid-1980s houses Illinois state government offices. Over time the building fell into disrepair due to city and state financial constraints. As many as three governors attempted to negotiate a sale of the 1.3 million-square-foot property to a private investor or developer before the current governor, J. B. Pritzker, succeeded.

The deal, which Capri expects will take about three-and-a-half years to complete, came about as a result of Primo’s network. “I received a call from a friend, a senior manager at Google, who indicated that the company was expanding significantly in Chicago,” he recalls. “Mike Reschke, CEO and owner of The Prime Group and I have been friends and business associates for many years. So, I went to Mike and talked about how we could team up in a fifty-fifty partnership, buy the Thompson Center together, and concurrently do a build-to-suit for Google.”

Upon completion, as many as 5,000 Google associates will relocate to the property and, ideally, stimulate business in the Loop District and nearby LaSalle Street – once an economic engine for the city now plagued by commercial vacancies after the departure of major financial institutions.

A TRILLION-DOLLAR OPPORTUNITY

The commercial real estate market is pegged at $1.2 trillion by industry research provider IBISWorld. And as with most industries where multi-million-dollar projects are commonplace, there is little inclusivity at its upper echelons. While Primo’s Capri Investment Group ranks among them, there are few others: Victor MacFarlane, Founder and Chairman of MacFarlane Partners; R. Donahue Peebles, Chairman and CEO of The Peebles Corporation; Richmond S. McCoy, President and CEO of UrbanAmerica Advisors and Dallas Smith of T. Dallas Smith & Company.

Commercial real estate development is potentially lucrative but requires massive amounts of capital – a longstanding challenge for Black entrepreneurs. Typically, the developers acquire properties they build or renovate and sell them at a profit. Upon completion, real estate developers sell the property to investors, who frequently hold the properties for cash flow.

The lack of access to capital combined with the fact that the industry’s major players operate with little to no accountability to public shareholders demanding diversity initiatives, commercial real estate development is one of the most homogenous industries in the nation.

When there is no pressure from shareholders or the public and little transparency, inclusivity is never at the top of mind. Even for Primo, who has successfully completed scores of multi-million-dollar deals, the Thompson Center deal might not have happened if not for his connection with the Real Estate Executive Council (REEC), a trade association founded in 2003 to create opportunities for minorities at executive levels in commercial real estate.

MOVING FORWARD

While there have been major real estate projects with significant minority participation beyond the few Black firms operating at the highest levels, often a result of government mandates. Former Atlanta mayor Maynard Jackson historically allocated 20-25 percent of contracts for the Hartsfield-Jackson Atlanta International Airport expansion to diverse businesses and increased the percentage of city contracts to minorities from under one percent to nearly 40 percent in five years.

Other cities, including Chicago, also require contract allocations to minority businesses. “I think that the government’s ability to understand these issues and to play an active role in solving them is a step in the right direction,” explains James H. Simmons III, CEO and founding partner of REEC. “These were driven by, in large part, mayors and legislators who understood this to be a problem and decided to change the rules on how these projects are awarded such that there is real participation.”

According to Simmons, the industry also needs to create a pathway to capacity. “You can’t just walk in and say, ‘I’m going to do $200 million development’ when the only thing you’ve done is a $5 million project,” he explains. “So, you go from five to perhaps 10, to 25, to 50, to 100, to 200, getting experience, building your team, building your balance sheet and your bonding capacity. All the things that you need to be able to get to that $200 million deal.”

However, for that to work, active participation from minority firms is a must. In the past, majority-led firms have partnered with MBEs to meet mandates and relegated them to minor – and less lucrative – portions of the project. “They’re not just going to sit in a corner. They’re going to take an active participating role in the development,” asserts Simmons. “And they’re going to build capacity. It has to be real and actionable, and driven by the government because it’s been proven that the private sector just is not going to do it.”

Community Development Financial Institutions like Capital Impact Partners are also working to move the needle with its Equitable Development Initiative (EDI), a program designed to build the capacity of minority developers to actively participate in and shape an inclusive growth strategy for Detroit. “You can’t just walk in and say, ‘I’m going to do $200 million development,’ when the only thing you’ve done is $5 million development previously,” says Simmons. Also Vice Chair of the Board of Directors of REEC of Asland Capital, a leading owner and operator of multifamily, mixed-use and retail assets, Simmons has overseen transactions with a total development cost of over $1 billion.

Live events such as the Commercial Real Estate Conference, the largest conference in the nation that focuses explicitly on diversity in the commercial real estate industry, also address potential solutions. Real estate attorney Adeola Adejobi, who created and organizes the conference, uses the event to facilitate deal-making and provide a pipeline for the next generation of real estate professionals. “A lot of people are still working their day jobs as they’re trying to do deals,” she says. “They might be in the industry some type of way, but they’re trying to save up that capital to be able to do their deal.”

The private sector can also play its part. Since the killing of George Floyd, corporations have put initiatives in place centered around access to capital to address the industry’s homogeneity. “Hard cash needs to go into a deal, and most minority firms just don’t have it, or it’s at a high premium,” Simmons says. “Citi, Bank of America, and Goldman, real estate trade organizations like the National Multifamily Housing Council, Real Estate Roundtable, and NAIOP are looking at it whole holistically and coming up with programs to help solve the problem in their own way.”

Even with these challenges, there are bright spots. According to Adejobi, “What I’ve seen that gets me excited is with more Black and brown developers, people partnering together and stuff like that, it’s actually created more opportunities for folks to even move up in the industry.”

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