Developers of color say the problem of larger builders using them as tokens has not been solved — even on private projects, where no government mandate for minority participation is involved.
Minority and female-led contractors say that more established developers commonly enlist firms like theirs as “marketing representatives” in gentrifying areas and give them a miniscule slice of the profits.
When Kenneth Morrison was just starting out as a developer at his Harlem-based firm Lemor Development Group, he said he received several offers from big-name developers to provide “boots on the ground” and run interference with community boards during the approvals process.
“I’ve had for-profit developers contact me to be on their teams for a 10 to 20 percent partnership, and my responsibility was to be more of a marketing representative,” Morrison said. “But you don’t want to feel like you’re being used for that.”
None of the developers who spoke to The Real Deal would name names, but all said the dynamic is commonplace.
However, some developers, especially smaller ones, might not think lopsided partnerships are such a bad deal, according to Karine Blanc, director of multifamily for The Blau and Berg Company, a commercial real estate firm in New Jersey. Agreeing to run interference for out of town investors could just be a stop on the way to doing larger projects.
“There are some smaller developers who just want to collect the fee, attach their face and minority business certification to collect the fee,” Blanc said. “There are developers who really just want to do larger-scale projects under their own name and merit, and will use the opportunity to do something down the road and attract capital.”
Mayor Bill de Blasio last week increased New York City’s contract goal for minority and women-owned business enterprises by $5 billion to $25 billion by 2025. The MWBE target for state contracts is 30 percent in New York and 25 percent in New Jersey.
A raft of criminal and civil cases, penalties and settlements, and a 2013 grand jury report have laid bare the practice of contractors on public projects hiring minority subcontractors to meet MWBE targets but not actually letting the smaller firm do meaningful work. That is considered fraud because it defeats the goal of the government mandate, which is to help minority contractors gain the experience and expertise necessary to grow.
Big contractors, for their part, say there are not enough qualified MWBEs to meet ever-increasing city and state thresholds on large public works. They complain about not being able to assist the subcontractors they use, lest it be interpreted as fraud.
Those legal risks don’t exist on private cases, but a similar dynamic can be present. On private projects going through a public review, there is an advantage to having minority or female representation on a development team.
“People realize they can get through the approval process faster if they have a woman-owned developer on board, or if they’re partnering with a minority woman-owned firm,” said Nana Duncan, managing partner at New Jersey development firm TD and Partners. “You find those things happening more and more. It’s usually after the fact, when they’ve realized they don’t know the landscape as well.”
For the outside developer, that could inspire more trust with the community and ease concerns in gentrifying areas. For a female or minority firm, it’s a chance to work on bigger projects, gain access to capital and put its own imprint on a development — assuming it is not marginalized by the larger firm.
“If you’re in East Orange with an all-black city council, there’s something about seeing a partnership with a minority developer that gives you comfort,” said Duncan. “As a local or minority developer you have the capacity to do what you want to do, not partner with some large developer with a reputation for going into markets and doing all the wrong things.”
With 1,400 units in its portfolio and another 500 units in the pipeline, Morrison said it has been a long time since his firm has accepted an offer for a highly unequal partnership. He speculated that such arrangements might not be as effective as they once were.
“Community groups see through it, so it might not happen too often now,” Morrison said. “Now folks know better.”