The summer after Chase Cantrell’s second year in law school, he took an internship at a big Chicago law firm. He remembers walking to lunch with one of the firms’ senior partners, in Chicago’s downtown area, the Loop, and his colleague kept pointing out buildings and how he was involved as a lawyer in developing them. Cantrell wanted that for himself — but in Detroit, where he was born and raised.
“After seven years practicing law, I could do that in downtown Detroit,” says Cantrell.
But by then, something was gnawing at him — all the clients he’d worked for in Detroit were white. Every day he understood more about how money and real estate exchanged hands, but almost entirely between white hands in a city that’s 79 percent Black.
Frustrated, he quit. He wasn’t sure yet where he would end up.
“But I love this place,” says Cantrell. “There’s something about Detroit that keeps drawing me back, above and beyond my personal connections. Over time I realized it’s because it’s a Black city.”
Putting more Detroiters on the path to becoming real estate developers in their city is one way Cantrell hopes to help preserve Detroit’s blackness. That’s why, in 2016, he founded Building Community Value, a nonprofit with a flagship program called “Better Buildings, Better Blocks.” It’s a six-session course in small-scale real estate development in Detroit. Participants must be a resident of the city or the two enclaves it surrounds, Hamtramck and Highland Park. Cantrell estimates 79 percent of “Better Buildings, Better Blocks” alumni are Black.
“The original thought was Building Community Value would actually be a nonprofit developer,” says Cantrell. “Thinking of the opportunities in Detroit with all these vacant parcels — what would happen if there was a nonprofit that was responsive to that? But we realized along the way how much more an impact we could have if we could teach other Detroiters how to do this.”
The question of who is in position to own and develop both commercial as well as residential real estate is becoming more urgent as COVID-19 drags on. Nearly half of commercial retail tenants didn’t pay rent in April and May, and while there was some recovery in June, accumulated losses for retail landlords are pushing some of them into desperate tactics to avoid defaulting on their obligations. Deep-pocketed private investor funds are waiting to pounce on properties that fall into foreclosure or are put up for sale.
The small-scale developers or would-be developers coming out of “Better Buildings, Better Blocks” face steep odds. Accessing credit to invest in real estate markets like most of Detroit remains hampered by the appraisal gap, the phenomenon where appraisers value real estate at levels that are less than what the cost would be to acquire and rehabilitate the property up to code — a legacy of redlining. And that’s just the tip of the iceberg.
Last weekend, Cantrell and his colleagues began reviewing applicants for the tenth cohort of the program. Cantrell says on average they receive 60-70 applicants for 35 spots per cohort. They’ve gotten as many as 125 applications at one time. Selected participants pay $100 each for the course.
It’s a short application to the program, with two key questions: Have you ever done a real estate project before? And why do you want to take the class?
“Sometimes they write because they want to do 15 [house] flips,” says Cantrell. “Sometimes they write a thousand word essay on how they love their neighborhood.”
Making money from real estate development isn’t necessarily a bad thing, in Cantrell’s eyes. While some participants come in with a definite goal of developing affordable housing or space for locally-owned businesses, cultural spaces or other community amenities, others definitely come in with making money as their top priority.
“But it’s still inspirational because they want to build generational wealth,” says Cantrell. “The conversations in the class are useful as both sides come out with an understanding of each other’s perspective.”
Opportunities to build generational wealth have long been denied to Black households in the United States. Across the country, the median wealth of white households is $171,000, while the median wealth of Black households is $17,600. Local numbers are harder to come by, but the disparities are often much larger at the local level.
With Detroit being nearly 80 percent Black, Cantrell points to the lack of generational wealth to help explain why so few Detroiters go into real estate development. Even with friendly lenders around Detroit, just about every project still requires the developer to bring at least some of their own money to the table — the “equity” layer of the capital stack for any project. Friends and family can provide that equity, but not so much if you happen to be Black, and especially not if you are Black in Detroit.
“Better Buildings, Better Blocks” doesn’t provide some magical technique to get around all the typical financial constraints of real estate development, from equity to acquisition costs to construction or rehabilitation costs and insurance costs, to borrowing and interest rates, to estimated sales or rental income. Cantrell stresses the goal is for participants to understand the system as it currently works, but maybe in doing so it helps bring clarity to what changes are necessary.
“For those who are truly grassroots, it also helps them understand what they need to advocate for,” says Cantrell.
In addition to the six class sessions, during the course period Building Community Value hosts weekly office hours, every Tuesday evening, when participants can meet with the course instructor, and also the technical assistants who are also part of the course faculty. Drawn from different parts of the real estate world, the technical assistants provide personalized support to participants, often staying in contact long after the course period is over, and helping with navigating the paperwork of managing a real estate project — invoices, invoicing, contracts and subcontracts, lien waivers and more.
“I love those moments [during the office hours], if you get ten students in a room, five technical assistants, me, and we’re all bouncing around ideas and get to be more creative,” says Cantrell.
For the final class session, participants have to pick a site, develop a pro-forma, estimate investor return, and present the project to the cohort as well as a panel of judges who award cash prizes to the three best projects based on feasibility and impact.
Even after coming to understand how debt fits into a project and can boost the returns to the developer, some participants still end up avoiding debt for projects, Cantrell says. There’s still a historical aversion to indebtedness, especially within communities that have survived waves of predatory financial institutions extracting wealth instead of building it.
“Many are still looking for more trustworthy pools of capital,” says Cantrell.
Cantrell suspects it’s participants’ preference to use only their own money for projects that explains why only 15-20 percent actually pursue the projects they pitch in the class. The class has evolved in its project interests over time, according to Cantrell.
“At first, it was almost all single-family and duplexes,” says Cantrell. “Now, we’re getting folks coming in with small apartment buildings and one-story commercial.”
Cantrell says the majority of participants remain focused on single-family residential properties, though some are looking at converting those properties into spaces for community use, like Class Act Detroit.
Cantrell’s wish list right now includes setting up some kind of entity to serve as a pool of equity that small-scale developers in Detroit can collectively deploy and grow over time, allowing them to do more and larger projects than they could do only by themselves.
While he has worked on many projects before as a lawyer, Cantrell is now working on his first community real estate project as a developer from start to finish. He counts himself as lucky — he previously bought a condo downtown, across the street from what is now Little Caesar’s Arena, for $150,000; he sold it for $450,000 and used some of that as the equity layer in his current project.
He’s not expecting a significant financial return on his investment, but that’s not the only kind of return that counts for Cantrell.
“If we open this commercial space and only white people show up,” he says, “we have failed.”
This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter.
Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.