This analysis was published as part of The Bottom Line, my weekly newsletter reflecting on the challenges of addressing affordability, inclusive economic growth and access to capital. Subscribe to keep up with what I’m writing, thinking and reading every week.
Stories shape cities. The stories we tell each other, the stories that float around from kitchen tables to conference room tables, stories from local or national media, stories from movies and television, influence so many decisions, including the direction of both people and money.
I was pleasantly surprised to see that Isabel Wilkerson’s masterpiece, “The Warmth of Other Suns,” made it to No. 2 on the New York Times’ Top 100 books of the 21st Century. The book has been a huge influence on me, both for the quality of its storytelling as well as the powerful insights on the most important historical forces that shaped the cities I report on today.
The first big insight was the idea that the Great Migration was, as Wilkerson put it, “the first big step the nation’s servant class ever took without asking.” As tragic, terrible and misbegotten redlining and segregation were, those who ended up in segregated Black neighborhoods still made them vibrant and successful enough that they continued drawing in new residents over the course of roughly a century.
Even after White communities lashed out and literally burned down some of those neighborhoods, they rebuilt themselves again and again — unless of course the land was cleared out for a highway.
Black-owned news media, like the Chicago Defender, played a key role in making sure stories about these neighborhoods in the north and west reached those in the south who were considering whether to leave behind their families and communities and join others like them in those neighborhoods.
Even in 2024, there still appears to be something valuable about racial or ethnic enclaves that might not be obvious based on conventional analysis.
At the Federal Reserve Bank of Cleveland, researchers Daniel Carroll and Christopher Walker recently analyzed the phenomenon of Black and Hispanic households choosing to live in neighborhoods with lower socioeconomic status even when they have the means to move into higher-status neighborhoods. Black and Hispanic households appear to be choosing to live in neighborhoods where there are a lot of other residents of their same race or ethnicity even when they have the option to choose neighborhoods with quantitatively better schools, lower violence or higher home values.
Carroll and Walker view it as a tradeoff, that Black or Hispanic households appear to be trading away better schools or lower crime levels in exchange for proximity to extended family or cultural amenities that meet their preferences. In their view, piggybacking on conclusions from other researchers, the tradeoff is a challenge because it means subsequent generations have lower earning potential coming out of lower socioeconomic status neighborhoods, versus if parents moved to what might be conventionally considered “the best neighborhood.”
Some might say the solution should be to make wealthier, white neighborhoods more affordable and attractive in some way to Black or Hispanic households. It certainly doesn’t align with the ideas of fair housing or equal opportunity that the neighborhood where someone grows up determines so much of their future income or wealth.
But there’s another way to look at this neighborhood preference pattern. You could instead look at it as an untapped strength — that Black or Hispanic neighborhoods have more economic potential than most funders assume, because higher-income Black or Hispanic households have a preference for living around other Black or Hispanic households.
Instead of asking why they don’t move into wealthier, mostly white neighborhoods, ask an alternative question: Why isn’t there more investment tapping into the true economic potential of Black or Hispanic neighborhoods?
Writing for the Brookings Institution, researchers Lyneir Richardson and Tracy Hadden Loh did the basic math to answer that. They found that even though one-third of U.S. residents live in low-to-moderate income census tracts, actual low-income households were only 46% of the population in low-to-moderate income census tracts.
In other words, a majority of residents in low-to-moderate income census tracts are actually of moderate income or higher.
“This basic math suggests that there is untapped wealth in disinvested communities,” write Richardson and Hadden Loh. “Instead, investors are not adequately recognizing and placing capital appropriately because of a combination of misperceptions (such as racism, discomfort, a lack of cultural competence/familiarity with these kinds of communities) and systemic barriers (such as redlining or a lack of comps).”
Misperceptions don’t come from nowhere. They form out of the stories we see or hear about communities, and those stories come via many different channels, such as local news. Wherever you are, turn on the local TV news and you’re bound to get a constant stream of stories about crime and violence in the nearest city, even if crime figures remain at or near historic lows overall.
The local news wasn’t always that way. It began in 1965 when a local Philadelphia TV station pioneered the “if it bleeds it leads” model for driving up ratings. According to the Philly Inquirer, as the model spread across the country, it “has worked to deepen racial tensions and reinforce racial stereotypes about communities of color.”
As those misperceptions float around from kitchen table to water cooler to boardroom, they help determine decisions like whether a certain project or a certain business in a certain neighborhood might get funded or not.
Every pro forma or business plan for a real estate project is also a story about that project. Here’s a building or a site for a potential building. Here’s what it is today; here’s what it could be tomorrow. Here’s why it needs to be changed and how it will change it into what it could be. Here’s who lives or shops nearby and why there’s a good chance they’ll spend their money and time here, too, if it changes. Here’s how much in operating costs can be expected under the proposed plan and how much net income the project will produce. Here’s how much the project might rise in value as a result. Here’s how all this adds up to generating enough income to repay lenders and investors.
But that story is a mere fairy tale until it convinces enough people that it could be true, starting with the developer itself. Conventionally a developer is a single person or a for-profit company, but we’ve seen in places like Chicago, Oakland, San Francisco, Seattle, Traverse City and Philly that the “developer” can be a community-led or collectively-governed entity that isn’t necessarily looking to maximize profits from the project.
Then come the funders. Private investors, banks, credit unions, foundations, public sector sources, tax credit allocators. Whoever the developer is has to tell that story to a loan officer or program officer or some combination of such officers from each potential funder. Each loan or program officer has to believe in the story enough that they can go back to their institution and tell that story themselves to convince their credit committee or board of directors. There might be a credit officer or underwriter who needs to hear and believe it, too. Even if it’s at a federally-certified CDFI, there’s still an internal storytelling process that every project or business needs to get through in order to access funding.
The closer a funder is to the neighborhood where the project is, the more likely that its loan officers, program officers, credit officers, credit committees or board members might believe a story. The largest banks and other private lenders often won’t have much interest in the story at all, relying instead mostly on the developers’ own prior track record or personal wealth. If you already have enough money in the bank to repay the loan in case the project flops, the story hardly even matters.
The biggest banks don’t have credit committees or board members meeting regularly to evaluate potential loans based on the local story of a project. The distance factor explains why community banks have almost three times as many commercial real estate loans on their combined books as Chase, Bank of America, Wells Fargo and Citi combined. The story can be a huge part of approving a commercial real estate loan, though it’s only really community banks that have the capacity to consider the story of a project.
But there may not be enough funders nearby to hear that story. Or, because of implicit or explicit racism, too many of the funders nearby simply won’t believe there are any stories worth hearing from certain neighborhoods or certain people. Even if there’s a loan officer at one of those local banks who might be from the “wrong side of the tracks,” they alone won’t be able to convince their underwriters or their credit committee — not when they’re under a constant barrage of negative news about crime or violence in cities.
The stories from Black neighborhoods about potential retail projects or businesses just aren’t making it all the way through the process to obtain funding, including where neighborhood income levels seem to predict untapped potential for more retail.
Richardson and Hadden Loh analyzed storefront occupancy data for 23 commercial corridors across three cities — Baltimore, Cleveland and Detroit. Some of the corridors analyzed were not predominantly Black, for the sake of comparison. Although neighborhoods with higher poverty rates and higher Black population shares were both at the lower end of the retail density spectrum, the researchers found no correlation between retail density and poverty rates when limited to neighborhoods with higher Black population shares. In other words, higher-income Black neighborhoods seem to experience the same “retail redlining” as lower-income Black neighborhoods.
The breakdown might be anywhere along the storytelling chain — developers, foundation program officers, loan officers, credit committee members, board members.
Since community banks are such a major source of commercial real estate funding, that’s where I’d start looking for the breakdown in the chain. Racial disparities in community bank ownership mean commercial real estate developers from Black neighborhoods face steep odds finding loan officers, credit officers and credit committees who can relate to their stories.
There are 13 community banks headquartered in the Baltimore metro area, but only one is owned and led by people of color — the Black-owned Harbor Bank of Maryland. Out of nine community banks based in the Detroit metro area, the only one owned or controlled by people of color is the Black-owned First Independence Bank. Out of nine community banks based in the Cleveland metro area, none are owned or controlled by people of color.
It’s not impossible for white community banks to come to believe in the stories told to them by other communities. Earlier this year, I wrote about how a co-op of Black immigrant women business owners in the Twin Cities — along with a local Black-led nonprofit — worked with Sunrise, a white-owned community bank, to fund their acquisition of a flailing strip mall.
But across the entire country, out of 4,128 community banks, only 124 are owned or controlled by people of color. That’s a lot of deaf ears for these stories to fall upon.