Minority-owned development firms have been in short supply in Chicago. New initiatives aim to change that.

Before the COVID-19 pandemic hit, downtown Chicago was in the midst of a building boom that local officials say was notable for what it didn’t include: minority-owned development firms.

“There were 61 cranes in the sky, and each crane represented a project worth up to hundreds of millions of dollars,” said Leon Walker, managing partner of developer DL3 Realty. “It was a point of pride for the city to have 61 cranes in the sky, but not one of those projects had a Black or brown developer.”

Department of Planning and Development Commissioner Maurice Cox said when he arrived in Chicago to take office in 2019, he wanted to reach out to minority developers. But after asking Walker and others for a list, he found out Chicago had few minority firms that could tackle multimillion-dollar projects.

“They said the pipeline was not very robust, and a lot of that had to do with the lack of opportunities,” he said. “I was a little taken aback.”

But a city program that aims to spark commercial development in neighborhoods left out of past real estate booms, as well as initiatives aimed at fostering groups of minority-owned developers, is changing that.

Former Mayor Lori Lightfoot, who criticized her predecessors for focusing too much attention on downtown development, launched Invest South/West in late 2019. The program is working to replace vacant lots or buildings in South and West Side communities with new housing, retail and other businesses.

Invest South/West has been criticized for its slow pace of development, but Walker and others say it has given rise to a new cadre of minority-owned development firms. The program has focused the attention of top developers on disadvantaged areas, leading some to form partnerships with fledgling minority-owned companies, which are garnering the experience and contacts needed to grow and pursue other projects.

Other programs to build the capacity of minority-owned development firms have also launched, including the Chicago Emerging Minority Developer Initiative founded by Walker along with attorney Graham Grady and Gwendolyn Butler, senior adviser with Capri Investment Group.

“After George Floyd, we’ve all been awakened to the need for a more equitable society, but I’m also making a business case,” Walker said. “You can’t build a world-class city with a declining population, so we have to start filling in all the vacant lots on the South and West sides, and if you don’t have Black and brown developers, you’re not going to see that.”

Not the ‘usual suspects’

A.J. Patton is developing several sites through Invest South/West, including a 58-unit, mixed-use project in South Chicago, and another in the North Lawndale neighborhood with a joint venture partner. He says the work will help his firm, founded in 2016, establish the track record needed to finance even bigger projects.

“If you’ve been doing six-flats, having the city of Chicago behind you on developments that are three to four times larger than other deals happening in disinvested communities is a massive responsibility,” said Patton, CEO of 548 Enterprise. “But it will catalyze other development, and 18 months from now, I will be able to say I’ve developed multiple $25 million-plus projects, and that’s a hell of a thing to say.”

Cox said joint venture partnerships show the program is working as designed. Department officials didn’t just want the “usual suspects” to respond to its requests for proposals, so when selecting finalists, they favored companies that partnered with emerging developers.

“These are projects that will make their careers and accelerate their growth as companies,” Cox said of the emerging developers.

“I think now we’re going to see a strong bevy of minority developers, and it won’t be one person or company that dominates,” said Hugh Williams, director of strategic growth and entrepreneurship at Sterling Bay, a commercial development firm currently building several downtown skyscrapers and the $6 billion Lincoln Yards project on the North Side.

Lightfoot and Cox targeted 12 underused commercial corridors in 10 neighborhoods such as the South Side’s Auburn Gresham, Englewood, Roseland and Bronzeville, and Humboldt Park and Austin on the West Side.

Dozens of developers presented redevelopment proposals, and most selected winners include a minority-owned firm as a joint-venture partner. LG Development joined up with KMW Communities, a housing developer founded by Bill Williams, to create the Bronzevile neighborhood’s winning proposal, a $19 million apartment and commercial project at 47th Street and Vincennes Avenue. Related Midwest, the developer behind The 78 community near downtown, partnered with Patton’s 548 on The Lawndale Innovation Center, a $38 million plan to replace a vacant 20-acre site, once an illegal dumping ground, with a collection of solar-powered industrial buildings and community centers.

But to fulfill its promise, all projects will have to break ground. Although the Lightfoot administration touted Invest South/West’s progress, few of the development teams have fully assembled the financing needed to close deals.

Cox said mixed-use developments of similar size always take several years to complete, especially if — like Invest South/West proposals — they use multilayered financing tools such as tax credits and TIF dollars. He expects many of the teams will close final deals this year.

Walker’s DL3 Realty, which was selected to convert the historic Ringer Building in the South Shore neighborhood into a $47 million mixed-use development, said Chicago has long-standing requirements to include minority- and women-owned contractors on job sites. But without developers to oversee projects from original concept through design, financing and construction, South and West Side communities won’t fulfill their potential.

“We often ask someone to come to our communities and build the grocery store, or build housing, but we need entrepreneurs of color to take risks in these communities,” Walker said.

Lenders and large established developers don’t have much experience on the South and West sides, he added, and may not be comfortable working in these communities, but developers who grew up there will better understand what kind of businesses or homes residents want.

“They can articulate to the lenders, to the prospective tenants, why a particular project is going to work.”

But getting a new development firm on its feet isn’t easy, according to William Towns, adjunct lecturer at Northwestern University’s Kellogg School of Management and national market president of community revitalization for developer and builder Gorman & Co.

“We find many small businesses don’t have the financial infrastructure or easy access to capital like larger, more established firms,” he said. “It’s not a lack of capability, it’s a lack of experience and knowledge.”

An economic engine

That’s where the Chicago Emerging Minority Developer Initiative comes in. The program brings representatives from top developers, commercial real estate firms and city and state agencies together with up-and-coming developers such as Patton and Williams, as well as rookies seeking to break into the field. It’s helped small-business owners learn about zoning applications, how to put together development proposals, tax credits and other tools they need to get deals over the line.

“There is this amazing hunger and desire to be developers,” said Grady, a partner at Taft Stettinius & Hollister and co-founder of the emerging minority developer initiative. “They want to drive the bus, not be passengers.”

Some participants in the program already lead well-established construction or engineering firms but said it’s still important to make the leap into development.

“It’s about creating an economic engine for the neighborhood, bringing more African Americans into this industry, and breaking down how Chicago is still segregated,” said Melanie Jefferies, a Bronzeville resident and chief regional officer of Milhouse Engineering and Construction, a firm founded by her father 22 years ago. She is also principal of Milhouse Development, founded in 2018.

“Milhouse Development is a very small fish in a big pond, but if we’re going to have a positive impact, and have a seat at the table when decisions are made, we have to be in development,” she said.

Jefferies is learning the ropes by participating in a mentorship program called Pillar run by CRG, the real estate and development arm of Chicago-based Clayco. She’s also involved in a joint effort between Urban Land Institute, Local Initiatives Support Corp. and Sterling Bay, which recruited teams of minority development firms to plan a new mixed-use development in Englewood.

“It’s going to take all of these group efforts to shepherd the smaller companies along,” Jefferies said.

Milhouse Development submitted its own Invest South/West proposal for a mixed-use complex in Bronzeville, but it wasn’t selected. The company now wants to replace an empty lot at 4731 S. Cottage Grove Ave. with The Grove Bronzeville, a commercial building with a first-floor food hall showcasing Black female entrepreneurs.

“It’s the Black and brown developers that are eliminating food deserts, so it’s important to support those with the grit and focus to see developments through,” said Ciere Boatright, CRG’s vice president of real estate and community development. “It’s still a very white male-dominated industry, but in Chicago at least, we’ve got programs and initiatives in place that create opportunities for diversity.”

Walker compares developers to movie producers, and said projects run by minority-owned developers are more likely to hire other minorities, widening the economic impact.

“The developer is the producer of the entire project, the visionary who pulls together the financing and supervises the whole concept,” he said. “And if there were Black developers in charge of major projects, you would see more diversity.”

Fist pumps

Some private developers say forging joint venture partnerships with minority developers makes sense even outside of programs like Invest South/West.

The nonprofits Urban Land Institute and Local Initiatives Support Corp. forged their Yield program three years ago, bringing together more than two dozen seasoned developers and emerging developers of color, eventually deciding to launch a mixed-use development on a vacant plot of land at 67th Street and Wentworth Avenue in Englewood donated by Sterling Bay.

“It’s like our own Invest South/West project, but it’s operated privately,” said Teri Frankiewicz, chief operating officer of Crown Community Development and co-chair of Yield. “It’s not a mentorship program, it’s a mutual learning program because we all have the same goal of creating a more equitable Chicago.”

The emerging developers last year divided up into three teams, each tasked with coming up with mixed-use plans for the vacant site, Williams said. The company will soon announce the winner and look for ways to help the others find sites of their own.

The Habitat Co. started work on 43 Green, a 10-story residential and commercial building at 43rd Street and the Green Line on the South Side, several months before Invest South/West got started, according to Senior Vice President of Affordable Housing Charlton Hamer. The company developed it in partnership with P3 Markets, a minority-owned firm recently founded by Phillip Beckham and Juan Saldana.

“Invest South/West really followed us,” Hamer said. “Phillip Beckham knows the community well, has good relationships with people in the community, and that helps with the approval process. ... We partnered up because it was economically beneficial, and my hope is that other developers will see the same thing.”

P3 Markets will also partner with Habitat on the project’s second phase, another 10-story building that will likewise reserve about 50% of its units as affordable.

“We want to make sure we take careful steps, and grow within our means,” Beckham said.

But he said he and Saldana have big ambitions. Beckham said he wants to develop the land along the train lines and fill it with businesses, restaurants and new homes, and make sure local residents get the jobs created.

“When I was living on King Drive and (would) see construction going on, my kids would look out the window and never see anyone who looked like us,” he said. “Now, we make sure we have as many Black and brown people on the job, and when I see them giving fist pumps to these little kids, I think that’s why this is important.”