Real Estate Trusts Lag Behind in Race Diversity as Legacy Rules

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Public real-estate investment companies lag behind members of the broader S&P 500 Index in board-level racial diversity, remaining one of the industries most difficult for African Americans to enter and succeed in.

The boards of 30 real estate investment trusts in the S&P 500 have only 11% people of color, compared with about 20% for S&P 500 companies overall, according to a report by professional-services company Ferguson Partners. And in the past year, only 15% of the trusts added any minority directors, versus 23% for all S&P 500 companies.

“Real estate is a legacy industry with a lot of family and generational ownerships that existed for decades,” said Tammy K. Jones, co-founder and chief executive officer of commercial real estate investment firm Basis Investment Group, and one of the few female African-American leaders in the industry. “It’s built on a number of closed networks.”

Real Estate Trusts Lag Behind in Race Diversity as Legacy Rules

The Black Lives Matter movement has ignited a drive for racial diversity in Corporate America’s boardrooms and executive ranks. In August, California lawmakers passed a law that, if signed by the governor, will require public companies based there to have at least one minority director by the end of next year.

Various companies, including Zillow Group Inc. and United Airlines Holdings, pledged to add Black directors as part of the Board Challenge. High-profile celebrity Kanye West also took the issue to Twitter, saying on Thursday that “Black board seats matter.”

“There are many African-American families that don’t even own homes due to the significant wealth gap, let alone understand this broad industry called commercial real estate,” Jones, a newly-elected director at the publicly traded Mack-Cali Realty Corp., said in an interview.

Born in South Jamaica in Queens, New York, Jones was the first woman in her family to attend college. She majored in economics at Cornell University, and was introduced to real estate finance in a rotational program after graduation.

“Since real estate is a wealth-creating vehicle, there is an opportunity for the industry to create systemic change,” she said.

C-Suite Shortfall

Racial diversity in the C-suite of real estate companies is even more dismal than in boardrooms. There’s only one Black C-suite executive -- Troy E. McHenry, chief legal officer and general counsel of Healthpeak Properties Inc. -- in the REITs currently in the S&P 500, the report shows.

Among the 166 publicly traded, internally-managed REITs examined by Ferguson Partners, there are only three Black CEOs. Two of them have links to RLJ Lodging Trust, a REIT founded by Robert Johnson, who became America’s first Black billionaire when he sold Black Entertainment Television to Viacom in 2001.

Entering real estate as an entrepreneur is rare for African Americans, as many don’t have the startup funds and often find it difficult to access capital, said Jones.

Healthpeak’s McHenry said advocating for diversity from the top is a key solution, and that companies should take the extra step to recruit from a broader pool. For an open position of junior attorney he’s hiring right now, he received only two resumes from racially diverse candidates, out of some 75 to 100 candidates.

Real Estate Trusts Lag Behind in Race Diversity as Legacy Rules

“So we’re not stopping there -- we’re reaching out to law firms and some other groups” to find the most talented person in a more diverse pool, McHenry said in a phone interview. “This position is near and dear to me because this is my position that I got 10 years ago.”

Jeremy Banoff, vice chairman of Ferguson Partners, who advises companies on executive searches, said he expects public real-estate firms to perform “marginally better” next year in racial diversity, based on the search mandates his firm has received. “I see it loud and clear in the boardroom that’s being discussed,” he said.

©2020 Bloomberg L.P.

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