After years of working in US states, engineer and entrepreneur Brian Rice decided he wanted to invest in his hometown of Birmingham, Alabama.
He had enough cash to buy eight buildings, all about 100 years old, in his predominantly black neighborhood of Ensley, but he needed a bank loan to redevelop them. He thought it would only be a formality.
What he discovered was a system stacked against people like him.
“I thought it was the worst appraisal in the US,” he says, recalling the moment he opened the appraisal the bank had given him for his properties and read the rationale.
“They compared my eight historic properties to farmland about 14 miles away, and they compared my buildings to an abandoned car wash. Nothing in my properties looks like these. “
- World Business Report: Banks Rate Historic Buildings as Farmland in Black Communities
Five of his properties were in good repair and some had seated tenants, while three needed a complete renovation. He had big plans to build apartments and restaurants, as well as exhibition spaces for local artists and incubation hubs for fledgling businesses. He wanted to earn money, while supporting his neighbors and their aspirations.
By the time he received the letter from the bank, he had already been facing three months of stress and delays. He had approached half a dozen banks, convinced that with his track record and “strong credit rating” he could get the financing in four to six weeks.
That didn’t happen and Mr Rice believes Ensley’s being a black neighborhood was the main factor, especially after being asked about ‘Ensley’s demographics’.
A bank eventually sent someone there to assess their properties 12 weeks later. They valued the buildings at zero dollars and just over a dollar a square foot for the land alone. As most bank rules say a property must be valued at a minimum of $ 50,000 (£ 39,000) to get a line of credit, her case was closed.
During this process, he spoke to other investors and friends in a similar position and realized that his case was far from unique.
“It’s one thing to do that with a building,” he said, “if it’s small and falling apart. It’s another thing to do with eight buildings with seated tenants. So I said, ‘This is my time to talk and get up on my feet. It shouldn’t happen to the next person. ”
Birmingham was one of the most segregated cities in the United States, which led Martin Luther King to launch “Project C” in 1963, which was one of the most influential campaigns in the civil rights movement.
After a series of marches, sit-ins and arrests, Birmingham shops and businesses have finally agreed to desegregate all toilets, lunch counters, dressing rooms and fountains and hire more black workers.
But Mr. Rice believes that for black residents, segregation, although of a different type, is still part of their lives.
“The reality is that African Americans have always been excluded from accessing bank capital. In many cases, they don’t own the buildings in their communities or they just have run down buildings that they can’t move on. . It is pure frustration. ”
And the data corroborates his real-life experience.
Andre Perry of the Brookings Institution is from the black neighborhood of Wilkinsburg, Pittsburgh. He has devoted years of research to his new book, Know Your Price – Valuing Black Lives and Property in America’s Black Cities.
Properties in black neighborhoods are 23% cheaper than their counterparts in white areas, an average of $ 48,000 per home, he says. This equates to roughly $ 156 billion in lost equity “just because of the concentration of blacks around him, not because of education, crime, quality of housing or demand. It literally robs people of the ability to get up.
Last year, Mr. Perry testified before the U.S. House of Representatives Financial Services Committee about racist lending practices and he calls for reform in the way valuations are done in the United States.
For their part, many banks say that the lives of black people are important. JP Morgan Chase, the largest bank in the United States, launched its Advancing Black Pathways program just over a year ago. Program manager Sekou Kaalund said the goal was to “ensure that we have as many of the 2.6 million black businesses in this country ready to receive capital and thrive.”
However, these lofty ideals have yet to transform the banking landscape. For example, in Chicago, for every dollar loaned by banks to white city neighborhoods in 2012-2018, they only invested 12 cents in black neighborhoods. And JP Morgan Chase loaned 41 times more money in white areas than in black areas.
Kaalund acknowledges the results as “disappointing,” but stresses that systemic change is needed to make things better for black entrepreneurs and potential and current owners.
He says his bank’s Entrepreneurs of Color Fund pointed out that these borrowers could not have obtained a loan from any bank. “Your models would have said that these borrowers would not have paid you back. They don’t have the guarantee. ”
He thinks it’s possible to assess how loan risk is assessed, but there are challenges.
“When the Federal Reserve examiners come in and you make loans with lower credit quality, the amount of capital you need goes up. So it’s not just a lever and it’s the banks. It will be the system. “
Some say that investing in black-owned banks is a solution to this problem of undervaluing black assets and accessing finance. Streaming giant Netflix recently said it would put 2% of its money (roughly $ 100 million) into black-owned financial institutions.
Netflix bosses cited the book, The Color of Money, Black Banks and the Racial Wealth Gap as inspiration. Yet its author, banking law professor Mehrsa Baradaran, is not so sure that black banks alone can correct historic wrongs.
“Time and time again we have used these gentle, anemic solutions to these huge problems. If you combine the assets of all the black banks – and it’s only 20 black banks in this country – it’s a bad weekend for Citibank, ”she says.
In 1863, when President Lincoln signed the Emancipation Proclamation, black Americans owned less than 1% of the total wealth of the United States. Almost 160 years later, that number has barely budged.
Professor Baradaran says a key element in solving this problem is financial reparations, which would put black people where they would have been, had it not been for racial discriminatory laws for hundreds of years.
She also wants lawmakers to consider something like a public banking system – similar to those in Europe or China – in areas that may not be profitable in the current system dominated by a handful of banking giants.
As financial institutions and academics scramble to find ways to tackle racial economic inequalities, in Birmingham, Brian Rice still lacks funding for his development project.
His voice breaks as he talks about friends who support him and why he keeps knocking on doors, looking for funding.
“The biggest challenge for African Americans is accessing resources. If unfair banking is removed from my history, all of my eight historic buildings would be renovated and there would be thriving businesses that improve the community.
“It really works out of hope and dreams and that spirit of non-surrender right now. “