Experiments in Community Ownership Taking Charge of Commercial Real Estate

Editors’ note: This article is from Nonprofit Quarterly Magazine’s summer 2023 issue, “Movement Economies: Making Our Vision a Collective Reality.”

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In 2016, activists in the Eastside neighborhood of Boyle Heights in Los Angeles, a historically diverse and predominantly Latinx community, were organizing against gentrification that was encroaching on their community. Activists directly confronted new art galleries with protests and headline-grabbing disputes over who has the right to live and work in a community that has been the center of Mexican-American history and culture for generations. ¹

During this time, nonprofit organizations like Inclusive Action for the City, which I cofounded in 2008, had to do our own soul-searching. Was our advocacy for community members, including the most marginalized—such as immigrant entrepreneurs—enough? Were our microloans an adequate tool to help community residents build wealth? What levers could we pull to combat gentrification, prevent displacement, and protect impacted community members and small businesses?

Small business owners love their businesses, but they don’t often envision building a massive money-making empire; they simply want to do what they love that pays them, their employees, and their families a decent wage.

These questions led us to take on a new venture at Inclusive Action: an effort to acquire land and property in neighborhoods experiencing gentrification. This venture would require our team of advocates, urban planners, and microlenders to stretch our capacity and build new skill sets. If investors were coming into a community to buy land, we thought, why couldn’t we assemble a new approach to take properties off the speculative market first? Early on, we set our sights on supporting one of the most visible victims of gentrification: small businesses.

Mission-Driven Land Acquisition

In communities all over the country, commercial corridors are lined with small mom-and-pop establishments that provide communities with food and services but also hire locally and act as ambassadors for culture. Long-time small business owners are often the unofficial historians of a community, helping to make a neighborhood truly a neighborhood. Despite the American romance with such entrepreneurialism, however, many small business owners in communities like ours are simply trying to make ends meet. Small business owners love their businesses, but they don’t often envision building a massive money-making empire; they simply want to do what they love that pays them, their employees, and their families a decent wage. For many immigrants, entrepreneurialism is the sole way to make a decent living in the United States due to the structures designed to lock them out of the job market.

Unfortunately, gentrifying market forces don’t empathize with the goals of entrepreneurs in our communities. And without commercial protections, small businesses in California are the first to be displaced when a neighborhood begins to change. Strong policies to curtail displacement are necessary, but we need to think about other tools that can support small business preservation, especially legacy businesses, BIPOC entrepreneurs, and other critical enterprises that maintain the cultural fabric of a community.

At Inclusive Action, we believe that one tool to preserve small businesses is mission-driven land acquisition. If small businesses can have a share in the property they activate, they will have much more power to stave off gentrification and stay in their community. If you own, you have more agency to choose whether you’d like to stay in a community or leave. When you rent, your ability to stay depends on the goodwill of your landlord and the clarity of your lease (if you have one).

With this in mind, we created Community Owned Real Estate—a unique, collaborative project to acquire commercial buildings on the Eastside of Los Angeles. The project is led by three local, mission-driven organizations: Inclusive Action, East LA Community Corporation, and Little Tokyo Service Center. ² CORE’s goal is to preserve local communities and culture by offering affordable spaces to small businesses and community-serving nonprofits.

In 2019, we worked together to acquire five commercial buildings that today are home to 21 businesses and nonprofits. The vision is to keep these properties off the speculative market and create ownership opportunities for long-term tenants in the future.

The journey since then has been an adventure, offering important lessons for us that I believe are valuable for the community development field. We encountered five challenges along the way:

Patchwork fundraising. In most real estate transactions, a buyer needs to have cash to contribute to its capital stack: the money you will use to buy the property in question. In our case, we worked to piece together funding from four different philanthropic sources to contribute $1.2 million to a capital stack that consisted of a $10 million New Markets Tax Credit Program allocation. I’m proud of how our partnership group worked together, and it’s amazing that we were able to raise these resources in about a year. We wrote grants together, went on site visits together, and made compelling cases about the effectiveness of our collaboration, the trust we had with each other, and how we would implement this project. But the process should have been easier. Even the dynamic of a trio of organizations working together required foundations to stretch beyond what they’re used to. Some philanthropic allies had to advocate internally to give us a chance, and others deferred serious review of our requests until we got the project off the ground and proved our concept. (I know, you’re thinking, How can anyone expect you to get a project off the ground without money? Some do!)

Dedicating the time to clarify your intentions and designing systems that won’t rely on you are major challenges for leaders who are hustling to launch a project without much support.

Traditional views of “risk.” Our project was catalyzed by Genesis LA, a Community Development Financial Institution that was willing to bet on our idea. Early on, many friends and advisors couldn’t believe that Genesis LA would dedicate precious New Markets Tax Credits to a collaborative that included novice real estate stewards like Inclusive Action. The project also consisted of multiple properties, a zany idea of transferring ownership to tenants in the future, and no other lenders at the table. As many shared concerns about the project’s viability, we kept going, and Genesis LA remained steadfast. To this day, I don’t think our project would have gotten off the ground without them. Too often, our field adopts the same definition of “risk” as do large banks that never wanted to lend to our communities to begin with. If we truly want to fight gentrification or, better yet, address the racial wealth gap, we’ll need to invest in bold projects that aspire to move the needle, not keep things the same. This type of investment will require a new definition of what “risk” is.

Designing systems that last beyond you. When CORE was just beginning, the late Dean Matsubayashi, then the executive director of Little Tokyo Service Center, told me that we needed to institutionalize the vision of CORE in its founding documents and clearly define our roles and responsibilities. “We can’t assume we’ll always be around,” he shared. He was right. Since acquisition, our world not only lost Dean to a tragic illness, but our project team also has gone through a number of personnel changes. On several occasions, we’ve had to revisit our founding documents, reeducate new staff on the project, and make course corrections to stay aligned with our mission.

Dedicating the time to clarify your intentions and designing systems that won’t rely on you are major challenges for leaders who are hustling to launch a project without much support. If you are working in a trust-filled group, few people want to be the person who calls for the tedious work of writing down everyone’s responsibilities along with the accountability measures if someone fails to do their part. And fewer people consider a succession plan early on in a project. We won’t be here forever, and when it comes to real estate, we must remember that we are simply temporary stewards.

Navigating bureaucracy. All of us have heard the rhetoric of government largesse and inefficiency. We see news headlines of businesses moving to other states with fewer taxes and less bureaucracy. Before CORE, I chalked up these comments as political tropes meant to cause division and disinvestment in our public sector. But through this project, I’ve learned that the experiences at the source of these comments are valid. Three out of the five buildings we acquired needed tenant improvements. The improvements we forecasted were relatively simple and tenant-serving, including bathroom renovations, installing new HVAC systems, and even a new roof on one building. Our budgets included thoughtful forecasts of what each of these improvements would cost and how much time they would take. What we didn’t account for were the nearly insurmountable costs due to inspector delays. Inspectors from public departments like building and safety, fire, and local utilities cost us thousands of dollars, mostly due to poor communication, missed meetings, and lack of communication among personnel. It was commonplace for inspectors to miss appointments, provide conflicting work orders, and send inspectors who each interpret the local codes in different ways. As I write this, we are reeling from a long list of new project requirements for our fifth building that were given to us at the final inspection: requirements that were never communicated to us or were never part of the plan. And yes, we’ve been renovating our small portfolio for three years, double the time we forecasted due to bureaucracy and public officials who don’t realize that each day you are delayed is another day when your project can’t earn income.

Learning that it’s not “rocket science.” The staff at Inclusive Action didn’t know much about real estate when we began, but what we quickly realized is that it isn’t “rocket science.” Over the years, we’ve interviewed venture capitalists, private equity investors, real estate developers, and other “experts” in large-scale development and the movement of capital. On their most impactful projects, they didn’t really know what they were doing, either.

Question: “So how did you figure that out?”

Answer: “We asked other people how they did it.”

Question: “Where did you get the capital?”

Answer: “We just called people in our network to help us.”

Over and over again, we see people in the private sector put together massive proposals and get funding, but when you look under the hood, they may not have the experience that risk-averse people in our own community development field may assume. What they may have are great communication skills, effective problem-solving abilities, and unshakable persistence. What’s more, they don’t take no for an answer. These observations were empowering to our team: If these folks can figure it out, why can’t we? Too often, our field is paralyzed by what we perceive to be too many unknowns. If we’re willing to put in the work, we can figure it out, too.

Core Reflections

We’ve learned a tremendous amount over the last five years due to CORE. We’re laser focused on making sure we can retain ownership of our properties and get on track to build a mechanism to share ownership with our tenants. (Pray that we get our permits, so our tenants can occupy their spaces!) But we’re also keeping an eye on how we can scale this work.

To do this, we believe mission-driven people need to consider how we’ll identify a steady stream of resources that will provide the capital needed to quickly acquire properties in vulnerable communities. Why can’t we have a mission-driven Blackstone that moves quickly to acquire assets? If they can do it, so can we, right? If philanthropy is too risk averse, we’ll have to consider the role of the public sector in moving major capital to invest in priorities like small business preservation and antigentrification efforts. In Los Angeles, a legendary group of organizations came together to pass Measure ULA, a “mansion tax” that aims to raise $1 billion every year for affordable housing. I believe that we should set our sights on moving capital at this volume. Piecing together a number of small grants for one project is too slow—and frankly, we’re running out of time.

Scaling this work also requires that we move beyond crafting beautiful visions and dive into the nuts and bolts of implementation. This means doing the less glamorous work of organizing with each other—without egos, clarifying our commitments in writing, and building systems that are meant to last way beyond us.

As we center the mission, we’ll also have to let go of our fear of the unknown. Inclusive Action is an economic justice organization that began its work as an advocate and became a CDFI-certified microlender because street vendors were noting the lack of low-interest lenders who would help them purchase equipment for their business. Our foray into real estate emerged in response to community activism and the experiences of our loan clients who were worried about displacement. Are we experts in real estate acquisition and development? No. But we are listening to the needs of community members, and we’re willing to work hard to figure out solutions.

As a field, we have to find solace in the fact that many people are like us: trying to change the world without a playbook and without the “experience” needed to get it done. We already have what we need. We work with and for community members who get up every day to care for their families without much certainty at all—they simply have their mission, their work ethic, and their persistence. Talk to a street vendor who lost a day of work because of a rainstorm—they are actively trying to figure out how to get back to work. We should approach our work in the same way.

 

Notes

1. Jennifer Medina, “Gentrification Protestors in Los Angeles Target Art Galleries,” New York Times, November 5, 2016, www.nytimes.com/2016/11/05/us/los-angeles-gentrification-art-galleries.html.
2. For more information on the financing details, see Tom de Simone, “Community Ownership of Real Estate: A Los Angeles Story,” NPQ, December 21, 2022, nonprofitquarterly.org/community-ownership-of-real-estate-a-los-angeles-story/.