When developers fixed up a vacant house on Detroit's historic Atkinson Street—refinishing the hardwood floors, adding stainless steel appliances, and bringing back the beauty of the classic brick home so it could be rented—some of the neighbors made a cut of those profits, too.
In a new business model, the development company behind the renovation is trying to share the wealth with long-term community members as home values rise around them.
"We have a unique environment where we can bring resources to a community, we can enhance it, we can enrich it, and the people who benefit naturally are those who stood by the city in the worst of times," says David Alade, co-founder of the startup development company Century Partners.
Alade and his cofounder Andrew Colom both used to live in New York City, where they saw neighborhoods gentrify, leaving some residents behind. Detroit, they realized, could be different. During the housing crisis, when it was possible to buy a house for $1,000, many people saved neighboring homes or old family houses at foreclosure sales. Now, as real estate slowly picks up in the area again, some developers offer cash for those houses. Century Partners realized they could also offer equity.
"They contributed to the fabric of those communities, they're part of the reason why the community is an attractive and interesting place for people to live," says Alade. "We wanted them to benefit not only emotionally but physically, tangibly, in a creative type of way, from the resurgence we're seeing in the neighborhoods in Detroit."
It works like this: If someone bought the house across the street five years ago, they can now sell it to the developers, who will give them cash and a stake in a fund that owns all of the developers' properties in that neighborhood (30 units, so far). The fund sends out quarterly payments to everyone with equity. As rents rise, investors earn more.
The startup is focused on renovating houses in neighborhoods that are still struggling, but on the tipping point of revitalization. "If you look at how development has gone so far, there's been a lot of positive press about the revitalization of the city," says Alade. "But a lot of that really has been focused really on downtown and midtown. Only about 5% of Detroit is living in downtown and midtown—the vast majority live in different neighborhoods." It's the other neighborhoods that they want to help bring back.
In other places where neighborhoods are quickly changing, like Oakland, California, or Brooklyn, New York, residents might be more likely to rent than own a house. The exact model Century Partners uses wouldn't work in those situations. But it could be adapted.
"Government policy does do this, they just do it in an ineffective way," says Colom. He gives the example of the Barclays Center, a massive sports arena in Brooklyn, where developers built some new affordable housing to help replace what they'd torn down. Instead of offering cheaper rent, developers could have created a fund that took a percentage of profits and gave it directly to neighbors—maybe in the form of partial scholarships to college.
"I'm confident that we could find other areas, other cities, where you know that prices are going up, to kind of get in now and create an infrastructure that facilitates ownership, equity, and a pathway toward wealth creation," says Alade. "It's a matter of policy. It's not a difficult thing to do, but I think the incentives aren't in place right now from a developer's side to do it."
Now is the right time to change that. "The desirability of cities is greater than it's ever been before," he says. "This is where people want to live. I think there's a unique opportunity at this point in time—that as these properties become more valuable, equity vehicles are created so that these assets are owned by the people who've been there."