Location isn’t the only thing that matters in real estate. Race matters as well. If you own commercial property in an area where the Black population is dominant, the property is devalued, found a new study by Brookings Institution.
The recently released research shows that commercial real estate is valued differently depending on the height of the Black population in the area. The devaluation in majority-Black ZIP codes results in wealth losses of a whopping $235 billion for residential real estate and $171 billion for retail real estate.
Brookings, however, did not find any evidence of the devaluation of office space.
This drastic devaluation not only affects the property owners, but also the Black residents and communities, Brookings reported.
“We believe the devaluation of commercial real estate in Black neighborhoods is consistent with a general pattern of devaluation of Black people living in these neighborhoods, which has deep roots in U.S. history,” the authors of the study wrote. The authors are Jonathan Rothwell, Nonresident Senior Fellow of Brookings Metro; Tracy Hadden Loh, Fellow – Brookings Metro of Anne T. and Robert M. Bass Center for Transformative Placemaking; and Andre M. Perry, Senior Fellow, Brookings Metro.
The authors added, “Devaluation may operate through private decisions, such as discrimination against individual Black owners, but it may also operate at the neighborhood level, which is not relevant to traditional civil rights legislation.”
Black homeownership is currently at 42 percent, about 30 percentage points lower than that of whites. In commercial-property ownership, only 3 percent of Black households own commercial real estate, compared with 8 percent of white households, Bloomberg reported. And Black commercial real estate owners have smaller holdings— valued at just $3,600 on average, compared with nearly $34,000 for white households.
These racial disparities in commercial property ownership hurt Black entrepreneurship since most Americans who launch businesses tap into their personal wealth, Bloomberg reported.
It is also important to note that while Black Americans own disproportionately fewer commercial properties, commercial real estate in predominantly Black neighborhoods is devalued regardless of the race of the owner.