Develop Detroit’s Sonya Mays: ‘There’s an Abundance of Opportunity Here’
- Jul 07, 2016
Detroit—Develop Detroit made headlines recently as the city’s first nonprofit development firm focused on addressing Motor City’s housing issue. The mission-driven social enterprise is led by Detroit native Sonya Mays, former investment banker on Wall Street who returned to her hometown to be a senior adviser to City of Detroit’s Emergency Manager Kevyn Orr.
For the last year and a half, Mays drafted out plans for Develop Detroit which officially launched in mid-June this year. Multi-Housing News spoke to Mays and Ben Phillips, VP of real estate within the neighborhood-focused organization, about Develop Detroit’s first projects, financial support and long-term objectives.
MHN: Tell us a little bit about Develop Detroit. How did it all start?
Sonya Mays: Our story goes back to post-Katrina New Orleans. We have a very strong partnership with an organization called the Housing Partnership Network which is based in Boston. They are a nonprofit organization that goes around the country starting social enterprises to support housing missions. After Katrina, they launched an organization called the Gulf Coast Housing Partnership that started to do some phenomenal neighborhood-based development work. For some years, we’ve been pushing for that successful model that was first established in New Orleans to be brought to Detroit. Going back a couple of years, here in Detroit, a group of local business leaders and philanthropic leaders put together a plan to fund the organization we now know as Develop Detroit. I’ve been working on this for about a year and a half with that group of leaders.
We wake up every morning trying to figure out how we can create better spaces and a better environment for the 90 percent of Detroiters who don’t happen to live in the central business district. Our primary tool for doing that is actual real estate development. So, we do primarily multifamily at the moment, new constructions and rehabilitation of existing units.
MHN: What was the biggest challenge in creating Develop Detroit?
Mays: One of the initial challenges was just trying to figure out, in a sea of opportunity, where to really target our resources first. In a city with such wide-ranging needs, making those kind of decisions was one of the more difficult aspects of getting us off the ground.
Ben Phillips: Your greatest opportunity is also often your greatest challenge and the decades of disinvestment in the city of Detroit which are only now beginning to turn around in a way that appears to be sustainable and have a long-term trajectory. There’s a great deal of opportunity, but also a lack of infrastructure. We are at it to build our own infrastructure, and start up our organization and at the same time trying to build a business infrastructure for the kind of work that we do which is market-informed, public-private partnership real estate development. And we are relying on a network of professionals and establishing ways of doing business and professional relationships. Some of these exist and some don’t. Some of the things that we are trying to do are not just new for us, but also for the market.
MHN: What projects are you developing now? Have you managed to set some short-term objectives?
Phillips: We’ve got a pipeline of three projects underway. We’re not in the position to share their name or their addresses at this point, as there are still sensitive negotiating points to be established. Together, we expect that they’ll represent about 400 units of housing that will be closing on acquisitions this year and breaking ground next year. They’re all developments that involve existing apartments that are occupied. In two cases, there are also preservation deals. So, we are talking about affordable housing, restricted income properties that are at risk of conversion or of loss of those units and also, in two cases, they also involve production of new closed market rate up to affordable units.
We’re looking at properties where there is a value-add opportunity, maybe to add some additional units to increase residential density in some important commercial quartiers. This is an important goal of ours and of the city’s. And also to bring a mixed income community to the market whereas right now these are either fully market rate properties or they are fully affordable. We would like to extend the market rate reinvestment that’s happening in the central district into some of the neighborhoods while also making sure that we’re preserving opportunities for Detroiters who are lower income to remain in those neighborhoods.
MHN: JPMorgan announced a $4 million investment in Develop Detroit over the next four years, and the money was used to start the firm. What can you tell us about the firm’s financial support?
Mays: We have a few different layers of funding. JPMorgan Chase provided our start-up operational capital. They pre-funded our core operational expenses for the first two years, until we can get enough deals to support ourselves. Another group of foundations came in and said… We think it’s important that you have equity, so you can pursue transactions, particularly when you can be aggressive in pursuing transactions in areas where there’s rapid gentrification. The Ford Foundation in particular has granted us $2 million in equity support.
A large national bank provided a line of credit for us that allows us to go out into the market and be very opportunistic and have our own internal source of capital to do acquisitions and to get transactions of the ground. Finally, we are in the preliminary stages of putting together a mission investor-driven fund that will give us a different source of capital. We seek to leverage our savings everywhere. All told, we have a number of different capital sources and they were all strategically put in place to solve specific problems that a non-profit real estate start-up might have.
MHN: How many people currently work for Develop Detroit?
Mays: We’re very much like a start-up. We’re five people right now. We are gearing up to add a handful of people to that, but I don’t know if we’ll ever end up as a super large organization. Certainly not in the first three to five years.
MHN: What are Develop Detroit’s main objectives for mid-term and long-term?
Phillips: Our goal is to make a significant impact in the city and some target neighborhoods and to develop at a scale and in a concentration that produces significant market impact. That will really drive our production activity. You always have to project something so that you’ve got some benchmarks to meet. We have set some production benchmarks which we think are about 300–350 units a year in multifamily and 500 single family each year.
MHN: What can you tell us about Develop Detroit’s plans on renovating existing homes?
Mays: There’s some sensitivity related to how much we can reveal on this subject. The City of Detroit has rather progressively decided to take an approach that sees them putting out for bid a geographically defined area in which the public sector owns much of the multifamily/single family stock. Those processes are due to kick off sometime in the next two to three weeks. We’ll be active bidders on that.
We also like going into areas where we have strong purpose and so we really like working in neighborhoods where other like-minded organizations are, like Habitat for Humanity, the Detroit Land Bank and others. Any place where we see a merging of all those different stakeholder groups is a place that we really like to operate in. It’s important in this environment that everyone coordinates and collaborates.
MHN: What do you think is the most urgent housing issue that needs to be addressed in Detroit?
Phillips: It’s a broad issue, but supply is the most urgent issue. Across all market points. The supply of quality housing options that work for arising professionals, for long-term residents, for seniors, for lower income households. At every level there is a shortage of quality housing options, both in the rental and “for sale” spaces. There are certainly plenty of units, but they’re not really move-in ready. They might not be available, because they are not online at all or they may just be really sub-standard.
So, if there’s someone moving in Detroit looking to buy a home or to rent an apartment or if you’re a Detroiter looking to move and need to find a new quality apartment, it is hard to navigate. So our most immediate need is, I think, construction at every income level. There has been some progress in that regard. There have been units produced, but they have been either at the very high rent level or at the very low income level. There’s a huge space in the middle that there has been nothing produced for or very little. We are particularly focused in that middle area.
Mays: It’s a little counter-intuitive, particularly because in the areas around Detroit housing for so long has been… Look at all the houses that are available and what you can get for $500 or $1,000. The narrative around Detroit may be implied that there is an over-abundance of housing and that’s true on a certain level, but what is also true is that there is an absolute thirst of quality, move-in ready housing across that middle income pipeline.
MHN: The business model for Develop Detroit is rather unique. Do you think it’s sustainable on the long run?
Mays: Yes, absolutely. There’s a really nice video that we like to show people about our “sister” organization in New Orleans. I think that provides a wonderful reference point for where we’re heading. They just celebrated their 10-year anniversary. They have done over 2,500 units of housing all over the Gulf Coast region. We absolutely believe that our model is sustainable. Other cities have similar organizations. For a variety of reasons, Detroit just never developed this type of public-private housing model. This is not a platform that is wildly radical. It just happens to be wildly radical for the Detroit environment.
We’ve been pretty cautious and thoughtful about building out. We have two-three projects that are imminent. That gives us a lot of confidence to start adding staff. There’s an abundance of opportunity here so, yes. We think it’s sustainable. We managed to show early on with this type of leadership a different possibility for housing in Detroit. Different than this area has seen in 30–40 plus years.
Develop Detroit aims to develop mixed-income multifamily residential, single-family homes, mixed-use and commercial properties, community service facilities, supportive housing for those who are homeless, and educational and cultural centers.