How Private Equity Investment Can Impact Local Communities | Healthiest Communities

How Private Equity Investment Can Impact Local Communities | Healthiest Communities

Jon Gray, President of Blackstone, confirmed By the end of January, the company had raised $100 billion of its $150 billion target for its flagship funds — an infusion that will expand the private equity giant’s nearly $1 trillion global footprint.

In High Point, North Carolina – where Blackstone owns half of the town center – this news is more than just a news snippet or coffee shop joke. When High Point Mayor Jay Wagner steps out of his office at City Hall, he is surrounded by approximately 7 million square feet of private equity investment – no small feat in a city of less than 120,000 people that is best known for hosting the the world’s largest trade fair for the furniture industry.

Global ownership is nothing new for big cities like New York. But it’s an entirely different reality for small towns, where until recently local landlords — who were known and responsible around town — ran the town’s clubs, churches, government buildings and charities. .

So is Blackstone’s growing global footprint good or bad news?

Let’s start with a basic premise. Buildings are saturated with an element of home, be it markets, residences, or some other use. These are the settings where people’s lives take place. Meanwhile, outside investment funds expect to come in, get a return on their investment, and eventually get out.

In the face of these apparent contrasts, developing mutually beneficial relationships requires intentionality – not binary thinking that sees investing as a panacea or a parasite. I call it a both/and approach.

It was in the late 1990s when major real estate investment fund Vornado acquired several buildings in downtown High Point. Some High Pointers were proud of the attention of big city investors, but others saw the beginning of a new era.

Downtown spaces were no longer measured in terms of relationships, but formulas. While Vornado’s words and actions showed some concern for the community, in his spreadsheets High Point was – as one local developer put it – “no different from Phoenix Or new York.” Indeed, in 2010, these spreadsheet formulas asked Vornado to leave High Point. As one High Point official described it, Vornado simply decided, “It’s not important to us anymore.”

Then, in early 2011, there were rumors that much of downtown was being appraised by what a longtime Republican official and High Pointer described as “lenders and investors of impartial private equity”. His concern was so great that he suggested the community “borrow a chapter from the Green Bay playbook” and buy the buildings, in the same way as fans and members of the Wisconsin community acquired the Green Bay Packers from the NFL. It was a radical idea born out of a remarkable era.

The ground was moving and the barbeques, taverns and barbershops of High Point were talking. Who had the financial muscle to catalyze such a deal?

By the time the weather warmed up in May, the answer was clear: private equity, headlined in part by Bain Capital. A billion-dollar transaction that year merged not only High Point’s major competing furniture showrooms under the same company, but also under the same banner as its showroom. biggest american rival, Vegas.

It seemed like decades of economic, social and cultural change had happened in just a few months.

It turns out that in the case of High Point, there have been synergies between what’s good for private equity investors and what’s good for the community. The private equity-backed company – International Market Centers, acquired by Blackstone in 2017 – invested heavily in downtown buildings, eliminated inefficiencies, and even returned a large office building to the community exclusively for local control and use.

Yet there are always social costs inherent in these transactions.

First, as local relationships are lost or transformed, holding building owners accountable for their actions can be complicated.

There is also a tension between the meaning and use of real estate for local residents and their new expectations of profit by outside investment funds. In High Point, some of the more organic ways commercial building owners had woven with the community were gone. One local landlord, for example, had allowed conventions, balls, and the city’s annual Taste of the Town fundraiser to be held in his space.

More importantly, private equity acquisitions almost by definition extract wealth from a region. They often combine several smaller, more local businesses, resulting in a rapid loss of local connections. Benefits that once went to households and local economies now flow to distant investors.

The bottom line is that local governments cannot depend on community goals that naturally align with the goals of outside investors. Even what appears to be a win-win situation requires attention, because the conditions that create it will inevitably change. (Of course, with a huge High Point footprint under one owner, a major change could be disastrous).

The both/and approach uses knowledgeable local leaders. When a wave of investment arrives, communities should already have strategically placed levees to protect what they hold dear. It’s a process that begins long before the transaction, with community meetings that identify the assets of the community – perhaps an important meeting place not discernible to outsiders, or a highly valued legacy business – and the creation of political tools to save these assets. Examples may include inclusion zoning, deed restrictions and community benefit agreements.

The both/and approach requires the support of national, state and county governments. For investors, engaging the interests of a local community with a strong, independent vision of its own can seem inconvenient rather than opportunistic. And yet, cultivating the long-term social, political and economic health of a community remains one of the most important functions of local government.

This tension must be tackled head-on, as investment funds will come and go, but communities will remain.

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