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No Incompatibility Here, Arturo Sneider Says of Raising a Fund Focused on Urban Minority Neighborhoods

May 17, 2023

Primestor — a 32-year-old development and investment firm that focuses on underserved communities while emphasizing environmental, social and governance principles — recently held its first closing for its inaugural fund, The Urban Vision Fund I. Primestor seeks as much as $300 million in equity commitments and intends to use the proceeds to buy and build dense, transit-oriented, mixed-use projects in urban minority neighborhoods in California. Belay Investment Group, a woman-owned real estate investment management firm that focuses on middle-market infill properties in transit hubs, has committed $100 million, and LGT Capital Partners, a global alternative investment manager, has made a $25 million commitment.

Primestor controls an $850 million portfolio of 2.5 million square feet of retail, and it has another 2.5 million square feet of commercial and residential space under development or in planning and entitlement. Co-founder and CEO Arturo Sneider spoke with Commerce + Communities Today contributing editor Joe Gose about the decision to raise the fund, the fundraising process and why investments seeking market returns can align with ESG goals.

How was Primestor financing projects prior to raising the fund? And why did you decide to launch The Urban Vision Fund I?

We’ve had institutional partners since about 2000, and we’ve done mostly programmatic joint ventures of one- or two-off deals. We made the decision to raise a fund before COVID, primarily because Los Angeles County Metropolitan Transit Authority and Los Angeles County are developing a massive light-rail mass transit subway system and a new zoning code. Those two events, together with the success of our prior projects, started necessitating that we have velocity and equity size. We need to be able to move more quickly in terms of potential opportunities, and because we can go vertical and build more density, we need more capital. Of course, during COVID, we put the fund on pause until recently.

How would you characterize the progress of the transit expansion?

The entire Southern California region will be interconnected by rail, and there are many stops that are being developed. We’ve also got the Summer Olympics coming in 2028, so construction is literally taking place throughout all of Los Angeles. And the pace is pretty fast. It is like watching the reconstruction of a city that never had good public transportation to begin with. But it’s something that we need to solve as the region grows and becomes more dense. As always, we’ll be concentrating on Latino and African American communities in high-density areas.

Do you have any projects along the transit line in the works at the moment? How would you describe your pipeline?

We’re actually in construction as we speak on a project at Vermont and Manchester in South Los Angeles, where in addition to building a Target and affordable housing, we’re building a training center for the Metro system that will be focused on employing local residents. This a project that we began before the fund close. It will open in about 12 months. As far as fund-related opportunities go, we have identified the majority of places where the capital is going, and it’s a pretty robust pipeline. But we also have some open-ness to expanding it if other opportunities emerge. Our projects will be a combination of repositioning existing assets as value-add plays as well as ground-up development.

Do you think a potential economic slump ultimately could open up those other opportunities?

It’s hard to say. I think the economic situation is giving investors pause. Depending on how you label it, this will be my fifth or sixth recession. And if we actually go into one, mainstream markets tend to be more secure and capital moves away from perceived weaker markets. So that usually gives us more opportunity. I’m not wishing pain on the economy or anybody else. But for us, those are the moments when we have done our best, and having dry powder certainly helps.

How was the fund received? With your demographic and ESG focus, I imagine it wasn’t the most conventional real estate fund investors had come across.

Raising a fund for the first time is not always the easiest route to go. The interesting part about it was that because our internal rates of return are above market or at the least at market, performance was not an issue. The fact I had never raised a fund was. The funds business wanted to categorize me as an emerging manager even though I’ve been in the business for about 35 years. But it’s not that easy for institutional investors to find a 30-year-plus, minority-owned and minority-led company that has a track record. That definitely opened up some doors. As far as ESG, we have been doing ESG investing since we created the company in the 1990s, so we didn’t have to label it as such. At the same time, institutional investors could really address a lot of their ESG needs and wants with this one particular fund.

What are some challenges in raising capital for a fund that has an ESG approach? And how would it compare to trying to raise capital for a similar fund, say, five years ago?

It’s an interesting time for ESG. On the one hand, there is a lot of greenwashing in the market, where people are trying to hurry up and create an ESG niche or strategy. But seasoned investors are pretty savvy at saying: “Well, let me look at your track record. Let me look at your organizational chart from 10 years ago. Is this a recent effort just because interest is high right now, or have you always had this strategy?” But then, the minute investors see that you’re a minority-owned fund with a focus on ESG, they wrongly categorize you as an impact fund. Therefore, they think that they’re getting something less than a preferred return. But the reality is, we’re a for-profit firm with a strong track record that happens to also be focused on ESG. We came through the Global Financial Crisis successfully, and our portfolio today is stronger than it was before COVID. All of these different factors helped quite a bit.

Employer-sponsored retirement plans have not been allowed to consider factors like the environment and social goals when evaluating investments, but the Biden administration has lifted that ban. What are your thoughts? Do you see challenges for Primestor and the industry at large?

It’s a fascinating topic. Investors like pension funds are always going to look at returns because they have obligations to pay. The broader question that needs to be answered — and not only in the U.S. — is: When do we pay the price for doing things the way they have been done? We are a world that has seen an explosion in growth at the expense of the environment and social issues like wage growth and other things. The discussion that’s happening right now with the next generation is centered around: Is there a different way, politically or financially, to be profitable and also sustainable over the long term? I think investors today, and rightly so with their obligations, are saying: “Hey, we care about sustainability, and we want to make sure that it is part of our conversation after we clear the deck on returns. Otherwise, we're not sustainable.”

Incorporating ESG into investment decisions makes our industry that much harder. But companies will begin to find ways to do what Primestor has been doing all these years, which is to both generate a return and pursue ESG and do both well. It has just been our culture since the beginning, but I think there’s still a lot to do and a lot to learn.

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