Ask any adult to list the most important factors that shaped their success, and where they grew up would rank very high. Groundbreaking research at Harvard University proves the point. Professor Raj Chetty was given access to millions of tax returns from the late 1990s so he could determine which children raised 25 years ago became successful adults, and which did not. Why did kids turn out so differently, with one attending college, getting married and enjoying a good career, while the other dropped out of school and never escaped poverty?
The answer lies in where they grew up. Neighborhoods shape children into the adults they become.
Chetty even identified specific areas that he coined “high opportunity neighborhoods” and created an interactive map that pinpointed the exact neighborhoods in America that offer low-income children the best chance to rise out of poverty.
In response, the U.S. Department of Housing and Urban Development (HUD) pivoted its Section 8 Housing Choice Voucher program towards high opportunity neighborhoods with excellent schools, beautiful parks and low crime rates. The government issued vouchers to pay rent to landlords on behalf of low-income families in these areas.
But nothing changed.
Why? Because Section 8 voucher holders couldn’t find landlords willing to rent them homes in great neighborhoods, so these tenants were stuck. That’s the quandary that Dallas-based High Opportunity Neighborhood Partners is trying to fix.
Canadian-born entrepreneur Matthew Berke grew up in a broken home with a single mom mired in poverty and distress, but his community provided free education at Montreal’s high-quality schools. Forty years later, Berke is a successful Dallas-based entrepreneur and credits his childhood high opportunity neighborhood for the adult he became. So, when he learned that Dallas-area single moms couldn’t get a landlord to rent them a home, he jumped into action.
Families with Section 8 Housing Choice Vouchers, who are primarily single African American mothers, want better lives for their kids, but landlords rejected them because of misperceptions about their quality as tenants. Contrary to the stereotypes, local Dallas realtors told Berke that Section 8 single moms are amongst the most grateful tenants they have ever seen.
“They not only don’t destroy the home, but they almost create a shrine out of it because they are so fundamentally grateful for the opportunity to live outside of tough neighborhoods where their kids experience all sorts of things, my realtor told me,” Berke says. “And it just struck me right then that the real estate community wrongfully segmented these folks into a bad bucket, and in fact, it was different.”
Berke concluded that many single-family rental companies ignored the moral and business case for renting homes in high opportunity neighborhoods to these tenants. So, he founded High Opportunity Neighborhood Partners to fill the gap.
After exhausting his own capital, Berke approached his long-time friend Grant Herlitz, the head of a major real estate company with experience building companies from start-up to large scale. At first, Herlitz was on the fence about the idea but decided to take on the challenge, and joined Berke as co-owner of High Opportunity Neighborhood Partners.
Today, the company buys five to 10 homes a week in five different cities across the U.S., and leverages cutting edge software to automate all parts of the business. From accounting to work orders, tenants can use a software portal to easily manage their home.
In addition, High Opportunity Neighborhood Partners links tenants with local supportive services, which include transportation, financial literacy and credit score enhancement. They have additional plans for tenant job training, health and wellness, and early childhood education down the line. In fact, High Opportunity Neighborhood Partners already hired two current tenants as leasing coordinators. “It’s a win-win for everybody. Our tenants are unbelievably happy and grateful,” says Herlitz.
High Opportunity Neighborhood also builds in corporate practices that takes the tenant’s reality into account. First, there are no tenant application fees or credit checks. These tenants don’t have spare cash, so charging a fee would shut them out. And why check credit when the U.S. government is paying most, if not all, the rent? In fact, Berke is convinced landlords use credit check as a legal way to reject families.
“By the time they show us the voucher, the tenant is already considered qualified, because that means that the housing authority had already run their background check,” says Herlitz.
Once the voucher is verified and the housing authority signs on, the house is reserved for them and cannot be taken away. That differs from the standard practice where landlords promise the same house to 10 different tenant prospects.
“When you are a Section 8 tenant and finally find a rental home, you are forced to give notice to your existing landlord because the housing authority won’t pay two landlords at the same time,” says Berke. “And guess what? The landlord who promised you the home gave it to someone else, probably to a private tenant, and maybe never even intended to give it to a voucher holder in the first place.”
“By offering the tenant a home and following through on our promise, we are trying to build up their sense of confidence because they deserve to be treated no different than any other American.”
Berke adds, “That’s why a quarter of our tenants that I’ve talked to in Minneapolis are living in a car or homeless, despite having these vouchers.” They gave up their current home in exchange for a new home that is never provided—so they become homeless.
“By offering the tenant a home and following through on our promise, we are trying to build up their sense of confidence because they deserve to be treated no different than any other American,” says Berke, who gets calls from tenants all the time. “’Matthew, are you still there? Is the house still there?’ they would ask. And I say ‘yes’ and realize that they suffer from PTSD because they have never been treated normally by a landlord—and we are here to change that.”
In return, High Opportunity Neighborhood Partners sets high expectations. Paying rent on time and thereby building up their credit is just the start. “If you expect a lot from someone, they will deliver it to you. If you expect nothing from them, they will disappoint you,” says Herlitz.
High Opportunity Neighborhood Partners also prepares a welcome packet explaining how to maintain their new home outlining tasks like mowing the lawn or covering sprinkler heads in cold temperatures. “We want to walk them through and give them the sense of responsibility and ownership. And once we go through it, they feel empowered, and that’s very gratifying,” Herlitz remarks.
“We are not just providing them with the physical home in a great suburban neighborhood, we're also helping them with life skills,” adds Berke. “By laying out their responsibilities and treating them as equals, we habituate them into the kind of positive practices that will help their credit and benefit their lives in the long run.”
When Berke and Herlitz were looking for capital to support the growing business, they couldn’t get a loan since most banks weren’t willing to lend to this type of business or tenant. It took a partnership with East West Bank to turn a vision into reality.
“East West Bank was almost immediately attuned,” says Herlitz. “Our banker, Pat Noonan, was convinced that this program would inherently work if it was run by the right sponsors.”
Noonan, head of family office practice and commercial lending at East West Bank, understood that the company needed a frictionless source of capital so that they could buy houses and expand the business quickly. So instead of making a one time-consuming loan for each house, the bank put together a credit facility that allowed the company to borrow against the entire portfolio.
“Because of East West’s flexibility and creativity, we are able to buy more homes and reinforce this emerging social program that looks at these tenants as valued partners,” Berke says. He remains proud of the fact that, as the beneficiary of a high opportunity neighborhood 40 years ago, he is now paying it forward through this dynamic partnership and changing lives.