Bo Menkiti was tired of seeing all the boarded-up, abandoned buildings in his Washington neighborhood. So he got a real estate license, founded an agency, and started developing homes for teachers, firefighters, and other first-time buyers in the neglected middle market.
Contrary to conventional wisdom, Bo Menkiti decided to bet the farm -- literally -- when starting his business. An aspiring real-estate mogul, the first house he sold was his own, for start-up capital.
It paid off. In just three years, the Menkiti Group has brokered sales of more than $60 million in real estate, mostly to first-time buyers in urban neighborhoods of Washington. His agency has also developed some 33,000 square feet of residential and commercial properties and is currently eyeing 38,000 more -- including a 30-unit building for low-income buyers Menkiti plans to develop from the ground up. At the same time, the business has grown by 465 percent, with this year's revenue expected to break the $1 million mark.
Menkiti, now 30 and a cum laude graduate of Harvard Business School, says the agency and its rapid success sprang more out of a set of core values than any formal business plan.
"Housing is a fundamental social good," says Menkiti, a former executive at College Summit, a national non-profit organization that seeks to boost the college enrollment rates of low-income students. As such, he sees the agency operating at the intersection between business and non-profit, describing it as a social purpose for-profit business. Still, there are key differences between selling homes and promoting a college education -- or any number of other social goals, Menkiti adds. "Real estate is a real, tangible asset that has a clearly defined market value."
As he sees it, one of the biggest problems in today's real-estate industry is that agents are paid by commission. That prompts them to pursue high-end property sales with bigger payoffs, leaving middle-market properties languishing on the market and depreciating in value. "The way the market works, there's a disincentive for agents to work with the market that most needed their help," he says. By contrast, Menkiti pays his sales team a fixed salary, with a small commission based on volume, rather than dollar value. "The idea was to change that paradigm," he says.
Another change was to inject some risk back into social entrepreneurship. "The concept in social investing had always been 'don't invest in bad stuff," Menkiti says. "I think it's now moving closer to the edge." This year, Menkiti is working with EVI, a Baltimore-based private equity firm, on a $4 million project to convert a vacant, inner-city apartment building into condos -- with more than half of the units reserved for low-income buyers. All this amid one of the worst housing market slumps in decades and a growing subprime mortgage crisis. "You have to convince people that there is a return on the middle market, even if it's slower in coming," he says.
Rather than worry about a prolonged downturn in the market, Menkiti said he believes an adjustment was long overdue -- given that housing prices were skyrocketing while ordinary wages remained flat. "You still have demand, but there's an affordability problem," he says. Besides, he adds, great companies are built during tough times.
Correction: A previous version of this story misstated that Menkiti paid all agents a fixed salary.