There is an agitation to Sonny Kalsi nowadays. Two months ago, he assumed the role of chief executive of BentallGreenOak, the outcome of a merger last year between GreenOak Real Estate, the private equity real estate business he co-founded, and Bentall Kennedy, the real estate services and investment manager owned by Canadian financial services firm Sun Life.
He has taken the reins of a business with $48 billion of assets under management and approximately 1,300 staff across 24 offices that can offer institutional investors the complete spectrum of private real estate strategies and global coverage. In other words, he is leading one of private real estate’s heaviest hitters.
But while this should be a celebratory time in his illustrious, 30-year career, 52-year-old Kalsi is instead preoccupied with navigating a crisis. Not the covid-19 pandemic – though, of course, his firm is embroiled in that. The crisis on Kalsi’s mind is societal, rooted in inequality and now manifest in protests on the streets of the US, the UK and other parts of the Western world.
Being of Indian heritage and having grown up in Tennessee, Kalsi knows only too well what discrimination and a lack of diversity feel like. Growing up in the South, he says he was sometimes the target of racial slurs, including the N-word. On Wall Street – where he later worked almost 20 years at investment bank Morgan Stanley – he spent his early days almost entirely among white men. “I moved towards assimilation as opposed to anything else to try to be successful,” he recalls of the period. “Certainly, with BentallGreenOak, I don’t want people to feel they need to assimilate, but to embrace their identity and be encouraged to be ‘activists’ for change.”
Key to ensuring this will be to create a more diverse working community. “I have some limitations on what I can do out-side of BGO. But I can make a lot happen inside,” he says. After the killings earlier this year of African Americans Ahmaud Arbery, Breonna Taylor and George Floyd, and the subsequent surge in protest movements including Black Lives Matter, Kalsi is bent on harnessing what he regards as a window of opportunity to execute governance changes within his organization. The aim is to alter the complexion of BentallGreenOak’s workforce for the better by including significantly greater racial diversity across the ranks as well as more women.
He hopes these changes will influence other organizations to do likewise. But, if nothing else, he hopes to grab the attention of the private real estate sector, which, while global in activity, is regarded by some as a small, homogeneous and exclusive community dominated by white men.
The headline-grabbing policy Kalsi has spearheaded – which he has shared exclusively with PERE – is a goal that 66.7 percent of all incoming hires at the firm be minorities or women. Time periods, still being calculated, will be set against this target and, if missed, financial ‘penalties’ will be self-imposed. “This is one way to really put some teeth behind it,” Kalsi says.
“Two out of every three job opportunities, at a minimum, are going to be filled by highly skilled women or professionals from underrepresented groups. And, if we don’t meet our objectives, we’re going to ‘penalize’ ourselves.” he states.
BentallGreenOak and its employees donate approximately $1 million a year to charities, including those supporting diversity and anti-discrimination agendas. Among these are the Equal Justice Initiative, which provides legal advice to people wrongly convicted of crimes, and the United Negro College Fund, which funds scholarships for Black students. In addition to their usual contributions, these charities will now benefit from the ‘penalties’ too. Kalsi says: “We’re going to continue to be charitable. But, if we don’t achieve certain hiring objectives, then we’re going to take money from our bonus pool, so it affects everyone, and give even more to these organizations.”
Kalsi is hopeful the ‘penalties’ will be unnecessary. He also acknowledges the firm’s aggressive recruitment efforts must come in tandem with a commitment to the retention and advancement of underrepresented groups. “The most significant investment of time and resources in BentallGreenOak’s action on diversity will be made in training, mentorship, leadership development and support mechanisms that identify and eliminate systemic behaviors and barriers to progress. We have to look past the ‘foot in the door’ goal and think about how diverse talent in the company can thrive,” he states.
For him, there is a big and unjustifiable picture that needs redrawing and, recognizing his clout as one of the sector’s highest profile executives – he ranked number 30 in PERE’s 100 most influential individuals list in 2015 – he feels obligated to play a meaningful part in making that happen. “I want to look at our business in a reasonable time period and see that it represents society, the broader population.”
Not representative today
Leading by example will be the best Kalsi can aim for as private real estate has a way to go before it is representative of the broader population. According to the 2018 Diverse Asset Management Firm Assessment, a study commissioned by the Knight Foundation, just 2.2 percent of the 967 firms examined were at least 50 percent minority-owned; 1.8 percent were at least half-owned by women. Of the $970.3 billion of assets under management examined, just 1.2 percent were managed by minority-owned managers; just 0.8 percent by women-owned firms. Further stark statistics can be found in the fall 2109 edition of the Pension Real Estate Association (PREA) Foundation’s PREA Quarterly: 78 percent of executives at the sector’s management firms are men, while 88 percent are white.
Behind the numbers, anecdotes abound of how a severely unbalanced industry fosters discriminatory practices. Nylz Reyes, a Black graduate of New York University who broke into the sector in 2017, tells PERE that while in a previous role, he believes he was stripped of an important valuation mandate 24 hours after getting it – only to see it handed to a more junior white colleague. Reyes has progressed in his career since then. Today, he works on investments for insurer North-western Mutual. But formative experiences like this have left their mark. “Nepotism has reigned supreme,” he says. “The industry just hasn’t been set up for minorities.”
Reyes describes Kalsi’s approach to quotas and penalties as aggressive, but also tone-setting.
He says: “Others will be compelled to follow. Perhaps they won’t do 66.7 percent. Even 30 percent or 15 percent would be good, given how some firms are starting at zero.” On the notion Kalsi’s ‘hard rule’ encourages a culture of positive discrimination, Reyes believes that should not be viewed as an issue. “If there was a report on how many with inside relation-ships get into the industry, I’m confident the number would be above 66.7 percent.”
“Relationships are important in a lot of industries,” agrees Kalsi. “The question is: is this a closed loop? Or is there an opportunity for people to break in? It’s harder for people from minority groups, that’s for sure.” When he set up GreenOak Real Estate in 2009, alongside fellow senior Morgan Stanley Real Estate Investing alumni John Carrafiell and Fred Schmidt, the firm was majority-owned by those from minority communities, given his Indian heritage and Schmidt being Japanese-American. Kalsi says that initial multicultural leadership led to a deliberate approach towards diversity as the firm grew to approximately 100 professionals in the decade that followed. “It was a very diverse employee base, with women and minorities constituting well over 50 percent.”
At press time, BentallGreenOak’s current diversity statistics were undergoing a review, to include data from its Canadian operations, where self-identification is not currently mandatory for corporations to request as it is in the US. “Of our 1,300 employees, about 800 are Canadian and the historical Canadian HR code system does not code race.” Kalsi confirms BentallGreenOak is nevertheless voluntarily assessing its global staff roster in terms of how they identify, including in Canada. However, even without the results, he knows the firm’s reality: “We are unquestionably underrepresented in gender and ethnicity.”
Positive discrimination performance claims discredited
Academic and anecdotal evidence are dispelling the myth that prioritizing a diverse workforce jeopardizes returns
There is a longstanding argument that, for all its societal benefits, prioritizing diversity in a workforce will impinge on an organization’s performance. But, in recent years, evidence to the contrary has emerged.
The 2018 report Delivering through Diversity by consultant McKinsey & Company revealed how companies in the top-quartile for gender diversity on their executive teams were 21 percent more likely to have above-average profitability than companies in the fourth quartile. When it came to ethnic diversity, top-quartile companies were 33 percent more likely to outperform on profitability.
“We didn’t sacrifice performance in any way,” Kalsi says of his former company GreenOak, which was majority owned by people from minority communities. Indeed, the firm’s flagship global value-add funds have overall generated strong performance. According to prior PERE reports, GreenOak US Fund I has generated net IRRs of more than 30 percent, for example. GreenOak Europe Fund I, meanwhile, generated an unlevered gross IRR of 26 percent – both scoring higher than typical value-add targets of approximately 15 percent.
Deborah Harmon’s Artemis Real Estate Partners didn’t sacrifice performance, either. She says about 80 percent of her firm’s separate accounts platform is deployed with female- or minority-owned businesses, reflecting more than $1 billion of equity. The firm’s main fund series, likewise, has invested with such businesses, alongside established operating partners. This approach has achieved above-target results: Artemis Fund I, which closed on $436 million in 2012, has returned 100 percent of the equity and has a realized net return of 23 percent.
“Homogeneity is among the biggest risks a firm can take,” she says. “Diversity does not require the sacrifice of performance.”
White men’s critical role
Kalsi acknowledges his demands for greater diversity in the hiring and talent pool may split opinion or lead to questions about whether the firm is committed to meritocracy. But he rejects these notions: “We cannot uphold excellence at the firm if we aren’t adequately accessing a richer variety of professional perspectives and a more diverse employee base. It should never be suggested hiring and promoting more diverse candidates comes at the expense of skill, talent or capability. Quite the opposite. And that’s a lazy argument I’m simply not willing to accept.”
Moreover, Kalsi believes it will be the white men who dominate the sector who will have a substantial role to play in changing private real estate’s diversity predicament. “We’re not going to see sustained change in our industry unless it’s important to white men to see that change.”
Kalsi is keen to underline that he is not attempting to discriminate against white men in the industry. “I have benefited from the support of so many white men over the course of my career,” he says. Further, by Kalsi’s reckoning, the white population of his organization is fully supportive of the firm’s moves: “We have seen significant calls for change from throughout the organization. After George Floyd’s murder, the first person to reach out to me saying we needed to do something was Richard Crofts, our chief financial officer.”
“Subsequently, our entire senior management team are onboard with the view we need to be a market leader in equity, diversity and inclusion because we believe this is better for our business and our clients.”
A Black Professionals Alliance employee affinity group, which BentallGreenOak formed in July in response to the Black Lives Matter movement, has approximately 30 Black members, but another 60 people have registered to join as “allies,” including Kalsi, Carrafiell, Crofts and Amy Price, the firm’s co-head of the US, who is being primed to become president when Carrafiell is elevated to co-CEO in 2021.
“The Black Professionals Alliance is not limited to Black employees. It is there for all of us to: one, start a dialogue; and two, give us a clear and tangible game plan to work with,” Kalsi says. Indeed, an initial action from the alliance was signing a pledge with the Canadian organization, BlackNorth Initiative, which is asking corporations to set hard recruitment targets to ensure their workforces are representative of Canadian society. That means ensuring a minimum of 3.5 percent of its executives are Black by 2025. “We said ‘absolutely,’ as did Sun Life, our majority stakeholder, alongside a number of other organizations.”
He emphasizes that the strategic social and governance shift of BentallGreenOak does not endanger the professional prospects for his white, male colleagues. “Our senior team is still dominated by white men who are an integral part of our mission and eager to participate in change,” he says. “Change requires a collective and sustained effort, and those who are not on board with the mission of making diversity a strength at BGO are probably not a right fit for the firm.”
Of the top ranking 15 executives at the firm, there are no Black leaders, four Asians and only two women: Price, and co-head of capital raising and investor relations, Julie Wong. But Kalsi says senior recruiting is part of the plan: “I know we’re not diverse enough at the top of the firm. But our firm will continue to grow, and people will retire or pursue other paths, all of which will lead to new leadership opportunities. When we talk about two-thirds in new hiring terms, it’s going to be at all levels.”
Lack of response
When PERE sought reaction to Kalsi’s incoming recruiting policy with executives in the private real estate market, the response from white males was particularly muted, with those contacted either unavailable or unwilling to comment. “Sorry, we need to pass on this one,” was the response from one large, European insurer. “I don’t think we’d be comfortable weighing in on a story about another firm,” replied a large US-based manager. Notably, women in the sector were more forth-coming. Deborah Harmon, chief executive of Washington, DC-headquartered Artemis Real Estate Partners, was one. She has placed a proactive approach to diverse hiring as a priority since co-founding the business in 2009. “To solve the challenge the industry has faced, we have to be intentional,” she says.
What’s in a number?
Responses to BentallGreenOak’s 66.7% underrepresented communities recruitment hard quota
“It’s great Sonny has a hard target… but you don’t want to associate diversity with punishment”
Chief executive, Artemis Real Estate Partners
“It’s an aggressive approach. But Sonny is leading the way, setting the tone. Others will be compelled to follow”
Associate, Northwestern Mutual Real Estate
“I think it’s great and noble of them. It’s radical, though, and won’t be for everyone”
“Whether organizations follow this particular method: maybe, maybe not”
Managing partner, Park Madison Partners
Harmon works alongside Kalsi with the PREA Foundation in its partnership with Sponsors for Educational Opportunity, an initiative aimed at helping Black, Hispanic and Native American undergraduates receive real estate training and find full-time employment. Both have recruited interns from the initiative. She shares Kalsi’s ethos, but to date, has not implement-ed hard quotas.
“I do think the industry needs to measure progress,” she comments. “It cannot be held accountable if there is not pres-sure. Its great Sonny has a two-thirds target. That will challenge the status quo mindset.” However, while she admires it, Harmon believes that hard quotas are not the only path to success. Further, she feels there may be alternatives to punitive measures: “We do not associate diversity with punishment. I have found it most productive to foster diversity by celebrating it. We have worked to create incentives for achieving rather than punishing if they are not achieved.” Artemis has had an approximately 50 percent diverse workforce since its inception, and, critically, 66 percent of new hires over the last two years were from minorities or were women – similar to the hiring target of BentallGreenOak. This was managed by pursuing alternative measures to hard quotas, including insisting on diverse slates of candidates when working with recruiters, Harmon says.
Joyce Lo, director at the real estate private capital advisory team of financial services firm Lazard, says though the industry is “tightly-knit”, positive discriminatory measures must be carefully administered. “I’m not completely against positive discrimination. But there has to be a consciousness about it too. The last thing I’d want is to get an opportunity just because I’m an Asian female over my ability.” Lo, who was this summer appointed to chair Lazard Private Capital Advisory’s Diversity, Equity and Inclusion Committee in Asia, however, supports BentallGreenOak’s broader ambition. “At the end of the day, equality is what we’re all striving for.”
Nancy Lashine, managing partner of New York-based placement agent Park Madison Partners, which has counted GreenOak Real Estate among its clients, also agrees with Kalsi’s broader objective. “Real estate investment businesses are among the later businesses to diversify because so many are private,” she says. “It’s a good thing to raise your hand and do something about it.” Lashine is not, however, convinced other organizations in the sector will follow BentallGreenOak’s example exactly. “There’s no one-size-fits-all to becoming more inclusive as an organization. But there has to be more than talk.”
While the iron is hot
Lashine sees Kalsi as more than a talker and commends his decisiveness: “It’s just time to do more. As we look back on 2020, I think we will all acknowledge this was the year of change.” Even so, Kalsi believes effecting change requires immediate work. It cannot wait.
Indeed, part of Kalsi’s agitation comes down to an awareness that diversity issues could slip from mainstream consciousness before policies like his have taken hold. Although US media coverage remained intense throughout the summer, outside the country, it has latterly jostled for attention with other topics, including the country’s escalating geopolitical grappling with China. Meanwhile, subsequent waves of lockdowns induced by covid-19 remain a dominant concern worldwide and Kalsi must of course attend the ‘day-job’ of steering BentallGreenOak through the crisis.
His efforts might well benefit from another wave of public support for diversity solutions as the US presidential election campaign intensifies, especially after Kamala Harris was appointed last month as running mate to Democratic candidate Joe Biden. Of African and Asian descent, it is hoped her support will galvanize a greater proportion of the country’s Black popu-lation into voting for a ticket more likely to invest in equality initiatives than the current administration.
But taking nothing for granted, Kalsi is sharing his plans with PERE now, a move which will put BentallGreenOak on the hook to deliver against its new policies, even before they are fully ratified. “I was asked: ‘Should we be talking about this be-fore we have everything nailed down?’ and ‘What if we don’t achieve our targets?’ I hear the concern. But the more we talk about it, the more it will be in the consciousness of everyone in the company.”
Kalsi believes time is of the essence. “I’d hope there’s the same level of energy and enthusiasm for this in six months’ to a years’ time. But we can’t guarantee there will be. We have to strike while the iron is hot. We are committed to doing tangi-ble things right now.”