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A 36-building portfolio of apartment buildings under new ownership in East Boston is an early test of an anti-displacement model blending private ownership with community-based oversight.
A new model for stabilizing apartment rents in East Boston highlights the substantial fundraising from public and private sources needed to outbid for-profit landlords in gentrifying neighborhoods.
But organizers say the East Boston model blends the strongest benefits of nonprofit ownership with private capital’s flexibility and ability to obtain financing, pointing to a potential stabilizing force in the housing market.
“There was this pain point of other people bidding up properties in neighborhoods and pushing residents out. We asked, ‘How can you use outside capital, but in a way that’s held to a purpose like a nonprofit?’” said David Kemper, CEO of Kansas City-based Trust Neighborhoods, a key player in the formation of the East Boston Mixed-Income Neighborhood Trust (MINT).
While a study committee appointed by Mayor Michelle Wu continues to examine potential rent stabilization policies in Boston, the East Boston MINT offers another path to preserving affordability for existing residents in a rapidly-gentrifying neighborhood.
The East Boston MINT is the new owner of a 36-building portfolio sold by The Grossman Cos. of Quincy and Allston-based Hodara Real Estate Group this month. The trust, governed by a board including neighborhood residents and housing activists and managed by East Boston Community Development Corp., will offer the 114 apartments to households earning 50 to 100 percent of area median income.
The East Boston MINT’s formation comes after a pair of pilot projects in Kansas City and Tulsa, Oklahoma coordinated by Kemper’s group beginning in 2021.
While many nonprofit affordable housing developers focus on new construction, such income-restricted projects usually require multiple public subsidies including tax credits awarded by state housing agencies in competitive rounds. Financing for such projects often takes several years to assemble, Kemper noted.
More recently, nonprofits have focused on the acquisition of existing apartment buildings in the private market which don’t have formal income restrictions. The aim is to keep them out of the hands of speculators.
“Affordable housing already exists, but when it changes hands, investor-buyers typically raise rents,” said Soni Gupta, associate vice president of housing and neighborhoods at the Boston Foundation, which is a donor to the East Boston project. “Mission-based organizations can purchase existing rental housing and take it off the speculative market, making it affordable for the long term.”
The multilayered capital stack behind a landmark affordable housing deal in East Boston was surprisingly easy to assemble, nonprofit leaders involved say, and was ultimately oversubscribed.
Philanthropic Connections Planted Seed for Trust
A connection between Kemper, who is a former executive for Google’s urban innovation unit Sidewalk Labs, and Boston-area philanthropic circles helped bring the MINT model to Massachusetts.
Mutual acquaintances introduced Kemper to Jeremy Cramer, a Needham-based philanthropic adviser, leading to discussions about a donation from the Crimson Lion/Lavine Family Foundation. The nonprofit was founded by Jonathan and Jeannie Lavine in 2007, and supports social equity and economic mobility programs. Jonathan Lavine is co-managing director of Bain Capital.
“What impressed us early on was the relative simplicity of [the East Boston] model, and the opportunity to bring together these disparate stakeholders and gain significant leverage for local citizens who are at risk of displacement,” Cramer said.
The Boston Foundation, for its part, was starting to scout potential recipients from its new Carpe Diem Fund. Launched in 2021, the fund was designed to support housing acquisitions by mission-based organizations.
The variety of income eligibility levels in MINT portfolios makes it easier to obtain conventional bank financing, the Boston Foundation’s Gupta said.
“The MINT by its very nature is a mixed-income model and the higher-income households and the rent they pay can have a subsidizing effect,” Gupta said.
The Boston Foundation contributed a $100,000 grant and made an additional contribution to the East Boston MINT’s debt structure with a $500,000 loan with a 1 percent interest rate.
City, Bank Funding Cinched Deal
Boston officials also took steps to provide financial support. City Councilors Gigi Coletta and Kendra Lara requested funding from the American Rescue Plan Act (ARPA), which totaled $9 million, and the city also allocated $2 million from the Cares Act and $1 million in inclusionary development funds.
Steve Adams
Eastern Bank stepped in as lead lender for the $31.65 million acquisition and permanent loan for the $47 million transaction. A group of foundations provided $2.7 million in subordinate debt, most in the form of 10-year loans at 1 percent.
A key element of the MINT structure, Kemper said, is the creation of a perpetual purpose trust. Such entities are structured to ensure that their funds benefit a cause, not an individual or group of beneficiaries. The mechanism was recently used by the founder of the Patagonia apparel company in transferring ownership while retaining control over the company’s social responsibility goals.
Raising equity ultimately turned out to be one of the less challenging aspects of the East Boston project, Kemper said, suggesting that there’s potential to replicate it in other Massachusetts communities with displacement activity.
“It seemed like a very daunting capital stack, but it turned out to be very easy to raise. We ended up being oversubscribed on the equity,” he said.
