In providing the $52 million construction loan for Boston’s largest new mixed-income development project, one Bay State bank took the lead in arranging the financing the multimillion-dollar deal, a role usually played by affordable housing agencies.

Rollins Square, located in Boston’s South End, is being touted as a mixed-income housing residential complex occupying an entire city block in the diverse Boston neighborhood for renters and homebuyers of all ages and incomes.

Project developers at the Archdiocese of Boston’s Planning Office for Urban Affairs refer to it as the Rollins Square “community” and say the residence is a “social justice mission.” Call it what you will, the driving force behind the timely completion of the 184 units of housing, now about 95 percent complete, is an unusual relationship between Fleet Bank and MassHousing, the state’s affordable housing agency, according to POUA.

A recent seminar hosted by the New England Women in Real Estate at the Goulston & Storrs law firm headquarters on Atlantic Avenue in Boston explored the financing, design, development and construction of Rollins Square and gave Realtors a look at the vital role banks play in the housing market.

Goulston & Storrs represented the developers and POUA in the development deal.

Financing for the project involved city, state and private-sector funds. Fleet Bank provided the largest loan on the deal, a $52 million construction loan.

“Fleet participated in Rollins Square in three ways, and in an unusual relationship,” said Lisa Alberghini, executive vice president of POUA. “They were the lead construction lender on the $52 million construction loan, they played the role of an equity investor … provided the planning office with significant working capital to help expand our capacity and assist with covering our pre-development expenses.”

The Rollins Square development cost a total of $64 million and includes 184 residential units, 6,000 square feet of neighborhood retail space, a 275-car underground garage and a new neighborhood park.

Alberghini said the most important aspect of Rollins Square is that it provides housing for residents with an “extremely broad range of incomes” with 20 percent low-income, 40 percent moderate-income and 40 percent market-rate units offered as rentals and condominiums.

But the financiers of the mixed-income development were initially skeptical about lending their money to the project.

“It’s not everyday that [MassHousing] is willing to make a non-recourse loan … and take that kind of risk on a project that involves a substantial amount of market-rate risk,” said Nancy Andersen, manager of rental development at MassHousing.

‘Public Benefit’

Andersen said MassHousing was at first taken aback when the organization heard Fleet would be making the $52 million deal.

“Fleet was interested in partnering in the relationship and Fleet would be the lead lender. MassHousing would be along for the ride,” said Andersen. “MassHousing is a fairly active hands-on administer, so this goes against the grain of our nature to let someone else lead the show.”

MassHousing was a participating construction lender on the deal and administered a $2 million affordable housing trust fund.

“With Rollins, the fact that the deal is delivering such a high level of public benefit was key to us in considering taking a higher risk than we would normally. There are very few income deals that provide any substantial moderate-income tier housing, and there are fewer deals that actually combine rental housing with for-sale housing and mixed-income components on both sides of the equation,” said Andersen.

But when Andersen found out that 37 rental units were to be interspersed with condominium units, her immediate reaction was to pull out of the deal.

“I thought this was nuts and it was going to be extremely complicated,” said Andersen. “Mixed-income communities function very well but more or less try and separate those populations by separate entranceways, or a separate floor plan. Generally, the populations are not integrated.”

But the investors at Fleet Bank focused their attention on forming the partnerships that would make the complex project work.

“From an investor’s perspective, who you partner with is so key,” said Marianne Votta, senior vice president and division executive of real estate equity for Fleet Development Ventures, a subsidiary of Fleet National Bank. “Not only is this a project that will last for years, but it needs and requires the kind of commitments and resolves to get through the curves and challenges along the way. [Fleet] is in this for 15 years … There will be issues that come up and it is essential that you have people you can sit down with and say, ‘What are we going to do about this?'”

Votta acknowledged the “obvious” risks to be the design, construction and sale of the units, and said from an investor’s perspective, incomes and salaries are of big concern.

A mixed-income property involves rates and payments at different levels, and Votta said Fleet looked carefully at the economic risks before signing on.

“There are wonderful things that have been said about the public policy impact of mixed-income housing and I would not [belittle] any of that. However, it really does challenge an investor to put their money forward,” said Votta. “We were concerned about what happens if the market falls off, if the units don’t get sold, how do we stress-test this if they have to be turned over to all rentals, where is the money going to come from to pay down the loan and what kind of rents do you need to make this cash flow?”

John Wolff, senior vice president and team leader of Fleet’s Real Estate Finance Group, said as a lender and an investor, there are many challenges to a mixed-income housing project.

As a lender, Wolff said the bank could appreciate the “forethought that went into the building aspects of the design, because it’s paying off now,” but at the beginning skepticism was at an all-time high.

“Essentially, construction lenders face various complexities in the rental units and the thrust of our lending focused on the condo aspect of this,” said Wolff. “So, we required a pre-sale component … and the pre-sale piece of this was a challenge for all of us. Once the buyers saw how everything was being built and had an opportunity to look at how we are structuring and designing the project, they took a lot of comfort and halfway through [construction], the sales pace kicked up dramatically.”

The bottom line, said Votta, was whether there would be enough money to pay Fleet’s loan out. And Fleet made sure if they weren’t getting paid, no one else was either.

“There were a number of concerns that we had over the sale,” said Votta. “We made sure that the developer was going to be on the hook as long as we were. The development fee was paid when the units sold – the same time the bank was paid.”

While this investing and lending relationship between Fleet Bank, MassHousing and other city and state government agencies was unconventional, those involved said it all works out in the long run.

“Fleet does a lot of commercial lending and there were certain issues where Fleet took a more conservative approach than [MassHousing], and vice versa,” said Anderson. “Although I was not initially thrilled with being in there on such a small piece of a large deal, in the long run it will enable us to [make out] on this deal.