JOSEPH KRIESBERG
‘Silver lining’ to mergers

With a shortage of housing in and around Boston, Bank of America has made its new presence in the area felt in recent days by setting aside more than $420 million intended for housing for low- and moderate-income families.

The Massachusetts Housing Partnership, a statewide public and nonprofit affordable housing organization, will receive a $406 million loan, in addition to an $18 million cash grant from Bank of America. The grant can be used in concert with traditional financing for housing that serves extremely low-income families, the working poor and homeless. It can also be used to build housing that is smaller and supported by the community.

“This is one of the silver linings of a merger,” said Joseph Kriesberg, president of the Massachusetts Association of Community Development Corporations, adding he’s been pleased with the way Bank of America has chosen to implement community investment requirements following the North Carolina-based bank’s acquisition of local giant FleetBoston Financial.

Under a 1990 state law, banks are required to set aside nine-tenths of 1 percent of assets acquired in Massachusetts as a loan to the Massachusetts Housing Partnership.

Bank of America will also voluntarily set aside 10 percent of the loan with lower interest rates for eligible nonprofit community-based groups. That will allow those borrowers to take advantage of long-term fixed rates when construction begins and will not be affected by possible increases in interest rates during the construction period.

Kriesberg said the grant and setting aside a portion of the funding at a lower interest rate for nonprofit developers was above and beyond what was expected of Bank of America.

“They weren’t required to do those things,” said Kriesberg.

Michael Glavin, director of regional economic development at Bank of America, said the decision to go forward with the grant was in response to the needs in the community.

The new funding will almost double MHP’s loan pool, allowing for the potential development of 10,000 units over the next decade.

Clark Ziegler, executive director of MHP, said while people sometimes view large bank mergers in a negative light, a loan agreement can help soothe those feelings. He said in today’s economy, many feel bank consolidation is inevitable, creating the danger of losing community banking and community involvement.

“This is a way of trying to address what people worry is being lost,” said Ziegler. “It’s been a very positive thing.”

Kriesberg agrees.

“This is an indication that Bank of America can and will, on occasion, develop specialized programs in Massachusetts,” Kriesberg said.

Ziegler said MHP wants to use the funding well, but decisions will be difficult because the housing shortage affects the entire state.

“The housing demand is unmet everywhere,” said Ziegler.

He said that two-thirds of the financing MHP provides is for housing in cities or urbanized areas. However, suburban communities are also in the mix.

“The needs are everywhere,” Ziegler said.

Ziegler said the funding could not come at a better time as the state tries to find ways out of the affordable housing crisis.

Fair Share

Boston is not unfamiliar with bank mergers and when Fleet Financial Corp. purchased BankBoston in 1999, a $143 million loan and $12 million cash grant to MHP was agreed upon.

But Kriesberg said that was a different scenario than the Bank of America and Fleet merger because BankBoston and Fleet were two in-state banks. He said because Fleet was based in Boston and had a long history in Massachusetts, the commonwealth received a disproportionate share of community investments made by the bank. And while Kriesberg admits it is not about being competitive with other states, it’s always his goal to see that Massachusetts initiatives receive as much as possible.

With Bank of America replacing Boston-based Fleet, Kriesberg fears that over time, Bank of America’s philanthropy could lessen in Massachusetts and be spread out over the entire Northeast region.

Kriesberg said Fleet’s philanthropy totaled about $12 million to $13 million in grants to community group and nonprofit organizations in 2003, which is about half of the $25 million the bank gave throughout the region. He said he’s unsure if Massachusetts will receive a similar percentage in the future from Bank of America because some of that funding could be redirected to other states.

Glavin said that while the bank was required by law to kick in a portion of acquired assets, it is committed to tackling the affordable housing crisis in Massachusetts.

“This is a very specific agreement that comes out of the merger,” said Glavin. “[But] our commitment to work with the state Â… is not going away. We need to expand the supply of all housing. We all need to see the expansion of housing as the most significant part of the solution.”

Mark Winkeller, chief executive officer of Caritas Inc., based in Braintree, said the FleetBoston and Bank of America merger appears to be on the right track. He admits that not all mergers may benefit the communities affected, but with a significant loan such as the one to MHP, small borrowers like Caritas, a nonprofit housing developer, benefit.

“We found MHP to be totally committed to smaller borrowers like us,” said Winkeller.

Since 1996, MHP has provided financing for 228 of Caritas’ 540 units, with loans topping off at approximately $8 million. The units are single rooms combined with shared kitchen and bath facilities and are meant to serve people making an average of $14,000 a year.

Ziegler believes the loan agreements are positive for the bank, as well. Because Fleet was already established in Boston, Ziegler said, the loan opens the door for Bank of America to form lending relationships with capable housing providers.

As part of its housing initiative, Bank of America recently signed on as a leading partner in Boston Mayor Thomas M. Menino’s new housing plan, “Leading the Way II,” a four-year $375 million campaign that calls for the production of 10,000 new units of housing. Bank of America will provide $200 million in loan financing over four years for community development in Boston. A portion of that financing is intended for affordable housing production and preservation.

Bank of America also will contribute $3 million in grants over a four-year period to support programs that help neighborhood development efforts.

Kriesberg said he believes that Bank of America has both followed and set a precedent with the loan agreement. While the bank was abiding by the law, he said its added voluntary funding might be a concept that is applied in other bank mergers in the future. Ultimately, though, the size of the loan agreement depends on the size of the transaction.