This artist’s rendering depicts the Fenway Community Health Center’s new headquarters, a project financed through the brand-new New Markets Tax Credit partnership between MassDevelopment, a quasi-state agency, and Sovereign Bank.
The multipurpose organization MassDevelopment wears many hats in the real estate development world – and it’s helping another economic sector in the process, as its financing programs allow banks to make solid, substantial loans that otherwise wouldn’t have been possible.
“It’s an important part of our business [and] a key means for us to address needs in the low-income side of the market,” said Tom Kennedy, senior vice president for community development at Sovereign Bank.
MassDevelopment, a quasi-state economic development authority based in Boston’s Financial District, formed in 1998 when the state Legislature voted to merge the Massachusetts Industrial Finance Agency and the Government Land Bank. It finances or helps finance $1 billion in economic development in the Bay State each year.
The agency’s brand-new New Markets Tax Credits partnership, which encourages development in low-income neighborhoods through federal tax credits, helped Sovereign provide $20 million to assist in the financing of Fenway Community Health Center’s planned new 100,000-square-foot headquarters, now under construction near Boston’s Fenway Park.
The health center provides free care to low-income residents and to the gay, lesbian, bisexual and transgender community.
Danversbank Senior Vice President Frank Romano, who serves as director of the bank’s middle-market lending group, has worked with MassDevelopment for 10 years. Banks today “must understand what MassDevelopment does if [they] want to be ahead of the curve,” he said.
Today, according to Romano, 8 percent of Danversbank’s $875 million commercial loan portfolio has a MassDevelopment connection.
One of the agency’s best-used programs is tax-exempt bond financing. MassDevelopment connects the federal government with banks that finance manufacturing, recycling, higher education and human services-related development, which the government wants to encourage.
Banks purchase bonds from the agency and earn credits that exempt them from federal taxes on investment income from the loans. The bonds finance commercial borrowers’ projects, and the banks pass on the savings by charging interest rates at 2 percent to 3 percent below market rate. Danversbank is one of some 50 banks taking part.
Romano said the program allows his bank to help customers it otherwise wouldn’t be able to assist.
One of his clients, Marc Hazel, co-owner of Jacqueline’s Wholesale Bakery, said the $3 million MassDevelopment-assisted loan he received – a driving force behind his company’s move from Malden to a bigger facility in Salem – made a significant financial difference for him.
“Ultimately, this saves me $100,000 in interest,” said Hazel, who also considered a federal Small Business Administration-backed loan. “There are a few more up-front costs, but the benefit is long-term and it saves a lot.”
Hazel said he’s added seven new employees, bringing his total to about 35, since opening his new Salem location last fall.
‘Good Work’
Romano and others said nonprofits and for-profits alike benefit from MassDevelopment financing.
“It’s a way of providing lower-cost financing to do all the good work that [nonprofits] do,” Romano said. At least 75 percent of MassDevelopment’s loans went to nonprofits last year.
But Danversbank also has gotten the edge with for-profit clients. He cited a company that was considering two banks’ loan proposals and took his bank’s because of advantages it could offer through an Industrial Development Bond, one of the tax-exempt bonds.
Middlesex Savings Bank Senior Vice President for Commercial Banking Kevin Kane said MassDevelopment loan programs help his Natick-based bank, which has $3.4 billion in assets, fulfill its community service mission as a depositor-owned bank.
“They meet the community’s needs in two areas: human services nonprofit and job creation,” he said.
In doing that, the programs help banks meet Community Reinvestment Act requirements calling for them to invest in economically diverse communities and interests in their service area.
Just last month, Middlesex Savings co-financed a $1 million low-interest loan to Hyaluron Inc., a sterile syringe-preparation company, so the Burlington-based company could expand manufacturing space.
MassDevelopment financed half that amount, supported by a $250,000 loan guarantee through the agency’s Export Loan Guaranty Fund.
Such guarantees allow banks to make commercial loans worth up to 90 percent of a property’s value – augmenting the 75 percent to 80 percent allowed by law. Companies also can apply for business equipment loans.
Romano compares the loans to private mortgage insurance, which banks usually require when they loan residential mortgage customers more than 80 percent of the value of a new home.
The agency’s loan guarantee program is one of a few used by banks; Middlesex Savings also uses other run by SBA and the U.S. Department of Agriculture, according to Kane.
Longtime Middlesex Savings customer Hyaluron will add 30 jobs as a result of being able to upgrade its facility, he noted.
MassDevelopment’s loan money comes from entirely different pools than its operating budget, which is relatively small compared to the amount of finance products that passes through the agency every year.
Some of its loan guarantee budgets and grant funds, such as the Brownfields Redevelopment Fund, are funded through the state budget, explained MassDevelopment Executive Vice President for Finance Programs Laura Canter. Other products aren’t actually funded with money down, but instead offered as a benefit of the agency’s partnership with the federal government, which offers money in the form of future tax savings.
Ultimately, the federal and state governments hope, more jobs and an improved local economy will result.
Canter said new Gov. Deval Patrick’s administration seems to support both the agency’s mission and the way it’s achieved.
Three key, recent Patrick appointees also serve on the agency’s board: Secretary of Housing and Economic Development Daniel O’Connell, Undersecretary of Administration and Finance Henry Dormintzer III and Undersecretary of Business Development Robert Coughlin, a former Dedham state representative.
