Boston Mayor Thomas M. Menino announced the creation of a new $71 million program last week that will help community development corporations and other nonprofit developers purchase apartment buildings in the city, as long as they preserve them as rental housing that’s affordable to low- and moderate-income tenants.
“This program will provide financing to developers, including CDCs, allowing them to purchase market-rate rental housing. In return, developers agree to limited rent increases. By providing these loans, we are giving developers the financing muscle to stabilize rental properties,” Menino said last week when he spoke at a leadership breakfast hosted by the Massachusetts Association of Community Development Corporations.
Menino’s announcement came a week after the City Council discussed a rent stabilization proposal by the Boston Tenant Coalition that would enable renters to challenge rent increases over a certain percentage. Menino supported a rent control proposal two years ago but has not publicly indicated whether he will or won’t support the current effort.
Under the rental acquisition program, the Massachusetts Housing Investment Corporation is setting aside $70 million for acquisition loans. MHIC will provide loans of up to 100 percent of the acquisition price. The funding will consist of 90 percent conventional first mortgage debt and 10 percent in subordinate debt. The city will be providing $1 million to fund a loan loss reserve for the subordinate debt, and the Boston Redevelopment Authority will be offering $1 million in interest-free loans that developers can use to secure control over a property while they are arranging financing for the acquisition.
Joseph Kriesberg, MACDC president, said the program should be helpful to community development corporations that now have to compete with for-profit developers, who are looking to maximize their profits, to purchase properties in Boston neighborhoods.
Due to the appreciation in the real estate market, when properties are sold new property owners often must increase rents in order to pay off higher mortgages, Kriesberg explained.
‘Right in Line’
The rental acquisition program will enable CDCs, which often lack to the equity to obtain financing, to secure financing more quickly and will provide 100 percent financing, which will help them as they compete with for-profit developers for properties.
The CDCs in turn will be able to keep rents low and stabilize properties that they purchase. “It’s right in line with what CDCs are interested in doing,” Kriesberg said.
One group already has tried to tap into the program. The Dorchester Bay Economic Development Corp. used a $100,000 check from the BRA last Wednesday to attend an auction for a distressed 32-unit apartment building in Dorchester. The organization bid $1 million, but the auction ultimately was cancelled by the owner, who is seeking $3 million for the property.
“This city program is exactly what we need and it gives us ticket money to get in the door to things like auctions or even to get options on property. So it will make a big difference. The BRA was able to turn this around within about 18 hours for us, so it’s a tremendous benefit,” said Jean DuBois, executive director of the Dorchester Bay EDC.
Even though the Dorchester Bay EDC ended up not purchasing the property, DuBois said the owner is talking to group since it was the only serious bidder to emerge.
Once CDCs acquire properties with the MHIC loans and then renovate and stabilize them, Kriesberg said the groups will be able to get more permanent financing and repay the initial loans. “It’s going to recycle,” said Kriesberg, referring to the loan money.
The rental acquisition program is part of the mayor’s Leading The Way II campaign, which calls for the creation of 10,000 new housing units in the city.
