Madison Park Development Corp. has said it needs to find additional financing for its 96-unit 2085 Washington St. tower in Roxbury to replace funds promised by Silicon Valley Bank. Image courtesy of DHK Architects

Silicon Valley Bank’s failure is creating a potential gap in financing for Massachusetts affordable housing projects and risks for commercial landlords that have a concentration of tech and life science tenants. 

From mortgages for luxury condominiums at One Dalton to financing for affordable housing projects, Silicon Valley Bank has been an active lender in Boston’s real estate and development markets. 

“There’s [low-income housing tax credit] investments, there’s construction loans, there’s developers who are scheduled to close this week, next week in the future. Those are all unknowns right now” Rachel Heller, CEO of Boston-based Citizens Housing and Planning Association, said Tuesday morning. 

As the FDIC was seizing the bank’s $209 billion in assets on March 10, local developers closed on $21 million in financing from SVB for a Mattapan mixed-income housing project. 

New Boston Fund and Dorchester-based Lena Park Community Development Corp. are partnering on the latest phase of the $200 million Boston State Hospital redevelopment. The SVB construction loan will pay for an 80-unit mixed-income condominium project scheduled to break ground in April, New Boston Fund CEO Timothy Medlock said. 

SVB syndicated the loan to several other institutions, Medlock said. 

“We’ve been told [SVB] intends to be there and fund the commitment,” he said Tuesday morning. “This is a type of loan that is highly competitive and banks love to have this type of financing program on their books, so we always have significant demand among lenders when we look for financing.” 

The FDIC issued an announcement Tuesday afternoon saying that the bridge bank – the government-owned entity that assumed control of SVB after the FDIC acted Friday – “is obligated to and has the full ability to make timely payments to vendors and counterparties and otherwise perform its obligations” under contracts like mortgages and other legal agreements that Silicon Valley Bank entered into before its dissolution. 

However, affordable housing groups say many question marks remain. 

“Unless officials can find another financial institution to assume SVB’s obligations to these essential projects, there will be a need for government to step in and guarantee that the bank’s community development commitments will be fulfilled,” Kevin Murray, the Massachusetts Association of Community Development Corporations’ interim executive director, said in a statement Thursday.  

This might include releasing emergency funding to ensure that nonprofit developers have access to capital, MACDC said. 

Projects Were Expecting Investments 

Another wrinkle to the SBV saga: Massachusetts nonprofit community development corporations, which play a key role in affordable housing creation, are among major recipients in SVB’s $11.2 billion community benefits plan. 

Announced in May 2021 following SVB’s acquisition of Boston Private Bank and Trust – itself an active lender to nonprofits – the five-year plan included $4.8 billion in Community Reinvestment Act loans and investments and $1.3 billion in residential mortgages for low- and moderate-income homebuyers. 

The bank had also increased participation in the Massachusetts Housing Partnership’s ONE Mortgage program, which provides low down payment mortgages for first-time homebuyers. 

A longstanding state law requires any bank that acquires a Massachusetts-based bank to provide a line of credit to the Massachusetts Housing Partnership equal to 0.9 percent of the assets of the institution being acquired. 

For Silicon Valley Bank’s acquisition of Boston Private, that line of credit was $59 million. Clark Ziegler, executive director of the Massachusetts Housing Partnership, said about $49 million of that has been committed to eight affordable housing projects. Six of those projects are underway, while two still need to have the interest rates locked. 

“We just need to know whether or not the bank will honor those obligations,” Zielgler said Tuesday afternoon. 

Ziegler said while he has seen positive signs from Silicon Valley’s bridge bank that the commitments will hold, he would like certainty. 

Madison Park Development Corp. was relying on low-income tax credits SVB had expressed interest in buying to provide equity for a 96-unit housing project at 2085 Washington St. in Roxbury. CEO Leslie Reid told Banker & Tradesman Thursday the nonprofit was looking for additional funds to advance the deal. 

“This is a great opportunity for other banks, national or local banks in Massachusetts, to step up and make some loans [to affordable projects],” Heller said. “We hope there’s a smooth transfer to another bank and the terms can be continued close to or the same as what they were.” 

Another danger, Ziegler said, was that SVB’s local affordable housing team, formerly of Boston Private, could be split up by the banks’ eventual buyer, or if its members seek new jobs following SVB’s collapse. 

“They weren’t just a participant; they were a thought partner with us. It’s not just a bank making loans – which is great – it’s also a bank that’s willing to sit across the table from you and have an open-ended discussion about what we could do differently, do better together to meet housing needs,” he said. 

Life Science Landlords Face Questions 

Silicon Valley Bank’s role in bankrolling tech startups also had immediate effects on commercial landlords that have a concentration of tech and biotech companies in their portfolios. Landlords often require letters of credit from early-stage companies as security when signing leases. 

The nation’s biggest life science landlord, Alexandria Real Estate Equities, has $108.3 million in letters of credit pledged by SVB for tenants, according to an SEC filing Monday. Landlords are unable to draw upon letters of credit while the FDIC draws up a SVB recovery plan. 

Steve Adams

Alexandria said it “will be working with [SVB clients] to replace their letters of credit with another acceptable security deposit as required under their lease agreement.” 

Alexandria said it has only one SVB affiliate as a tenant, at an undisclosed Greater Boston property, that pays $1.7 million in annual rent. 

The bank’s failure also could have an effect upon commercial investment sales activity and prices. 

In a research brief, brokerage Marcus & Millichap said the bank’s collapse will prompt additional due diligence and tighter requirements on commercial lending. That could aggravate the “expectations gap” between sellers and potential buyers of commercial properties. 

“Smaller banks will be under particular scrutiny, which may generate additional headwinds for investors reliant on financing from smaller institutions,” the advisory stated. 

Banker & Tradesman staff writers James Sanna and Diane McLaughlin contributed to this report.

SVB Failure Leaves Question Marks for Affordable Developers

by Steve Adams time to read: 4 min
0