Boston skyline at dusk.
In an effort to confront its housing affordability crisis, Massachusetts has launched a financing program that injects state capital into housing projects as equity.
The initiative, called Bringing Innovation to Lending and Development, or BILD, and spearheaded by MassHousing, the Massachusetts Housing Finance Agency, aims to fund the creation of workforce and mixed-income housing by offering lower-cost equity capital to developers whose multifamily deals are permitted but stalled under current market conditions.
“The rent burden is moving up the income brackets, and we’re seeing those that rely on workforce housing being impacted more than ever before,” said MassHousing Chief Executive Officer Chrystal Kornegay. “Our mission is to confront the housing challenges facing the Commonwealth, in order to improve the lives of its people. The design and execution of BILD gives me confidence that we’re living that mission and staying true to our roots.”
Dramatically increasing the production and supply of housing is one of the priorities of Massachusetts Governor Maura Healey and Lt. Governor Kim Driscoll’s administration, Kornegay added. Typically, state agencies support new housing by providing mortgage financing. This new financing tool provides greater flexibility to help jumpstart more construction.
The BILD program is made possible by the passage of the $5B Affordable Homes Act. A new fund enacted as part of this legislation is the $50M Momentum Fund, which allows public financing to partner with private capital, Kornegay said.
The result is a bigger pipeline of new construction.
Earlier this year, Joseph J. Corcoran Company and Falconi Properties, a joint venture, broke ground on The Residences at East Milton, a 92-unit mixed-income rental apartment community on what was previously an underutilized commercial property. MassHousing’s $5M commitment to the project, through Momentum Equity funding, enabled the project to come to fruition.
Bisnow sat down with Kornegay to learn more about Massachusetts’ innovative approaches aimed at alleviating the state’s housing shortage.
Bisnow: Can you give me a little background on MassHousing?
Kornegay: We’re one of the oldest housing finance agencies in the country. Multifamily mixed-income housing is part of our DNA. In the not-too-distant past, we ended up focusing much more predominantly on affordable housing as the market was in a position to deliver workforce rent-level deals without help. That is no longer the case, hence BILD.
Bisnow: Tell me more about the housing challenges your organization is currently confronting.
Kornegay: There’s a need for new housing across Massachusetts at all income levels. In February, the Commonwealth of Massachusetts issued a comprehensive housing plan for the state. This plan says that the state needs 222,000 new homes by 2035 to support our economy and to meet the housing needs of our residents.
The housing crisis is a production crisis, not just in this state but across the country. The Healey-Driscoll administration has substantially expanded state support for affordable housing, but the administration and legislature wanted to expand the scope to workforce and mixed-income housing.
We know we can’t subsidize our way to reach this 222,000-housing-units goal. We have to rely on the market. So, we designed a program to enable us to work with market players to get as many market participants involved in housing production.
Bisnow: What is BILD and how does it work?
Kornegay: BILD is a tool to finance market-oriented, mixed-income rental housing construction by catalyzing private capital investment. It is made up of two components, Forge Loans and Momentum Equity, and is a one-stop solution, offering a competitive senior debt product coupled with innovative equity financing.
Rental developers are eligible to apply if their developments are new construction, with at least 50 total units, where at least 20% of the units are affordable to residents earning up to 80% of the area median income. Often, these projects are in transit-rich locations close to jobs, right where families, seniors and young adults need housing most.
The Momentum Fund was created as part of the Affordable Homes Act, the largest and most ambitious housing bond bill in Massachusetts history. Momentum investment equity will accelerate the production of housing, especially middle-income units, without relying on typical grant and subsidy resources.
Bisnow: Why did the state opt for this approach?
Kornegay: This initiative is focused on workforce housing, because the housing market is not serving that income bracket well right now. The public funds are being deployed as equity into market-rate deals with a concessionary return.
The state has $50M to make capital investments to create 1,000 new multifamily units across the state.
Bisnow: Why focus on the equity component of financing?
Kornegay: The Momentum Fund is meant to be an efficient, predictable and stable source of equity financing. It can be paired with traditional commercial equity. We inject the public equity as 25% or less of the total equity of a given deal, at a concessionary return rate. By blending private equity with public equity, we can make projects more feasible.
The concessionary, below-market rate makes it more akin to impact investing. By taking the preferred equity position, we can drive down the cost of the project overall.
This is paired with the Forge loan, offered in collaboration with Freddie Mac, that lets our borrowers receive favorable taxable terms, loan pricing leverage, and forward rate lock periods.
Being able to deploy both equity and debt gives us flexibility, depending on what a given project needs, and makes unlocking those stalled-but-shovel-ready deals a little easier.
This article was produced in collaboration between MassHousing and Studio B. Bisnow news staff was not involved in the production of this content.
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