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MassDevelopment In The News
New Markets Loan Fund Created to Help Low-Income Communities
February 26, 2007: Banker & Tradesman, by Amy Wyeth
MassDevelopment, Citizens Bank and Sovereign Bank have joined forces to support economic development and job creation in low-income neighborhoods, bolstered by a federal government tax credit.
"It’s not often that we see competing financial institutions come together in a common cause," said Robert R. Culver, president and chief executive officer of MassDevelopment, a quasi-state agency focused on private economic development.
The banks and MassDevelopment announced last week the creation of a $30 million New Markets Loan Fund. Supported by the New Markets Tax Credit, a federal tax credit program that offers a 39-cent per-dollar tax credit in exchange for loans made and maintained in low-income communities, the initiative targets area businesses and nonprofit organizations in 75 Massachusetts communities.
Organizers estimate the loans will help create 500 jobs in the next two years.
United Housing Management, a professional management services company focused on creating and preserving affordable housing for working families in Boston, is the first Boston-area business to get a loan from NMLF. It will use a $1.9 million commercial mortgage loan to renovate a 2-story office building at 530 Warren St. in the Grove Hall neighborhood in Boston’s Roxbury section and an adjacent garage for use as its headquarters and maintenance facility. UHM currently has more than 1,100 affordable rental units in its portfolio.
MassDevelopment and Citizens Bank will benefit by earning back interest on loans they made to the fund and Sovereign Bank will earn the tax credit plus a small portion of interest as that bank both loaned to and invested equity in the fund.
To create the NMLF program, MassDevelopment used New Markets Tax Credits allocated to it by the U.S. Department of the Treasury in 2004. The allocation allows it and investors to lend up to $30 million to eligible projects in return for per-dollar tax credits up to that amount; lenders also earn interest income on the loans, which are offered at 0.75 percent to 1.25 percent below market rate.
Once it confirmed the allocation, MassDevelopment distributed an "offering package" to a dozen Massachusetts banks, seeking partners to bring the fund to $30 million. Citizens and Sovereign submitted the proposals with the "most attractive" interest rates, the agency said.
MassDevelopment will administer NMLF and has pledged $4.5 million to support it. Sovereign Bank contributed $8.9 million in equity and loaned an additional $5.5 million, and Citizens loaned $12 million from its Citizens Job Bank, a low-interest loan fund tied to job creation.
The loan to UHM was the 12th given out under NMLF and brings the total loaned to just over $10 million – meaning there’s approximately $20 million left to lend.
Loans ranging from $138,000 to $2 million were issued last fall to nonprofits and small businesses in Brockton, Lowell, New Bedford, Springfield, Framingham, Worcester, Holyoke and Gloucester. Some loans were lending partnerships with regional banks, noted MassDevelopment Vice President of Lending Joseph Morrell.
"This has an added benefit for some because we can loan up to 90 percent of the [collateral] value, where a conventional bank would only loan up to 75 percent," he said. "The NMLF allows borrowers access to capital that they normally couldn’t access."
© Copyright 2007 Banker & Tradesman.
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