Cambridge Trust is using its newfound heft after its Wellesley Bank acquisition last year to help build affordable housing across the state, to the tune of $110 million over 10 years.
The Cambridge-based bank on Thursday unveiled its ambitious new initiative with the Massachusetts Housing Partnership to finance rental apartment construction in an effort to ease the housing crunch. MHP estimates the money could help finance 1,400 apartments over the course of a decade.
MHP is known to the public for partnering with lenders to provide low-interest loans to help families and individuals with low or moderate incomes buy their first homes. But its primary mission is to help developers finance the construction of affordable multifamily housing. To do it, MHP relies heavily on a state-mandated tax of sorts on bank acquisitions that dates back to 1990: Whenever a bank is sold, the acquiring institution needs to contribute the equivalent of just under 1 percent of the acquired bank’s assets in Massachusetts to MHP’s multifamily housing loan pool.
However, in Cambridge Trust’s case, it is doing so voluntarily. The $110 million loan contribution represents the third-largest commitment of any bank to MHP, after the mandatory lending contributions that came about from the Fleet-BankBoston deal ($143 million in 1999) and the Bank of America-FleetBoston acquisition ($406 million in 2004). Cambridge Trust received a credit for prior affordable housing work that offset the potential mandatory requirement related to the Wellesley acquisition, according to MHP.
Using these commitments to MHP’s loan pool, the partnership has helped finance the construction of about 26,000 apartments over three decades, with most of them renting at prices deemed to be affordable.
The spate of bank takeovers in the past year has been a bonanza for MHP, with required contributions rolling in, all in the $60 million range, from the Eastern-Century deal, the Rockland Trust-East Boston Savings takeover, and the Silicon Valley Bank-Boston Private acquisition.
In contrast, until Cambridge Trust made this $110 million commitment, the sum total of voluntary bank commitments reached about $35 million. The voluntary contributions can help with a bank’s Community Reinvestment Act rating, a grade that regulators assign to banks based on their community commitments, and they provide a way for the bank to help the local economy.
“The bank has capital that they really want to deploy,” MHP executive director Clark Ziegler said. “[This program] was a great opportunity for them to get more money on the street that was impactful and meaningful.”
Cambridge Trust chief executive Denis Sheahan sits on MHP’s board; Ziegler said Sheahan was not directly involved in this new arrangement between Cambridge Trust and MHP, although he helped the bank’s managers become more familiar with the partnership and its mission.
“We saw an opportunity to make a commitment and we jumped on it,” said Tom Fontaine, executive vice president at Cambridge Trust. “The prices are just out of control [in Greater Boston]. The land has so much value, and affordability becomes an issue.”
Cambridge Trust had roughly $3 billion in assets before it bought Wellesley Bank last year, while Wellesley was roughly one-third of that size, Fontaine said. Today, the bank has about $4.4 billion in assets.
“As a bigger institution, you’re able to do more,” said Fontaine, Wellesley’s former chief executive. “You go where you can make the biggest impact and MHP was certainly the one to turn to for that.”
Ziegler said housing production in the state has picked up, relatively speaking, in recent years. But it’s still apparently not enough to make a dent in the cost of rent.
“What’s happening with home prices and rents is just proof that whatever point we are at in production, it’s not dialing things down,” Ziegler said. “It’s not having the impacts on rents and prices that we want to see to stay competitive, just to keep people here.”