In Silicon Valley Bank collapse, affordable housing all over Boston hangs in the balance

Boston Private Bank & Trust grew into one of the biggest financiers of affordable housing in Boston. They were acquired by Silicon Valley Bank. So what happens now?

Silicon Valley Bank — or SVB, as pictured here — became a major financier of affordable housing developments in Boston after its acquisition of Boston Private Bank & Trust two years ago. Among the current projects SVB financed is 1599 Columbus Ave., a 65-unit apartment building under construction in Jackson Square.David L. Ryan/Globe Staff

Two years ago, Greater Boston’s affordable housing community waited anxiously after Boston Private Bank & Trust announced it would be sold to a much bigger California bank.

Would this newcomer, Silicon Valley Bank, continue Boston Private’s leadership role in financing construction while helping nonprofits, urban neighborhoods, and first-time homebuyers? The answer turned out to be a resounding yes: SVB bought into Boston Private’s mission, and in some ways expanded it.

Now that SVB is being broken apart and sold off by the Federal Deposit Insurance Corp., affordable housing advocates and developers feel an uneasy sense of déjà vu. The immediate fears from the abrupt failure of SVB two weeks ago have abated, thanks to the FDIC’s intervention. Nonprofits that banked with SVB can still pay their bills. Construction won’t grind to a halt. At least a dozen ongoing projects with SVB financing, representing about 600 apartments, are on the line in Massachusetts.

But concerns persist about how much of the bank’s extensive community reinvestment work will survive under another new owner.

Financing affordable housing in Mattapan and Roxbury might seem unexpected for a bank created to provide white-glove service to wealthy Bostonians — individuals with millions of dollars worth of banking business.

Not long after its launch in 1987, FDIC inspectors took a look at Boston Private, then a tiny bank, and didn’t like what they saw. In its first two public Community Reinvestment Act ratings, the bank received a “Needs to Improve,” in 1990 and again in 1994. Those kinds of bad marks are rarely seen. In the grade-inflation parlance of the FDIC, that’s the same as getting two D’s in a row on your report card. Serving the ultra-rich has its drawbacks. Boston Private executives knew such low ratings could hinder any future acquisitions.

Enter Esther Schlorholtz, Boston Private’s first full-time community reinvestment officer. She grew up in Pakistan, the daughter of two missionaries, and saw firsthand the damage caused by extremes of wealth and poverty. It sparked a lifelong professional interest in bridging the gap between the haves and have-nots. After nine years working in community development in City Hall, she left to work on affordable housing financing for Shawmut Bank. In 1995, Shawmut was sold to Fleet, so she took her skills, connections, and sense of purpose to Boston Private, where executives were eager to step up after getting chastised by the FDIC.

Site work is underway at 1599 Columbus Ave. in Roxbury, one of numerous affordable housing developments financed by Silicon Valley Bank, which acquired Boston Private Bank & Trust two years ago.David L. Ryan/Globe Staff

Schlorholtz started by trying to figure out a way to help those with low or moderate incomes buy their first homes. That included joining what was then called the “Soft Second” program, offered through the Massachusetts Housing Partnership, offering low rates with little to no down payment. The bank moved quickly from there, under her guidance, to financing affordable housing construction, through loans and the purchase of tax credits. Boston Private also lent money to nonprofits, including charter schools, and donated to a variety of groups and events in urban neighborhoods around the region.

In her mind, these programs needed to still be profitable for the bank. Otherwise, they wouldn’t be sustainable in the long run.

By 2001, the Globe was reporting that Boston Private ranked fourth in the market — behind three much larger institutions — when it came to issuing mortgage loans in low-income neighborhoods and to Black homebuyers. Activist Eugene Rivers said then that no bank of comparable size worked harder “to have a visible presence in the inner city.” And in 2002, Schlorholtz helped the bank win its first “Outstanding” rating from the FDIC. From zero to hero in under eight years.

Boston Private would win the top grade in four of its five subsequent CRA ratings, stumbling somewhat only after it expanded to the West Coast through a series of acquisitions. The Great Recession hit, and it became clear the parent company had overextended, eventually landing Boston Private with a “Satisfactory” CRA grade in 2015. When the next examination rolled around three years later, Schlorholtz made sure the bank was back in “Outstanding” mode again. At that point, it had committed $1.5 billion worth of community reinvestment funds — primarily financing affordable housing but also loaning to nonprofits and small businesses, and making community grants — over a five-year period in the Boston, Los Angeles, and San Francisco markets.

Through it all, Schlorholtz and others on her team became important affordable housing advocates as well. Aaron Gornstein, chief executive of Boston-based developer Preservation of Affordable Housing, says Boston Private staffers played leadership roles in shaping public policy over the years. They could be outspoken, he said, because they had the bank’s full support behind them.

From Mass. Housing Partnership executive director Clark Ziegler’s perspective, Boston Private was an eager partner, always willing to come to brainstorm with organizations like his on new and innovative approaches to affordable housing.

Like Ziegler, longtime housing advocate Tom Callahan says Boston Private played an outsized role in helping low- and moderate-income families and neighborhoods in Greater Boston. That’s why Callahan, currently executive director of the Partnership for Financial Equity, is nervous about what a new owner might mean for Boston Private’s community reinvestment legacy in this region.

Congress passed the Community Reinvestment Act in 1977 to address loan discrimination and lift up urban neighborhoods that were being largely overlooked by traditional banks. If used well, Callahan said, the CRA can be a tool to build and maintain trust with the communities they serve. Some banks just check the CRA boxes. Others, such as Boston Private, have gone well beyond what the regulators require, and it gets ingrained in the way they do business.

While Schlorholtz retired six months after SVB acquired Boston Private, at the end of 2021, many of her former colleagues are still there, pursuing the mission she began nearly 30 years ago.

What about the next 30 years? The outcome of the two SVB auctions this week could determine the answer.

Sure, like-minded banks such as Eastern and Rockland Trust would pick up some of the slack if the legacy that Schlorholtz built goes away. But wealth inequality, particularly around housing, remains one of the biggest crises facing Greater Boston. We need everyone at the table to solve it. Especially an unlikely leader like a bank that started out to help the rich and realized the business case for doing so much more.