The Massachusetts housing crisis continues to threaten the state’s ability to grow and thrive. Rent structures and decades-old restrictive zoning policies have an impact on affordability — they are obstacles that limit businesses in hiring talent and the state from growing the population and keeping a highly educated workforce and working-class families here. The Healey administration is working to unlock more housing supply, but government alone is not the sole answer to solving the crisis. The private sector can help.
Last year, the East Boston Community Development Corp. bought 36 triple-deckers with 114 units of housing in East Boston, a $47 million transaction that illustrates how a partnership between the public sector, nonprofit organizations, and the private sector can secure housing. This kind of partnership can be replicated throughout the state.
In early 2022, EBCDC saw an opportunity to acquire a 114-unit portfolio of housing with the goal of reclaiming some housing for those whose incomes are too high to secure subsidized housing but too low to reasonably afford market rate housing. EBCDC bought the portfolio from The Grossman Companies and Hodara Real Estate Group for $47 million. The purchase was made possible through nearly $8 million of equity and subordinated loans from local foundations and private individuals and a city of Boston loan of $12 million from the American Rescue Plan Act.
The sellers supported the mission and introduced EBCDC to Trust Neighborhoods, a nonprofit organization focused on the Mixed-Income Neighborhood Trust structure, which blends portfolios of market rate and affordable rents to support permanently affordable housing. Trust Neighborhoods has deep financial structuring and housing expertise that was a perfect complement to EBCDC’s neighborhood, housing, and operations acumen. It supported EBCDC and City Life Vida Urbana in setting up the East Boston Neighborhood Trust to acquire and steward the portfolio as permanent mixed-income housing. The sellers were able to wait for the capitalization to materialize, which took about six months. This time frame is longer than a normal private real estate transaction but substantially shorter than a traditional affordable housing investment, which may require a variety of local, state, and federal subsidies and a far longer time horizon — sometimes years.
This investment was funded with a traditional, market rate first mortgage loan from Eastern Bank. The city provided approximately 20 percent of the remaining capital need (as a loan with a 0 percent interest rate); philanthropic interests and private taxable investors funded the remaining 15 percent. Because of how the philanthropic and city investments were structured, this investment generates a market rate after-tax return for the private investors in an investment that accomplishes a greater good. To boot, the Boston Housing Authority provided vouchers to amplify the impact of the investment. The net result is that renters will save between 10 percent and 35 percent off of market rates ($100 to $700 per month per unit), a savings that may well increase as market conditions change over time.
The portfolio is transitioning toward its end goal from market rate housing to workforce and family housing. One of the first tenants will be David Argueta, his wife, Elsy Amaya, and their four children. Argueta works in construction and has an extensive family network in East Boston. When his previous market rate apartment rent increased yet again, a family member connected him with Mutual Aid Eastie, a local grass-roots organization focused on making sure “no one in East Boston is left behind,” with a specific focus on East Boston’s immigrant community.
Mutual Aid Eastie helped Argueta fill out an application for the Mixed-Income Neighborhood Trust’s wait list and followed up with EBCDC when the family was moved into a shelter. The Argueta family is now out of the shelter and will be moving into one of the Trust’s 5-bedroom apartments in time for the children to begin school this fall. Thanks to this innovative approach to workforce housing, the family can remain rooted in their community of East Boston for the foreseeable future.
At a cost of about $100,000 per unit, the city of Boston was able to ensure that the 114 units remain accessible to working families in perpetuity. This is an efficient use of the city’s resources to help people earning between 50 percent to 100 percent of the area median income garner housing that fits their budget, with the majority of the units sized for families — arguably the most difficult demographic to house in Boston. The public sector moved quickly, and philanthropists and the private sector will earn market rate returns. This effort is a recipe for future success in easing Boston’s housing crisis. It should be replicated.
Gabriela Coletta is a Boston city councilor for District One. David Grossman is president of First Boston Capital Partners. Jacob Grossman is president of The Grossman Companies, which sold the property portfolio.