The following is a press realease from the city of Boston:
Mayor Thomas M. Menino today said that the City could issue the first loan commitments for the Boston Invest in Growth Loan Fund for large commercial projects in Boston as soon as early March, once final approval from U.S. Department of Housing and Urban Development (HUD) is received later this month. The fund, which will be administered by the City’s Department of Neighborhood Development (DND), is a $40 million HUD Section 108 funded loan pool designed to jumpstart well-financed construction projects, create jobs, and strengthen Boston’s economy.
"Despite these tough times, Boston’s economy remains relatively strong. But with a slower credit market than we’ve seen in years, the City has to do its part to make sure that we can meet some major commercial development goals that generate additional economic activity," Mayor Menino said. "That’s what Boston Invests is all about. We want projects that are ready to put a shovel in the ground."
First announced by Mayor Menino in a speech to the Greater Boston Chamber of Commerce in December, the fund is designed for those projects that have both permanent financing and equity in place. Boston Invests is designed to finance the gap that remains between the financing and equity and the total project cost, known as mezzanine financing.
Mayor Menino noted that the Boston Invests Loan Fund is similarly modeled after the 2003 Hotel Development Loan Fund, a City initiative that was designed to keep the pipeline of hotel development projects going during the post September 11th credit crunch.
Since early 2008, the financing of commercial real estate has become significantly more difficult, with banks and other lenders having tightened their underwriting standards. While banks and equity investors may cover about 90% of commercial real estate development costs, many large projects are often left to close the remaining 10% gap between first position debt and equity.
Boston Redevelopment Authority officials said that there are currently a number of commercial projects in Boston that have all of their building permits and other approvals necessary to start construction, but have been delayed because of this last percentage gap in their financing. The new loan pool would allow a number of the most worthy projects fill their financing gap in order to start construction during 2009.
In addition, DND Director Evelyn Friedman said up to 10% of the loan pool will be set aside for smaller neighborhood based projects of at least 5,000 square feet, the underwriting criteria for which will be the same as for the larger loans but the interest rate charged as well as the additional interest paid at the end will be lower.
Among other criteria, applicable projects must be over 20,000 square-feet, and must be able to create one full time equivalent job for each $35,000 invested, which must be available to persons of low and moderate income. City officials have said the initiative could generate as many as 1200 permanent jobs, hundreds of construction jobs, as well as an increase in linkage funds and annual tax revenue for the City.
DND will submit a formal application to HUD at the end of the month following completion of the required 30-day public comment period. A summary of the Proposed Substantial Amendment can be found on the DND website, www.cityofboston.gov/dnd, in which a list of loan underwriting criteria is included. Friedman said the City expects to begin soliciting applications from interested parties within two weeks. Applications will be accepted on a rolling basis, for which review will start upon submittal. The City expects to issue the first loan commitments by spring.
The Department of Neighborhood Development is responsible for administering and programming the city’s federal grants from HUD, and average annual allotment of approximately $79 million which funds housing, small business and economic development, and human service programs. DND is made up of four program divisions: The Boston Home Center, Neighborhood Housing Development, Office of Business Development, and Real Estate Management and Sales, which are supported by four other operational divisions.
