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New Financing Source Available for Transit-Oriented Development

November 30th, 2015 by Joe Flatley

Developers seeking to build mixed-use projects in transit-oriented communities now have a new financing tool available. That tool – the Healthy Neighborhoods Equity Fund (HNEF) – was expressly designed to fill the equity gap for real estate projects in transitional neighborhoods where developers want to build new residential and commercial properties, but where the market may not yet be strong enough to support conventional financing.

HNEF funds projects that can be expected to achieve community, environmental and health impacts. The Fund was created by the Massachusetts Housing Investment Corporation (MHIC) and the Conservation Law Foundation (CLF) for two major reasons:

1. There is great public concern about and a growing body of tangible evidence that the built environment greatly affects health and health care costs. It’s well documented that diabetes and heart disease, for example, are twice as prevalent among poor adults as among upper-middle-class Americans. Since 1990, the number of Massachusetts residents living in neighborhoods with concentrated poverty has increased by nearly one third, and here in Boston life expectancy varied by as much as 33 years between census tracts located just two miles apart.

2.  Many developers who are interested in building mixed-income, mixed-use projects in TOD neighborhoods are hampered by a lack of patient, lower-cost capital. While public support for this type of development is generally strong, needed subsidies are limited and highly competitive, and most nonprofit developers don’t have sufficient equity to self-fund larger projects. Meanwhile, private developers often view these locations as too risky.

To address these issues, MHIC and CLF created an equity source to help fill the funding gap, improve the built environment in targeted neighborhoods, and provide reasonable, risk-adjusted returns for investors. Among other things, what distinguishes HNEF is its unique and groundbreaking approach to measuring and monitoring local health impacts, developed with major input and funding from HNEF’s research and public partners including the Robert Wood Johnson Foundation, the Kresge Foundation, the Harvard School of Public Health, the Metropolitan Area Planning Council, and the Massachusetts Department of Health.

To be considered for an HNEF investment, projects must be within one-half a mile of a transit node, or in a mixed-used neighborhood with significant potential for increased walkability and demonstrated public and community support. HNEF can finance mixed-use office, retail, and moderate- and market-rate housing.

HNEF investments will be made at construction loan closing and are expected to stay in the project for up to 10 years. Typically, they will provide 5-25% of TDC (with a maximum of $5 million) and up to 90% of equity in a project.

We are fortunate that here in Massachusetts, we have many “gateway cities,” and other communities with reliable transit service. But to take better advantage of the potential access to jobs, health care, recreation and other benefits that transit can provide, there is a clear need for more and better-integrated development – development that stresses the environmental, health, and community impacts – in those areas.

To that end, the HNEF team is actively building a pipeline of high impact projects in Massachusetts, with many in greater Boston, and others in downtown areas and around commuter rail stops in smaller cities. Developers interested in additional information, or who would like to see if a project may qualify for HNEF consideration, should visit http://www.hnefund.org or contact MHIC at 617-850-1000.

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