1. Equitable TOD Accelerator Fund
Concept Paper
12-5-12
Introduction
LISC is seeking to capitalize an Equitable TOD Accelerator Fund (ETODAF) with private
and public capital. LISC anticipates assembling a $4-$6 million loan fund (the “Fund”)
with a public sector top loss reserve to leverage capital from Massachusetts CDFI
lenders (“Lead Lenders”). Together, the Fund and Lead Lenders will finance strategic
acquisition and key predevelopment and project costs in areas near transit. ETODAF will
promote development of affordable and mixed income housing and mixed use
development near transit.
The Fund will catalyze and accelerate equitable transit oriented development to insure
that households of all incomes, but particularly low and moderate income households,
benefit from access to transportation and jobs and have quality housing opportunities
close to both. Market rate TOD development in strong locations is occurring on its own.
But there is a need for affordable housing near transit at a wide range of locations to
alleviate gentrification pressures in some areas, to catalyze revitalization activities and
increase mobility and opportunity in others, and to create new mixed income housing in
a broad range of neighborhoods. In addition, it is important to preserve existing
affordable housing along transit corridors to avoid displacement of lower income
families.
Community-based developers are positioned to play a critical role in developing
Massachusetts’ TOD vision and keeping equity an important focus as transit options
increase and state policy moves more households to transit from cars. These
developers need additional supports to bring important TOD projects to fruition and to
ensure that that equity concerns continue to be part of the discussion.
Benefits of TOD and Equitable TOD
TOD is a place-making initiative that brings together a broad range of interests to
promote dense, sustainable, walk-able, mixed use communities that have access to
quality education, services, jobs and transportation. The goals of TOD are to reduce
pollution and transportation costs, provide access to jobs, and to create healthy mixed
income, mixed use communities. TOD, with its appeal to economic, community
development, environmental and health agendas is an idea that has captured the
imagination of policy makers and philanthropists. Whether it is called “smart growth”,
“great neighborhoods”, or “sustainable communities,” the stakeholders share principles
of minimizing sprawl and pollution while increasing public transit ridership, promoting
efficient land use, diversity, quality education, proximity to services and jobs, and
creating and preserving affordable and mixed income housing.
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2. There are many benefits of transit oriented development to the residents, neighborhood
and broader community and municipality. These benefits include:
 Increases housing and transportation affordability
 Expands housing choices and prevents displacement
 Catalyzes and leads development in areas that can benefit from market
investment such as Gateway Cities.
 Supports economic development
 Reduces vehicle miles traveled and green house gas emissions
 Increases transit ridership and fare revenue
 Reduces sprawl and land consumption
 Improves health
LISC’s Equitable Transit Oriented Development Vision
Supporting equitable transit-oriented development (ETOD) is central to LISC’s larger
vision of supporting community efforts that revitalize underinvested communities and
create healthier and more prosperous communities where families of all incomes can
thrive. While LISC’s engagement with TOD began prior to the undertaking of our
Resilient Communities/Resilient Families initiative1, we view the ETODAF as an important
tool to leverage and support these efforts by bringing to fruition concrete improvements
to the physical infrastructure of the three RC/RF neighborhoods as well as other
communities where residents have come together to articulate a vision for their shared
future. ETODAF will be available not only in these neighborhoods, but also in
communities throughout Greater Boston and beyond, wherever community-based
developers are seeking to achieve their local goals by capitalizing on the proximity of
development and transit.
The ETODAF embodies many of the core values of community development. It is a way
to create good homes and better jobs for families and communities; to maximize access
to jobs, education and services; and it is part of ensuring that low and moderate-income
residents of the region benefit from transit service in communities, including those
where few such residents currently live.
By helping to accelerate the development of affordable housing and jobs near transit,
we hope to make progress toward the following outcomes:
1) Help low-income families decrease their combined housing and transportation
costs and increase wealth.
2) Decrease commuting times for low and moderate income households (research2
shows that they have longer commutes).
3) Improve health by fostering opportunities for active transportation in
combination with TOD that improves air quality.
4) Lower greenhouse gas emissions by reducing vehicle miles traveled (VMT) for
households living in transit-oriented developments.
1
Resilient Communities/Resilient Families,
http://www.bostonlisc.org/index.php?option=com_content&view=article&id=75&Itemid=95
2
“Staying on Track”, http://www.northeastern.edu/dukakiscenter/stayingontrack/, Dukakis Center for
Urban and Regional Policy, Northeastern University, December 2012
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3. 5) Catalyze private investment in key low and moderate-income transit-accessible
locations by both developing new affordable and mixed-income housing and
improving infrastructure and safety in transit nodes, thus effectively leading and
stimulating the market.
We anticipate that the ETODAF will be used in three different kinds of communities,
each of which offers a demand for investment in affordable and mixed income housing,
and a varying need for commercial real estate investment:
1. Disinvested communities where access to transit is part of a
community revitalization strategy through investments in both housing
and commercial development: In these settings, TOD is an element of
improving the physical condition of the community and catalyzing a broader
redevelopment which includes private capital investment.
2. Communities where there are already perceived (or real) market
pressures on what has historically been an economically diverse
community: In these places, equitable TOD is an important element of a
strategy to ensure that low and moderate-income residents have homes in and
see themselves as part of the future of their communities. Preservation of
existing affordable housing near transit in these communities is important, as
indicated by MAPC’s recent Orange Line Opportunity Corridor Study3, as is new
development of affordable and mixed income housing.
3. Strong market communities where there is access to jobs and/or high
quality education but few affordable housing opportunities: In these
communities, affordable and mixed income transit-oriented housing is part of
increasing choices for low-income families in a way that minimizes both housing
and transportation costs, and connects these families to jobs and services.
Organization
The ETOAF will be administered and managed by Greater Boston Local Initiatives
Support Corporation (LISC). Key funders are:
 State Government - EOHED is considering a $2 million MassWorks grant (which
will pass through MassDevelopment) for the fund’s top loss reserve. The top loss
is a reserve to cover loan losses in the fund, prior to other fund investors
experiencing losses. A top loss reserve allows the fund to take a riskier Loan to
Value (LTV) and subordinate position than typical.
 Local Funders - The Boston Foundation and Hyams Foundation are considering
PRIs for the fund to catalyze equitable development near transit.
 National Funders and Other Funders- LISC intends to seek PRIs from national
funders and other local funders interested in participating.
3
“Orange Line Opportunity Corridor Study”, http://mapc.org/orange-line-corridor, MAPC, November
2012
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4.  Grant funders - Barr Foundation has awarded LISC a two year grant for start up
costs; Hyams Foundation is supporting fund development with grant funding
also.
LISC is an established national lender for affordable housing and community
development, with a strong presence in Boston. LISC nationally has provided over $400
million in loan capital in community development investments since 2004. Boston LISC
has a long lending history with a successful track record, having made $45 million in
loans in our 30 year history with a loan loss rate of about 1% of total disbursed loans.
Boston LISC is overseen by a Local Advisory Board, and has a local credit committee
which approves all loan actions.
Need and System Gaps
Transit system expansion is occurring in several greater Boston locations, and the state
has a goal of significantly increasing transit ridership over the next 10 years. Expanding
transit access and increasing transit ridership creates opportunities. In order to ensure
that low and moderate income residents can benefit from those opportunities, we need
to work pro-actively to ensure that equitable TOD is planned for a variety of transit rich
neighborhoods. Community developers and CDCs are poised to play this role, but
additional supports are needed. Community developers of (TOD) projects need patient,
low cost capital in order to secure key sites along transit corridors for future
development; they need assistance with carrying costs during the predevelopment
phase; and they need access to predevelopment funding to jump start projects further
along in the development process.
The proposed targeted fund addresses key gaps in the system in order to provide
developers with the financing tools needed to create a strong pipeline of TOD projects in
Greater Boston and beyond.
Financing Challenges to an Equitable TOD Development Agenda
Despite a sophisticated system of debt financing and an abundance of lenders in
Massachusetts, there are significant gaps in the system that impede the long term,
strategic acquisition of sites near transit lines, and delay progress of projects already in
the development process. In spring 2010, LISC undertook an environment scan of the
existing funder network. Among the findings, we determined that non-profit developers
face significant challenges:
 Capacity: CDCs need strong balance sheets to compete for tax credits in the post
recession marketplace. Holding costs during the carry period can strain fragile
organizations.
 Loan to Value Gap: Current lenders limit acquisition financing to 80-90% of the
value of the property, and do not fund holding costs. This creates a burden for
non profit developers who have to fund these costs with limited capital.
 Site assembly: Entrepreneurial, small scale land assembly is critical to creating
larger parcels but such assembly is perceived as risky by lenders who want to
know exactly what will happen on the site(s) and if projects will ultimately be
financeable.
 Feasibility: Market matters. Lenders look at length of holding time, real value of
property and trends over time. An extremely competitive funding environment
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5. means that projects often wait 2-3 funding rounds or over 2 plus years to receive
funding awards. This unpredictability of funding impairs pipeline planning and
acquisitions.
 Coordination: While coordination among public agencies of infrastructure
improvements is improving the process can be further accelerated by more
explicit coordination between housing and infrastructure resources to scale up
progress on transformative efforts.
 Predevelopment funding: Access to predevelopment funding is not certain or
smooth at various stages of development.
These gaps, though daunting, are not insurmountable. A public and philanthropic
commitment to equitable TOD can address financing and underwriting concerns.
Providing funding that enables loans to exceed traditional loan-to-value (LTV) ratios and
can fund holding costs expands the ability of CDCs to acquire properties and to move
TOD projects forward expeditiously.
As part of the TOD Financing Project funded by Sustainable Communities, GLC
Development Resources recently completed a TOD financing gap analysis which
reinforced many of the earlier findings. It identified the need for more flexible
predevelopment funding and indicated that non-profit developers’ financial capacity can
be strained by the long holding period that some projects require.
Fund Overview
Based on the findings of these studies and the needs LISC has encountered in its role as
an early stage project funder, we have developed a fund that streamlines access to
acquisition and predevelopment capital for equitable TOD projects, and can be a flexible
source of funding that can adjust to the project specifics.
For acquisition, the fund will lend as much as 100% of the current value of the property
(i.e., the value prior to redevelopment). The fund will allow additional funding above
100% for interest costs and predevelopment (total loan amount must be able to be
repaid through the development scenario). Acquisition loans will be secured by real
estate collateral; most predevelopment loans will be secured by real estate collateral,
but unsecured loans may be available for publicly owned sites and other projects on a
case by case basis.
The fund will provide second mortgages or participations to cover the loan-to-value
(LTV) gap and the holding costs of TOD acquisitions. Recoverable grants will be
provided for option payments on sites or other alternative site control structures, and
some early predevelopment expenses.
Coordinated with existing capital networks, this targeted TOD fund would leverage
existing acquisition loan capital with significant impact. There are benefits to utilizing
existing lending capacity with an enhanced pool of mission-oriented funding that is
specifically designed to address the identified gaps. Rather than create a new fund for
TOD acquisition and predevelopment lending, we propose to build on the strong lending
capacity of existing lenders and intermediaries. This approach engages a variety of
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6. lenders and borrowers, leverages their capital and expertise and creates a credible
network of stakeholders helping to advance the TOD agenda.
Ready-to-go and more traditional projects could utilize existing funding entities with help
from the new fund for holding costs, filling the LTV gap or other risk mitigation. Longer
term, strategic acquisitions may use a portion of the fund, with public investment, to
hold properties.
A fund comprised of public and philanthropic sources and administered by an
experienced intermediary lender such as LISC, and coordinated with policy changes to
favor TOD development, would accelerate projects and unlock existing loan capital.
Investors and public entities contributing to a highly leveraged, revolving fund of $4-$6
million could unlock and leverage $30,000,000 in acquisition and predevelopment
lending from quasi-public and conventional lenders. The Fund will create over 1,500
units of housing and 325,000 sq. ft of commercial space in mixed use projects. The
projects created by this fund would have a total development cost of almost half a
billion dollars.
Fund Structure
Key pieces of fund structure include:
 ETODAF LLC - Boston LISC will create a new Limited Liability Corporation (LLC)
with local members, known as the ETODAF LLC. The LLC will pool investor funds
to be lent, with underwriting and Fund Management services from Boston LISC,
into CDFI-originated projects. This structure will allow local decision-making on
fund loans rather than through LISC’s national structure, while benefiting from
LISC’s loan underwriting and servicing capacity.
 Top Loss – EOHED is considering a request for $2 million for the fund’s top loss
reserve. If awarded, ETODAF will receive the top loss grant funds from EOHED,
through MassDevelopment. The top loss reserve will be maintained in a non-
interest bearing account and the funds will be utilized to cover loan losses (after
all recoveries from collateral and guarantees).
 PRIs - The Program-Related Investments (PRIs) will be made directly to the LLC.
Funds will be drawn from PRI funders as loans close (to minimize negative
arbitrage and keep fund expenses low).
 Side by Side Loan Structure - and the Fund will make second mortgages (or
participations) in Lead Lender loans or to make predevelopment loans.
 Risk Sharing with Lead Lenders – LISC anticipates negotiating an intercreditor
agreement with fund Lead Lenders to require that some portion of the Lead
Lender’s loan be in a senior loss position before the foundation PRI capital.
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7.  LISC anticipates that the fund will have a ten year term. The Fund will revolve
during that period with loan terms to borrowers of 2-3 years.
Loan Products
 Pre-development and acquisition loans would fund traditional third party
mortgageable project expenses, holding costs and some project management
costs.
 Bridge financing to bridge Low Income Housing Tax Credit (LIHTC) equity or
committed public subsidy funding during the construction or early occupancy
periods.
 Leveraged loans (permanent) for community facilities being funded with New
Market Tax Credits (NMTC) will be considered based on fund availability, risk,
and potential project impacts.
 Recoverable grants will be available for option payments and other alternative
site control arrangements and early feasibility costs.
Eligible Projects and Borrowers
Eligible borrowers will include non profit and for profit borrowers working on equitable,
TOD projects. For purposes of the fund, TOD projects must meet requirements for
proximity and connectivity to demonstrate that they are truly transit-oriented and will
result in fewer VMT and other benefits.
Proposed eligibility definitions include:
PROXIMIITY
Proximity to Transit – Subway, BRT, or High Frequency Bus by pedestrian routes
Less than .5 miles
Proximity to commuter rail projects
Less than .25 miles or
Less than .5 miles with connections to other transit and amenities (i.e.
buses, circulator buses, town centers, and other services)
CONNECTIVITY
Potential borrowers should describe plans for a pedestrian, bike friendly
environment, connectivity to adjacent services and overall neighborhood and
how the project connects to transit, which will be evaluated by LISC and the
Fund credit committee.
For purposes of the TOD fund, “Equitable” projects are those that include low and
moderate income units, in a higher proportion than already required by zoning and other
regulations. The fund encourages mixed income, mixed use projects.
Risk and Risk Mitigation
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8. The loan fund structure treats risk as follows:
 $ 2 million of MassWorks funding would provide top loss reserve protecting all
fund investors.
 Second tier is PRI funders (with a to-be-negotiated small percentage of the loss
to be borne by the originating lenders).
 Third tier of risk is the Lead Lenders.
Risk Mitigation for strategic acquisitions
The risk is mitigated by:
 Boston LISC’s strong credit analysis and underwriting.
 Feasible exit strategies in place to take out the acquisition loans.
 Buy-in by the Commonwealth through the top loss fund and clear signals
from the Patrick Administration as well as key municipal decision makers that
TOD will be a priority.
 Assurance that holding costs are reimbursable costs for subsidy providers
and could reasonably be recovered as part of mortgageable costs and/or
secured by developer fee.
 Confidence in the funding and political system that it values and will protect
mission investors’ important contribution.
 Recourse to project sponsor.
Public investment
 Public investment in an acquisition fund is an important platform for
foundation investors and to insure public sector buy-in to the TOD fund goals
and system changes needed. It sends a signal that this is an important policy
goal of the Commonwealth.
Coordination with Healthy Neighborhoods Equity Fund
LISC intends to coordinate this funding with Healthy Neighborhoods Equity Fund,
currently under development by Conservation Law Foundation Ventures (CLFV) and the
Massachusetts Housing Investment Corporation (MHIC). The ETODAF is focused
primarily on early stage capital, and HNEF is funding for the construction and permanent
stages. Both funds may be financing mixed income and mixed use projects, and LISC
intends to coordinate with CLFV and MHIC to ensure eligible projects benefit from both
funds.
Outcomes
As described previously, a highly leveraged, revolving fund of between $4-6 million of
foundation investment, along with the $2 million public investment for top loss, could
access up to $30,000,000 in acquisition and predevelopment lending and create over
1,500 units of housing and 325,000 sq. ft of commercial space in mixed use projects.
The projects created by this fund would have a TDC of almost half a billion dollars.
Equitable TOD developments will provide affordable housing near transit, increasing
connections and access to jobs and services, will create economic opportunities in the
neighborhoods which will have a revitalizing effect and attract private investment, and
create additional affordable housing in high opportunity communities.
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