BlueLine Acquisition, East Boston CDC – 2022

BlueLine Acquisition, East Boston CDC – 2022

In East Boston, a big move to keep renters in their homes

In one of the biggest deals of its kind, a nonprofit and the city team up to buy $47 million portfolio of rental properties in bid to combat displacement.

It was wishful thinking, Al Caldarelli thought, when members of the nonprofit he runs — the East Boston Community Development Corporation — told him earlier this year about a portfolio of 36 small apartment buildings in the neighborhood that had just gone up for sale.

The group has adopted a strategy in recent years of acquiring occupied properties in East Boston from private sellers and renting the units as deed-restricted affordable housing — a small but meaningful effort to house families who are being displaced by a wave of gentrification transforming the traditionally working class neighborhood and to keep the properties out of the hands of landlords who might hike the rent.

But 36 buildings? That was a long shot.

Then came a barrage of support from other local groups, millions of dollars in nonprofit and city funding, and, eventually, enough backing to put forward an offer to buy the whole bunch: $47 million for 114 apartments. Remarkably, it worked.

“It was a shock,” when the sellers agreed, said Caldarelli, longtime executive director of East Boston CDC who has typically seen such buildings bought by deep-pocketed investors. “It’s difficult to express what this means for our community. We are reclaiming some of the housing that has been snatched up by private investors. We are reclaiming space for our families to live.”

The purchase, announced last week by Mayor Michelle Wu’s office, marks a big win for community groups that have seized on a new tactic for battling the housing crisis and displacement: purchase existing housing stock from private sellers, keep rents modest, and give the community a stake in the property. But it also highlights how hard that model can be to replicate, requiring a wide range of help, and a willing seller, at a time when real estate values are high.

The Blue Line Portfolio, as real estate brokers named this group of properties, will be owned and managed by a newly formed Mixed Income Neighborhood Trust, a community governance model that splits control of the homes between the patchwork of nonprofit groups and individuals who contributed money to the purchase and the tenants of the buildings themselves. It will be the first such trust of its kind in Massachusetts.

A property in the Blue Line Portfolio, a group of 36 homes purchased last week by a coalition of community groups that will be preserved for deed-restricted affordable housing.JLL CAPITAL MARKETS

“I would venture to say that the folks that created the model of buying homes and forming community trusts would not have thought that it was possible to buy a $50 million real estate portfolio in a hyper-capitalized real estate market, with the sole intention of driving rent down,” said Mike Leyba, the co-executive director of City Life/Vida Urbana, a tenants rights organization that helped fund the purchase. “Tell that to a finance person, and they’re going to say, ‘that’s pretty dang innovative.’”

The purchase is particularly meaningful for East Boston, long a neighborhood with a large immigrant population, where families are being forced out by rapidly rising rents.

And it is unique because, unlike when a CDC seeks traditional financial investors for a project, the Blue Line Portfolio acquisition was bankrolled by a number of philanthropic organizations, banks, individuals, and city funds, meaning no single investor will have a commanding voice in managing the properties or dictating what is done with the rent money they accrue from tenants.

As Leyba puts it: “The community owns these homes now.”

More than three quarters of the apartments – which are mostly in older, three-decker buildings scattered throughout the neighborhood – are three-bedrooms or larger, enough space to accommodate families, and all of the homes will be designated as income-restricted affordable housing. Of the 114 units, 28 will be set aside for households making no more than 50 percent of the area median income — $70,100 for a family of four — 40 will be set at 60 percent, 26 at 80 percent, and 20 at 100 percent.

Caldarelli’s group has been slowly purchasing homes in East Boston over the last several years, but they had yet to attempt an offer of this size. The sizzling Boston real estate market makes that a tall task for CDCs, community-based nonprofits whose buying power is dwarfed by that of corporations.

Indeed, to secure an agreement it took a scrambled fund-raising blitz — millions from other local nonprofits including the Boston Foundation and the Hyams Foundation — loans from three banks, and an investment from the city’s Acquisition Opportunity Program, which helps purchase small buildings and convert them to affordable housing. That city program was recently granted more than $45 million in American Rescue Plan Act funds, $9 million of which were allocated to the Blue Line portfolio. In total, the city contributed around $12 million to the purchase.

A property in the Blue Line Portfolio, a group of 36 homes purchased last week by a coalition of community groups that will be preserved for deed-restricted affordable housing. JLL CAPITAL MARKETS

“Especially in Boston, there are a lot of properties changing hands, typically from long-term owners to new investors,” said Sheila Dillon, Boston’s chief of housing. “In this kind of very heated market, taking the time to secure funding can make an acquisition like this even more challenging. We’re trying to help groups who want to preserve housing be more competitive.”

In this case, competition was fierce, said David Grossman, principal at The Grossman Companies, a Quincy-based developer that co-owned the portfolio. There were multinational corporations vying to snatch up the properties, he said, but the CDC’s pitch – to dedicate the properties for affordable housing – was compelling enough to hold off other offers, which were generally around the same price.

“We really believed in that mission,” said Grossman. “We were willing to take the risk and went along for the ride.”

In some ways, the portfolio, and the life of the properties that constitute it, tell a bigger story about this neighborhood. The surge in private investment in East Boston, advocates say, has driven widespread displacement of longtime residents. Rents have grown faster than in almost any other Boston neighborhood over the last five years — climbing roughly 5 percent in 2021 alone, according to data from BostonPads — as young professionals seeking relief from sky-high rents elsewhere have come in droves.

Grossman and its partners purchased the buildings one by one in 2014 and 2015 and, according to Suffolk County property records, paid roughly half as much then as the trust paid for them this month. Many were spruced up and rented to students, though members of the trust expect they will leave sooner rather than later. (Current occupants will not be evicted or asked to leave, but Leyba said the student population has a rental turnover rate that is much higher than typical renters.)

Andres Del Castillo, the director of development at City Life/Vida Urbana, said he has in the past worked with residents of some of the buildings in the portfolio who faced rent hikes or eviction notices. Some left their apartments, though others managed to stay. Thanks to the acquisition, said Del Castillo, they can now remain in the buildings for as long as they want.

“It will be a great feeling to be able to call the families that still remain in this portfolio and say, ‘Guess what? you’re part of the community and you own this now, too,’” he said.

Article Credit: Boston Globe