Stoking Housing Production and Affordability: Amending Cambridge's Land-Use Laws (Video)

 

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MBM Principal Peter L. Freeman Prevails Before Massachusetts Housing Appeals Committee in Important G.L. c. 40B Safe Harbor Decision

Peter L. Freeman

The Massachusetts Housing Appeals Committee recently issued an important ruling reversing a claim of a “safe harbor” under M.G.L. c. 40B, ss. 20-23 (“Chapter 40B”) by the Town of Oak Bluffs Zoning

Board of Appeals (“ZBA”). The project, known as Green Villa, proposes to build 100 home ownership units on a 7+ acre site opposite Martha’s Vineyard Regional High School in Oak Bluffs.  The project also has a small commercial component.  On May 20, 2024, the developer filed an application under Chapter 40B for the project. The safe harbor claim would have allowed the Board to deny or defer action on the project for 2 years.

On June 13, 2024, the ZBA made its written assertion that the Board’s approval of the of the Southern Tier Comprehensive Permit, including sixty (60) units counting toward the Town’s Subsidized Housing Inventory (SHI), had created enough affordable housing units under the Town’s Housing Production Plan (“HPP”) to justify a certification from the Massachusetts Executive Office of Housing and Livable Communities (“EOHLC”) that Oak Bluffs had complied with the HPP annual goal and could thus claim a 2-year safe harbor.

Green Villa appealed the safe harbor claim to EOHLC.  On July 24, 2024, EOHLC denied the Town’s safe harbor claim.  The ZBA appealed the EOHLC ruling to the Massachusetts Housing Appeals Committee (“HAC”).  The Martha’s Vineyard Commission (“MVC”) moved to intervene, as the basis of the ZBA’s safe harbor claim was that the time deadlines under the Chapter 40B Regulations for claiming a safe harbor were stayed until the MVC completes its review of the project as a Development of Regional Impact and makes a decision. Green Villa challenged this assertion and is also challenging the jurisdiction of the MVC to review a Chapter 40B project. MVC was granted participation as an Interested Person limited to responding to arguments concerning the MVC.

On April 24, 2025, HAC issued a Summary Decision on Interlocutory Appeal, which upheld the EOHLC denial of the ZBA safe harbor claim.  HAC ruled that there could not be two separate time frames for a Chapter 40B project:

“For purposes of determining safe harbor eligibility, there can only be one operative date, uniformly applied to all 351 cities and towns of the Commonwealth, the determination of which is not dependent upon the MVC’s review of the project. Therefore, the operative date for determining whether a municipality subject to the MVC Act has achieved a statutory or regulatory safe harbor is the date of the comprehensive permit application. Accordingly, the date for determining the Town’s safe harbor status is the date on which the developer’s comprehensive permit application was filed with the Board, May 20, 2024.”

MBM Principal, Peter L. Freeman, who handled the case before HAC with co-counsel Jesse D. Schomer of Dain Torpy, noted that this ruling on timing was critical because as of May 20, 2024, based on the Chapter 40B Regulations, the 60 Southern Tier units that had been added to the Town’s SHI were no longer eligible to count as SHI units (because no building permit was issued within one year of the approval of the project), thus extinguishing the EOHLC certification of safe harbor.

Claims of safe harbor by municipal zoning boards are becoming more frequent, and this case is important for affordable housing developers because it affirms the integrity of the Chapter 40B safe harbor regulations and keeps the applicable time frames specific and concrete, as opposed to being a moving target if the ZBA position had prevailed.

Green Villa is now before the ZBA for substantive hearings on the merits of the project. 

New Chapter 40B Financing Requirements

 Gregory R. Bradford

The Massachusetts Housing Finance Agency (“MassHousing”) recently announced changes to its lending requirements for certain

types of affordable housing projects. The changes will likely make it easier for traditional banks to extend construction loans for projects approved under the state’s Comprehensive Permit Act, M.G.L. c. 40B (the “Act”). 

The Act was enacted in 1969 to enable affordable housing developers to override certain local zoning and permitting requirements. MassHousing administers aspects of the Act, including the determination of whether projects are eligible for expedited permitting. MassHousing’s role stems from regulations and guidelines promulgated by the Executive Office of Housing and Livable Communities (formerly known as the Department of Housing and Community Development (“DHCD”)).

A key concept in the Act is the subsidy requirement. The Act defines affordable housing as “any housing subsidized by the federal or state government under any program to assist the construction of low or moderate income housing,” and DHCD’s regulations and guidelines, in turn, identify certain state and federal programs that qualify as a “subsidy” under the Act. One such program is the so-called New England Fund (“NEF”), which is made available through the Federal Home Loan Bank of Boston (“FHLBB”). This program is most commonly used when a developer needs construction financing from a bank. NEF proceeds can be advanced to FHLBB member banks, historically at below-market interest rates, and must meet certain parameters established by MassHousing.

Last month, MassHousing published modifications to its NEF financing requirements. Under MassHousing’s previous requirements (which stemmed from an iteration of the guidelines published by DHCD in 2005), any construction financing for a rental project needed to include a permanent loan term of at least five years, and at least 25% of the permanent loan needed to be obtained through the NEF program. Additionally, homeownership projects needed to pull 25% of the construction financing from the NEF program. These requirements created some unintended complications. With the five-year permanent loan requirement for rental projects, many lenders were surprised to learn that their proposed short-term construction loan actually triggered a seven or eight-year commitment. More unpleasant still was the occasional situation where a lender forgot to draw the NEF proceeds after the project achieved substantial completion – a hiccup that could delay the subsequent sale or refinancing of the project.

Furthermore, only banks that are members of the FHLBB can draw NEF funds – so many national lenders in the Boston market need to partner up with a local or regional bank familiar with the NEF program. While a few select Massachusetts banks have regularly assumed the NEF lender role, not all FHLBB member banks are familiar with the program or how to access it.

 MassHousing’s new, revised requirements provide for the following:

·  For rental projects: a minimum of 10% of the construction financing or 10% of the permanent loan must be obtained through the NEF program. If the permanent financing option is selected, then the NEF funds only need to be utilized for one year.

·   For homeownership projects: a minimum of 10% of the construction financing must be obtained through the NEF program.

In either scenario, if NEF funds are used for the construction financing, MassHousing requires that the funds be used for the entire duration of the construction loan (i.e., from the first loan advance, with the entirety of the 10% being disbursed up front).

Notably, MassHousing’s announcement also states that the agency is willing to modify existing 40B project approvals to incorporate these revised requirements. Any such modification will be deal-specific and could require amending the regulatory agreements and covenants recorded against the title, as well as certifications and commitment letters executed by the lenders – so the process will likely require some level of legal review.

Given MassHousing’s commitment to relax its financing requirements, a developer’s efforts to secure site approval for a new housing project will likely ease. More national lenders may be able to quickly issue term sheets for proposed 40B project loans, now that they can offer a more traditional construction and “mini-perm” loan term. Furthermore, more FHLBB member banks may be willing to assume the role of the NEF lender, given the greater flexibility for the NEF lender to refinance or transfer its interests after the minimum one-year commitment.

A partner in the Boston office of Nutter, McClennen & Fish LLP, Gregory is a member of the commercial and real estate finance practice group as well as the firm’s development, land use and permitting practice group. His practice focuses on commercial transactions, and he also advises clients on various aspects of complex development projects. Greg can be contacted at gbradford@nutter.com.