Saving the money machine

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The Boston Redevelopment Authority is asking a federal housing agency not to throw a wrench in its never-ending money machine.

When the BRA sells land to condominium developers, the authority often includes a provision in the deed requiring that it receive a transfer fee every time one of the condos sells. The fee ranges from 1 to 4 percent of the sales price. The BRA’s take goes up and down with the real estate market, but over the last four years the agency says it has netted anywhere from $700,000 to $1.4 million a year.

Private developers are now jumping on this gravy train. The developers build houses or condos and sell them with deeds requiring that they be paid a transfer fee every time the property is sold in the future. Some developers are even lumping these transfer-fee revenue streams together and selling them to investors.

The Federal Housing Finance Agency in mid-August issued a proposed guidance for the lenders it oversees, urging them not to invest in mortgages on properties subject to the transfer fees. The agency says the fees “appear adverse to liquidity, affordability, and stability in the housing finance market, and to financially safe and sound investments.”

I wrote about the BRA’s never-ending money machine in CommonWealth’s winter issue and reported on the Federal Housing Finance Agency’s proposed guidance in the magazine’s just-released current issue. Since the latter report, the federal agency has received more than 2,600 comments on its proposed guidance, including letters from the BRA, the Massachusetts Audubon Society, and the Greater Boston Real Estate Board.

BRA Director John Palmieri said in his letter that the Federal Housing Finance Agency should carve out an exception in its guidance for transfer fees used by municipalities and states for economic development purposes. Palmieri disclosed that the BRA’s transfer fee covers “at least 1,000 housing units in Boston,” mostly in the Charlestown Navy Yard and the South End. He said the fees provide a “significant portion” of the BRA’s annual revenue.

Palmieri says the transfer fees allow the BRA to spur housing development by selling land to developers for less than it’s worth and recouping the actual value over time from future purchasers of the property. “In short,” Palmieri wrote, “transfer fee covenants help make new residential projects more feasible in neighborhoods that need housing.”

A letter from the Greater Boston Real Estate Board supported the crackdown on transfer fees, noting the fees “increase the cost of home ownership, do little more than generate revenue for developers or investors, and provide no benefit to homebuyers.”

Greg Vasil, chief executive of the board, said in a telephone interview that he was less concerned about the transfer fees assessed by the BRA. Indeed, he said realtors are crafting state legislation that would ban the transfer fees in Massachusetts but grant an exception to the BRA.

In a letter written with the Society for the Protection of New Hampshire Forests, the Massachusetts Audubon Society urged the Federal Housing Finance Agency to exclude transfer fees used for public and charitable conservation benefits from its guidance. “As proposed, this guidance would have a severe negative impact on the operations of conservation organizations such as ours that rely on these disclosed fees for our operations,” the two groups said.

Freehold Capital Partners, the New York company that pioneered the use of transfer fees by private developers, said in its comment that the Federal Housing Finance Agency’s guidance would stall home construction and harm homeowners.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

The company said developers who sell future transfer-fee revenue to investors can use the proceeds to kickstart new development projects. The company also said that developers who utilize transfer fees are able to sell a home at a lower initial price and recoup the cost of a community’s common infrastructure over time from future owners.

The Federal Housing Finance Agency oversees Fannie Mae, Freddie Mac, and the nation’s federal home loan banks. By some estimates, the agencies insure or back 90 percent of the nation’s mortgages. The comment period on the Federal Housing Finance Agency’s guidance ended last week; final guidance will be issued in the coming months.