Real Estate Equity Investments in Community Development Projects

UNOFFICIAL COPY: 3 NYCRR - Ch. I Part 37 -- Real Estate Equity Investments In Community Development Projects
(Statutory authority: Banking Law, §§ 14[1], 98[1][d])

Sec.

37.1 Authorization
37.2 Limitations

3 NYCRR - § 37.1 -- Authorization.

Subject to the limitations contained in section 37.2 of this Part, and the prior review by the Department, a bank or trust company may make real estate equity investments in community development projects provided that any such project primarily serves a public purpose. A project will be deemed to serve a public purpose if it promotes housing and economic revitalization or development in low and moderate- income areas and directly benefits low and moderate- income residents or small businesses. In determining whether the project primarily serves a public purpose, consideration shall also be given as to whether the project primarily benefits the particular bank's local service area, and whether there is significant community involvement, including the extent to which community groups are involved in project implementation, and the extent of community and public support for the project.

3 NYCRR - § 37.2 -- Limitations.

A bank or trust company's investment in any one community development project pursuant to this Part may not exceed two percent of its capital stock, surplus and undivided profits and its aggregate investment in all such projects may not exceed ten percent of its capital stock, surplus and undivided profits.

UNOFFICIAL COPY: 3 NYCRR - Ch. I Part 6 - § 6.5 -- Investments in Community Development Entities or Projects.

  1. The Superintendent hereby finds that the promulgation of this section is consistent with the policy of the State of New York as declared in section 10 of the New York State Banking Law and thereby protects the public interest, including the interest of depositors, creditors, shareholders, stockholders and consumers and is necessary to achieve or maintain parity between banks and trust companies and national banks with respect to rights, powers, privileges, benefits, activities, loans, investments or transactions.
  2. The Superintendent hereby finds that title 12, United States Code, sections 93a, 481 and 1818; and title 12, Code of Federal Regulations, Part 24; permits national banks to make investments designed primarily to promote the public welfare, including the welfare of low and moderate- income areas or individuals, such as by providing housing, services or jobs.
  3. A bank or trust company may make equity investments in community development entities or projects provided that any such entity or project primarily serves a public purpose. An entity or project will be deemed to serve a public purpose if it primarily benefits low and moderate- income individuals, low and moderate- income areas, or other areas targeted for redevelopment by the local, State, tribal or Federal government (including Federal enterprise communities and Federal empowerment zones) by providing or supporting one or more of the following activities:
    1. affordable housing, community services, or permanent jobs for low and moderate- income individuals;
    2. equity or debt financing for small businesses;
    3. area revitalization or stabilization; or
    4. other activities, services, or facilities that primarily promote the public welfare.
  4. In addition, the bank or trust company should demonstrate that it is not reasonably practicable to obtain other private market financing for the proposed investment, the extent to which the investment benefits communities otherwise served by the bank and non-bank community support for or participation in the investment. Community support or participation may be demonstrated in a variety of ways, including but not limited to:
    1. in the case of an investment in a CD entity with a board of directors, representation on the board of directors by non-bank community representatives with expertise relevant to the proposed investment;
    2. establishment of an advisory board for the bank's community development activities that includes non-bank community representatives with expertise relevant to the proposed investment;
    3. formation of a formal business relationship with a community-based organization in connection with the proposed investment;
    4. contractual agreements with community partners to provide services in connection with the proposed investment;
    5. joint ventures with local small businesses in the proposed investment; and
    6. financing for the proposed investment from the public sector or community development organizations.
  5. A bank or trust company's aggregate outstanding investments under this Part may not exceed 5 percent of its capital and surplus, unless the bank or trust company is at least adequately capitalized and the Department of Financial Services determines, by written approval of the bank or trust company's proposed investment(s), that a higher amount will pose no significant risk. In no case may a bank or trust company's aggregate outstanding investments under this Part exceed 10 percent of its capital and surplus. A bank or trust company may not make an investment under this Part that would expose the bank or trust company to unlimited liability.
  6. A bank or trust company shall be eligible to use a self-certification process if it:
    1. is well capitalized within the meaning of applicable Federal regulations;
    2. has a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System and is not the subject of any regulatory orders or agreements; and
    3. has a Community Reinvestment Act rating of at least "Satisfactory." A bank or trust company that is adequately capitalized and that has a composite rating of 3 with demonstrable improving trends may seek written permission from the Superintendent to self-certify investments made under this Part.
  7. An eligible bank or trust company may self-certify the following investments without prior notice to or approval by the Superintendent:
    1. investments in an entity that finances, acquires, develops, rehabilitates, manages, sells, or rents housing primarily for low and moderate- income individuals;
    2. investments that finance small businesses (including equity or debt financing and investments in an entity that provides loan guarantees) that are located in low or moderate- income areas or that produce or retain permanent jobs, the majority of which are held by low and moderate- income individuals;
    3. investments that provide credit counseling, job training, community development research, and similar technical assistance services for non-profit community development organizations, low and moderate- income individuals or areas, small businesses located in low or moderate- income areas or that produce or retain permanent jobs, the majority of which are held by low and moderate- income individuals;
    4. investments in an entity that acquires, develops, rehabilitates, manages, sells, or rents commercial or industrial property that is located in a low or moderate-income area and occupied primarily by small businesses, or that is occupied primarily by small businesses that produce or retain permanent jobs, the majority of which are held by low and moderate- income individuals;
    5. investments as a limited partner, or as a partner in an entity that is itself a limited partner in a project with a general partner that is, or is primarily owned and operated by, a 26 U.S.C. 501 (c)(3) or (4) non-profit corporation and that qualifies for the Federal low-income housing tax credit;
    6. investments in low or moderate- income areas that produce or retain permanent jobs, the majority of which are held by low and moderate- income individuals;
    7. investments in a banking organization that has been identified by the Superintendent as a banking organization with a community development focus or in a national bank that has one or more offices or branches in New York and that has been approved by the OCC as a national bank with a community development focus.
  8. An otherwise eligible bank or trust company may not self-certify an investment if:
    1. the investment involves properties carried on the bank's or trust company's books as "other real estate owned;" or
    2. more than 25% of the investment funds projects in a state or metropolitan area other than the states or metropolitan areas in which the bank or trust company maintains its main office or branches; or
    3. the Department determines, in published guidance, that the investment is inappropriate for self-certification.
  9. To self-certify an investment, an eligible bank or trust company shall submit to the Superintendent a notice of self-certification within ten days after it makes the investment. The notice shall include:
    1. the name of the entity or project in which the bank or trust company has invested and the date on which the investment was made;
    2. the type of investment (equity or debt), the eligible investment activity that the investment supports, and a brief description of the particular investment;
    3. the amount of the bank or trust company's total investment in the entity or project and the bank or trust company's aggregate outstanding investments under this Part, including commitments and the investment being self-certified;
    4. the percentage of the bank or trust company's capital and surplus represented by the bank or trust company's aggregate outstanding investments under this Part, including commitments and the investment being self-certified;
    5. a statement certifying compliance with subdivisions (c) and (d) of this Part; and
    6. if necessary, a statement certifying that no more than 25% of the investment funds projects in a state or metropolitan area other than the states or metropolitan areas in which the bank or trust company maintains its main office or branches.
  10. If a bank or trust company seeking to make an investment may not self-certify the investment, it shall submit to the Superintendent a request for prior approval to make the investment, including the following information:
    1. the name of the entity or project in which the bank or trust company proposed to invest and the proposed investment date;
    2. the type of investment (equity or debt), the eligible investment activity that the investment supports, and a description of the particular investment;
    3. the amount of the bank or trust company's investment in the entity or project, and the bank or trust company's aggregate outstanding investments under this Part, including commitments and the investment being proposed;
    4. the percentage of the bank or trust company's capital and surplus represented by the bank or trust company's aggregate outstanding investments under this Part, including commitments and the investment being proposed; and
    5. a statement certifying compliance with subdivisions (c) and (d) of this Part;
  11. In reviewing a proposal, the Department considers the following factors and other available information:
    1. whether the investment satisfies the requirements of subdivisions (c) and (d) of this Part;
    2. whether the investment is consistent with the safe and sound operation of the bank or trust company; and
    3. whether the investment is consistent with the requirements of this Part and the Department's policies.
  12. Unless otherwise notified in writing by the Superintendent, the proposed investment shall be deemed approved thirty calendar days from the date on which the Department receives the bank or trust company's investment proposal. The Department, by notifying the bank or trust company, may extend its period for reviewing the investment proposal. If so notified, the bank or trust company may make the investment only with the Department's written approval. The Department may impose one or more conditions in connection with its approval of an investment under this Part. All approvals are subject to the condition that a bank or trust company must conduct the approved activity in a manner consistent with any published guidance issued by the Department regarding the activity.