icon Legally Speaking

An Update on HUD’s Green and Resilient Retrofit Program

5 min read

In May 2023, the Department of Housing and Urban Development (HUD) published guidelines related to its Green and Resilient Retrofit Program (GRRP). These guidelines address the availability of approximately $2 billion in loans and $837 million in grant funds, which HUD is making available to an anticipated 600 of its existing HUD-assisted properties.

In the seven months since this initial announcement, HUD has awarded funds under the first two of an expected 12 initial funding rounds. Additional application rounds are available in early 2024, and in the coming months, projects with highly significant GRRP investment will begin to close on financing and start rehabilitation. These rehabilitation projects will include significant energy reduction, efficiency and climate resiliency improvements to existing HUD properties.

Program Overview and Background
GRRP is being implemented in three award cohorts, which each have the same goals of incentivizing and supporting energy efficiency and climate resiliency improvements, but which vary in the level of funding available, and the requirements associated with the award. These cohorts are named “Elements,” “Leading Edge” and “Comprehensive.”

Under the Elements cohort, HUD will provide funding of up to the lesser of $750,000 per property or $40,000 per unit to pay for improvements, including electric HVAC heat pumps, Energy Star windows, fire-resistant roofs and clean energy generation systems. This cohort is designed to provide funding to projects with an upcoming recapitalization, which would benefit from targeted enhancements, with the GRRP funding paying for the enhanced scope items.

Under the Leading Edge cohort, HUD will provide funding of up to $60,000 per unit or $10 million per property. This cohort is aimed at funding ambitious retrofits allowing a property to achieve an Advanced Green Certification. HUD expects Leading Edge awardees to achieve at least 25 percent in modeled energy reduction.

Under the Comprehensive cohort, HUD will provide funding of up to $80,000 per unit or $20 million per property to properties with the highest need for climate resilience and utility efficiency upgrades. Properties well-suited for this cohort do not need to have developed a recapitalization plan and might benefit from early-stage planning and oversight. Comprehensive awardees will be paired with a Multifamily Assessment Contractor (MAC), who will assist the awardee in developing its scope of work, commissioning property assessments and executing the recapitalization transaction. HUD expects Comprehensive awardees will meet the project’s basic capital needs while also achieving energy and water efficiency, climate resiliency, air quality improvements and a 40 percent or greater reduction in emissions.

The Elements cohort is designed as a supplement to enhance the green and energy-efficient features of a recapitalization transaction. The Leading Edge and Comprehensive cohorts provide much more significant amounts of funding and are envisioned as a major deal source – and could serve as a source to fill gaps in transactions financed by tax-exempt bonds and Low Income Housing Tax Credits.

Status of Awards and Implementation
HUD is processing applications for GRRP funding in waves, with a funding round for each cohort closing each month on a rotating basis. HUD’s goal is to provide funding awards approximately 60 to 90 days after the close of each funding award.

To date, HUD has made awards under the GRRP program for one wave of Elements cohort applications and one wave of Leading Edge cohort applications. Most recently, HUD has awarded funds to 16 properties in the first wave of Leading Edge funding. These awards were announced in mid-October based on the application round, which closed at the end of July. The amount of these awards ranged from $2.3 million up to the maximum program award of $10 million, which was awarded to three of the recipients. The first wave of Comprehensive Awards is expected to be announced shortly. HUD has also received applications for an additional wave of each cohort and is currently processing those applications.

Key Dates for Upcoming Applications
Future application rounds remain open. The third wave of Elements applications has a submission deadline of January 4. The third round of Leading Edge applications is due at the end of January and the third round of Comprehensive applications is due at the end of February. The fourth round of applications will be accepted by HUD in the three months following that.

Issues to Consider
GRRP awardees may opt to receive funds in the form of either a grant or a surplus cash loan on terms specified by HUD. Notably, HUD requires that funds must be received by the applicant—which must be the owner or contract purchaser—and not a related entity, such as a developer or sponsor. Therefore, the awardee must consider the consequences of the form of assistance received.

Grant funds would typically be recognized as income to the recipient and may create tax issues in LIHTC transactions. The surplus cash loan would avoid those tax issues and would allow for structuring like surplus cash loans from other federal sources, such as the federal HOME or Housing Trust Fund programs, which have a long track record in LIHTC transactions.

HUD is also continuing to consider feedback from program participants and potential modifications to GRRP program guidelines to reflect the realities faced by applicants. For example, HUD’s existing guidance has stated that applicants must not yet close on their preservation transaction to receive an award under the Elements cohort. However, HUD may have reason to relax this requirement. Some applicants would have the ability to incorporate Elements improvements into their construction scope even after closing. By relaxing this rule, HUD would avoid creating an effective penalty for closing a transaction, which may be necessary to meet other deadlines. This is especially relevant in the current environment of high-interest rates, rising construction costs and other headwinds.

The GRRP program will continue to be a relevant source of funding and an incentive to owners of HUD-assisted properties to consider energy efficiency and climate resiliency improvements. Those participating in relevant transactions in 2024 should consider the program and how it might enhance or facilitate an upcoming recapitalization.