Recent legislation impacts HUD financing landscape: Our take

HUD’s new Climate Action Plan: What does it mean?

HUD developed and released its Climate Action Plan in November 2021, in support and conjunction with Executive Order (EO) 14008 - Tackling the Climate Crisis at Home and Abroad dated January 27, 2021. EO 14008 also integrates continued Environmental Justice concerns as outlined within EO 13985 - Advancing Racial Equity and Support for Underserved Communities Through the Federal Government dated January 20, 2021.

In line with its Climate Action Plan and continued focus on Environmental Justice, HUD’s Office of Environment and Energy (OEE) updated its Environmental Assessment (EA) Factors eGuide in April 2022. The update included several new EA Factors related to climate change, consisting of Climate Change Impacts, Energy Efficiency, and Environmental Justice. These new requirements apply to all new construction HUD transactions. 

What does this mean in layman’s terms? It means there is a new piece of the environmental review for HUD new construction transactions. The review will utilize the Risk Factor and The National Risk Index websites to determine what risks the location of the property present from a climate perspective. Any climate risks that are deemed “relatively high” or “very high” for their census tract will need to be evaluated by the Development Team, Lender, and Lender’s Third Party Consultant to determine what, if any, mitigation measures might be necessary. Examples of risks we’ve run into on projects thus far are related to lightning, tornadoes, and external temperatures, which are all addressed with a variety of building codes, building design, and materials, which were already contemplated as part of the project. The risks presented in these websites will vary based on the area of the country the project is located, but we aren’t finding that addressing these concerns are burdensome.

Feel free to reach out if you have any pre-emptive questions about this new piece of the environmental review.

Mark-to-Market update: First steps toward rent increases 

As Congress worked to pass an Omnibus bill at the end of 2022, the affordable housing community was able to obtain language in the bill to allow HUD the discretion to allow budget-based rent increases on some M2M transactions that still have use restrictions (Nixon Peabody Article). Anthony Ruvolo and Stephen Wallace from Nixon Peabody released an updated article on January 11, 2023 with further guidance. The key piece of this guidance notes the following, “Over the next few months, HUD will provide guidance on how this new renewal option is implemented. There should not be any order of priority. An owner who is ready to request a BBRI and submits the supporting documents should be processed in the normal course. As we expect many rent requests will include a major rehabilitation and recapitalization, it will take time for owners to assemble these financing transactions. This is an opportunity for all of us in the affordable housing community to invest and preserve the MTM portfolio as affordable housing preservation was meant to be."

Interested in learning more? Reach out to Rob Rotach at rrotach@walkerdunlop.com and Chad Blessed at cblessed@walkerdunlop.com.