HUD’s Green Retrofit Program
One element of the American Recovery and Reinvestment Act of 2009 (the “Act”) was the creation of the Green Retrofit Program for Multifamily Housing (“GRP”). The objective of the GRP is to provide $250,000,000 in loans and grants for energy and green retrofits in the multifamily housing stock, create green collar jobs, and improve property operations by reducing utility expenses. The funding will allow approximately 25,000 units to be retrofitted ($10,000 per unit).
Applications under the GRP can be submitted starting on June 15, 2009, and are reviewed on a first come, first served basis so it is imperative that owners assemble their applications immediately. On May 13, 2009, HUD issued Notice H09-02, which discusses the program and the required information for the application. It is anticipated that funding will occur by September 2009, and that the housing owners will begin making improvements immediately thereafter.
Owners are required to complete the work within two years. The Act requires the payment of not less than prevailing wage rates (Davis-Bacon rate) to all laborers employed on Green Retrofit construction work. All construction employers are required to prepare, certify and submit weekly payroll reports for each week work is performed on the project.
An eligible project for the GRP must fall into one of the following categories:
- A Section 202 project with at least 32 units
- A Section 811 project with at least 8 units
- A Section 8 project with at least 72 units
- A Section 8 project with USDA Section 515 loans with at least 20 units
Applications must pass an initial feasibility review based on underwriting criteria consistent with origination of each project type, including the last three years of financial statements, vacancy/rent loss factor, reserve deposit requirements, and a minimum debt service coverage and operating expense cushion. After passing the initial feasibility review, HUD will underwrite each project to determine the exact amount of the grant/loan.
To entice multifamily housing owners to apply under the GRP, HUD offers the following incentives:
- Predevelopment incentive: 1 percent of green retrofit not to exceed $10,000
- Energy efficiency incentive: 3 percent of green retrofit not to exceed $30,000
- Targeted job creation incentive: up to $25,000
- Incentive performance fee: 3 percent of collected revenue annually
Once HUD has issued the grant/loan under the GRP, it is anticipated that the transaction will close within 120 days. The interest rate for the loan under the GRP is set by HUD, after consultation with the owner, at either 1 percent or the Applicable Federal Rate. The term of the loan is also set by HUD and is between 15 and 35 years.
As part of the closing, the multifamily housing owner must execute a Use Agreement under which it must commit to renew expiring project-based contracts for at least 15 years beyond the existing expiration of affordability requirements for the project.
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