HUD Environmental Review: Levels, HEROS and Timing

Key points

• Under Part 50, HUD cannot delegate its environmental responsibility; the lender prepares the submission and HUD makes the finding.
• There are four review levels: CENST, CEST, Environmental Assessment and Environmental Impact Statement.
• Section 223(a)(7) is generally CENST, almost all 223(f) deals are CEST, and 221(d)(4) new construction requires an Environmental Assessment.
• From the application until HUD finishes its review, parties may not take choice-limiting actions such as acquisition commitments, rehab or demolition.
• HEROS documentation, including the Phase I ESA, is posted publicly for one year.

Who does what

All federal agencies must comply with NEPA, and HUD's implementing rules are in 24 CFR Part 50. The MAP Guide states that under Part 50 HUD may not delegate its environmental responsibilities: it prepares the environmental review, makes the finding and obtains required approvals before issuing a firm commitment. In practice the MAP lender assembles the environmental report and source documents, including the Phase I ESA, and submits them through the HUD Environmental Review Online System (HEROS), which replaced the paper form HUD-4128 for MAP projects in May 2016. Potential issues should be raised at the concept meeting or pre-application stage.

Levels of review by program

The MAP Guide groups projects into four levels under Part 50, based on the activity rather than strictly on the program:

• CENST (categorically excluded, not subject to the related laws at 50.4): Section 223(a)(7), and currently insured 223(f) refinances with no physical changes beyond maintenance. Flood insurance requirements still apply.
• CEST (categorically excluded, subject to the related laws): almost all 223(f) purchases and refinances, and rehabilitation under 221(d)(4), 220, 231 or 241(a) that falls below Part 50's substantial rehabilitation thresholds.
• Environmental Assessment: all 221(d)(4), 220, 231 and 241(a) new construction, and rehabilitation above the Part 50 thresholds.
• Environmental Impact Statement: projects over 2,500 units.

What the related laws cover

A CEST or EA review documents compliance with the laws and authorities at 24 CFR 50.4 and HUD's nuisance and hazard standards. Depending on the site and scope, that includes floodplain management and flood insurance, wetlands, historic preservation consultation with the State Historic Preservation Officer and tribes, noise, explosive and flammable hazards, airport clear zones, endangered species, coastal zones, contamination under HUD's toxics policy, radon, and lead-based paint. When a 223(f) adds ancillary structures with ground disturbance, the level stays CEST but the review must address these topics in the context of new construction. Where local, state or tribal rules are stricter than federal ones, the borrower must meet the stricter standard.

Limits on work before clearance

HUD policy limits what any party to the deal may do from the pre-application (or firm application for straight-to-firm deals) until HUD completes the review. No action may be taken that could have an adverse environmental impact, limit the choice of reasonable alternatives, or prejudice the decision. The MAP Guide lists committing to acquire, repair, rehabilitate, construct, demolish or clear the site as choice-limiting. Planning, design, permits, rezoning, Phase I and Phase II studies and minimal soil borings are permitted.

Existing properties may keep operating normally: leasing, unit turnover work, scheduled and emergency repairs, and prompt repair of critical life safety items identified in the CNA. Other repairs that exceed routine maintenance may not proceed until the review is complete. For a bridge-to-HUD owner in the middle of a renovation, that rule is the single most important timing constraint: finish or pause the capital program before the HUD application, or fold the remaining work into the HUD repair scope.

Where to go next

For environmental requirements in Bravo's 223(f) loans, see HUD 223(f) loans.

For environmental assessments on construction deals, see HUD 221(d)(4) loans.

Related guides: Flood Zones and Environmental Review on HUD Loans; Value-add Renovation with a Bridge Loan, Then HUD 223(f); The Bridge-to-HUD Timeline: From Screening to Closing.

Related terms: Phase I Environmental Site Assessment for HUD Loans; Capital Needs Assessment (CNA): What It Means in a HUD Loan; What Is a HUD Section 223(a)(7) Refinance?; Substantial Rehabilitation: When Repairs Become a HUD Rehab Loan.

For portfolio figures by state, metro and program, see the HUD multifamily data hub. Bravo Capital’s record: all 26 HUD firm commitments received since April 2022 have closed, totaling $526.0 million (HUD Closing Scorecard).