Notwithstanding a delay in the previously expected pace of Fed rate reductions and extraordinary capital markets volatility, in the first half of 2025 Westwood has structured and placed nearly $400 million of Affordable Housing Future Flow Contributive Asset-Backed Securities (AHFCABS) on behalf of affordable housing developers. This brings our total issuance to over $2.4 billion since we developed the product in 2019. Affordable housing advocates across the country are expressing legitimate concerns about the potentially devastating impact of currently proposed reductions in HUD funding and the prospect of consolidation of existing rental assistance programs into a single state rental assistance block grant (SRAGB), or something similar. Such changes, to the extent enacted into law, would further reduce the volume of, and possibly increase the cost of capital for, development for both new and rehab projects.

Accordingly, in this year’s AHFCABS transactions both rating agency and buyside underwriters have intensified their focus on diligence and tightening some documentation and reporting requirements. But they are simultaneously learning to identify the differences between high-quality, well-managed LIHTC portfolios and those that are more likely to be adversely impacted by anticipated affordable housing budget cuts. While a long way from being a certainty in terms of ultimate enactment, the principal concern about the impact of the so-called ‘skinny budget’ relates to properties relying substantially on Tenant Based Vouchers (TBVs). Particularly that housing authorities may make decisions that result in a disconnect between LIHTC rents and what the TBVs will provide, given that TBVs are subject to more variable funding mechanisms than those applicable to properties with long term project-based HAP contracts. Accordingly, portfolios that rely heavily on TBVs are being more carefully scrutinized.

That said, buyside interest in AHFCABS continues to outstrip our ability to produce this paper. Accordingly, spreads are remaining relatively tight in light of such demand.

As of this writing, the 10-year U.S. Treasury is trading at 4.37%, and the yield is down nearly 40bps since the beginning of the year. A1 rated AHFCABS have been pricing recently at spreads between 2.75 and 3.00 over the 10-year treasury. But we are also, finally, seeing some steepness return to the yield curve, so there is some cost benefit to AHFCABS transactions with lower than a 10-year average life. As the average life of the transactions we have been involved in issuing is generally between eight and ten years, this enables some additional cost savings for many of our clients that was not possible when the yield curve was flat. Having structured and placed 15 transactions, Westwood remains the market leader in the issuance of AHFCABS and continues to encourage affordable housing developers to consider employing the structure as a source of truly low-cost real estate acquisition and development capital.

As a reminder, the future flow passive contribution structure enables developers to tap into the value of their residual GP/SLP cash flow from annual property cash flow, development and management fees, and disposition and refinancing proceeds – over the full life of portfolio properties – to create a borrowing base.