2025 is shaping up to be Westwood Capital’s biggest year for Affordable Housing Future Flow Contributive CLO transaction (AHFFC-ABS) structuring and placement, a debt capital markets product we both created and in which we continue to hold, by far, the largest market share. As we approach the 2025 AHF Live conference, we invite developers seeking a source of truly low-cost real estate acquisition and development capital to reach out to us to arrange a brief chat during the conference.

As widely expected, on October 29 the Federal Open Market Committee FMOC cut the Federal Funds Rate by another 25bps, bringing the new target range down to 3.75%-4.00% and while “not a foregone conclusion” according to Chairman Powell’s October 29 statement, the general expectation among economists and capital markets is for a further rate cut in 2025 (for a possible total cut of 75bps in 2025) and another 25bp cut in 2026, indicating a projected Target Fed Funds Rate of between 3.25%-3.50% by the end of this cutting cycle (assuming the U.S. economy avoids a protracted slump).

Given that A2-rated AHFFC-ABS typically price at spreads between 2.75%-3.00% over the U.S. 10 Year treasury, this implies that issuance in Q2-Q4 2026 would be expected to price at between 100-125bps lower than those sold in Q1-Q3 2025. With the return of some steepness to the yield curve, there could be some additional cost benefit to transactions structured with less than a 10-year average life.

It is therefore quite possible that parties issuing AHFFC-ABS in Q2-Q3 2026 could be borrowing at effective rates (excluding transaction costs) somewhere in the 6.00%-6.50% range. Considering that developers are essentially borrowing against their own equity using this structure, this product represents a highly attractive alternative to both equity and ordinary mezzanine debt.

Notwithstanding – and perhaps because of – a great deal of uncertainty about continuing U.S. economic growth, investor appetite for AHFFC-ABS has only increased, with several new investors seeking to purchase this paper in 2025. We take this as a firm indication of the capital markets’ high confidence that LIHTC and Section 8 supported multifamily development will continue to be a strong and safe investment.

Having structured and placed fifteen AHFFC-ABS transactions representing approximately $3 billion of total originations since we developed the structure in 2019, Westwood remains not only the market leader in issuance, but the most creative and knowledgeable in the space as well.