Coming out of AHF Live this year, I found myself reflecting on the clarity the industry has collectively gained. Joining the Debt Financing Power Panel with several long-time industry colleagues felt less like a formal session and more like a candid regroup — the kind that compresses months of deal-making and market watching into a single, honest conversation.
What kept coming to mind, during that discussion and dozens of others, was the sense that our industry has finally moved from resisting the new rate environment to accepting it. After two years of “maybe we should wait it out,” borrowers are now saying, “Look, I’m going to have to refinance eventually — might as well tackle it now.” That psychological shift alone has restarted meaningful transactional momentum on the refinance, acquisition, and development front.
Interestingly, this acceptance goes hand-in-hand with a subtle but important mindset shift: people aren’t rooting so hard for major rate cuts anymore. We all want lower costs of capital, of course — but we also know that deep rate drops usually come with economic pain. What borrowers hope for now is stability, predictability, and enough breathing room to plan.
With that backdrop of acceptance and clearer expectations, here are a few other trends that will shape how developers approach affordable housing debt in 2026.
Ground Leases: A Useful Tool, with Long Shadows
After lamenting rates and LIHTC pricing, one of the biggest topics discussed at AHF Live was how to fill funding gaps. Ground leases have become a tool in market-rate development, and they’re increasingly finding their way into affordable deals. In essence, they trade future dollars for proceeds today. Ground lease proceeds along with first mortgage proceeds can be as much as 10% higher than first mortgage proceeds alone — enough to make a deal pencil that otherwise wouldn’t.
This is an area where underwriting must be comprehensive and clear-eyed. It can solve a near-term gap, but everyone at the table must understand the obligations being created 30, 50, or 99 years down the line. The long-term implications are real. Ground lease payments become a permanent line item in operating expenses, growing at inflation-linked rates while income may not keep pace. That dynamic can materially impact residual value at year 15 and beyond.
Agency vs. Private Placement: The Gap Narrows, but Strategy Matters
The agencies continue to price inside the private-placement bond market on most straightforward 4% and 9% executions. But the private-placement arena has evolved. Large institutions have moved aggressively into the space, creating a crowded market for such bond buyers; many of whom differentiate themselves among the edges with longer interest only periods, amortization, rent trending and other tweaks. For some borrowers, the one-stop-shop appeal of private placement is hard to beat — one banking team, one set of attorneys, and streamlined processing.
Where the decision becomes nuanced is in forward-rate dynamics. With a flat yield curve, forward pricing on the agency side remains very attractive. But as the Fed begins to ease short-term rates — and as the curve likely steepens — we will likely see a bigger premium on forwards. In those cases, private placement may look more competitive on an all-in basis.
This is not a “one right answer” environment. It’s a balancing act: pricing versus reinvestment rate, certainty versus optionality, capital stack complexity versus efficiency. One of the biggest challenges is making these decisions 90 to 180 days before closing.
Refinancing Remains the Agencies’ Sweet Spot
Fannie Mae and Freddie Mac continue to shine when it comes to clean refinancings. They’re always in the market, their pricing is efficient, and they offer flexible terms that borrowers can align with long-term plans. For example, if you’re past year 20, and your property is performing well, you may be considering a resyndication in year 30. The agencies offer the ability to choose a five-, seven-, or 10-year term with favorable interest-only periods and attractive pricing.
A point I emphasized on the panel that bears repeating is that owners should work to cultivate a borrowing history with the agencies. This is something we are focused on at Lument. New borrowers face heavier due diligence. Being able to say “we’re already a Fannie and Freddie borrower” can meaningfully smooth the path for future financing.
FHA: When It’s Good, It’s Very Good
HUD executions still require patience — but once you factor in what FHA loans offer, the value becomes obvious. These structures provide maximum leverage as far a non-recourse financing goes, with fixed rates up to 35 years for refinancings and 40 years for new construction. Powerful rate-reduction tools like the Interest Rate Reduction (IRR) and 223(a)(7) rate modification programs maintain cost-effective optionality should rates drop in the future. In addition, the new 25% threshold for 4% LIHTCs makes FHA’s 241(a) supplemental loans a much more feasible option for repairs, additions, and improvements while retaining the original FHA financing (and a highly attractive blended rate in the process). HUD is also showing renewed energy in general: reduced MIP, leadership aiming to restore the program’s production focus, and more attention on manufactured housing.
Underwriting Standards Have Tightened — Be Prepared
Credit scrutiny continues to ramp up across all capital sources, and enhanced due diligence is no longer a buzzword — it’s the new baseline. That means borrowers need to be proactive. Clean up bad debt well before a refinancing, as last-minute write-offs can drag down underwritten NOI and materially reduce proceeds. It also means looking at your portfolio holistically, not just the property tied to the transaction. A single mismanaged property can raise questions about overall operations. In today’s environment, preparation has never mattered more.
Final Thoughts
If 2024 and 2025 were years of transition, 2026 is shaping up to be a year of clarity and recalibration. We’ve accepted the market we’re in — and with that acceptance comes a renewed focus on action. The tools exist. The capital is available. And for owners who approach the market strategically, this can be a period of real progress.
