The question a prudent credit committee would have to answer is not whether Floret Hill will lease up. It is whether the capital stack would survive without the city donating the land and committing more than $1 million in trust funds.
The answer is no. And that is the point.
Merchants Capital has arranged $10.8 million in permanent financing for Floret Hill, a 121-unit affordable housing development in Lawrence, Kansas. The loan is a Freddie Mac Unfunded Forward TEL product. The capital stack also includes federal and state low-income housing tax credit equity, hard and soft debt financing, a 12-acre land donation from the City of Lawrence, and more than $1 million in Affordable Housing Trust Funds.
This is not a market-rate deal dressed in affordable clothing. It is a subsidy-dependent structure that works because multiple layers of public and quasi-public capital absorb the risk that private debt alone would not touch.
The Freddie Mac piece is the most revealing. An Unfunded Forward TEL loan means the agency commits to funding at a future date, typically after construction or lease-up milestones are met. The lender takes execution risk on the timeline, not the credit. Freddie Mac is not underwriting the project's cash flow today. It is underwriting the sponsor's ability to deliver a stabilized, income-producing asset that meets agency guidelines.
That distinction matters. The loan is less a vote of confidence in the Kansas multifamily market than a vote of confidence in the subsidy structure and the sponsor's track record. Wheatland Investments Group is building its fourth project in Lawrence. That history gives the credit committee something to underwrite beyond the pro forma.
The rest of the capital stack does the heavy lifting. LIHTC equity is not cheap capital. It is patient, compliance-heavy, and dependent on allocation from state housing agencies. The tax credits are sold to investors who want a predictable yield and a social impact narrative. Those investors are not underwriting rent growth. They are underwriting regulatory compliance and the 30-year use restriction.
The City of Lawrence donated the land. That is not a small concession. In most market-rate deals, land cost is a significant barrier to feasibility. Here, it is zero. The city also committed more than $1 million in Affordable Housing Trust Funds, which likely covers soft costs, infrastructure, or gap financing that would otherwise make the project uneconomical.
Hard and soft debt financing fills the remaining gap. The term is vague, but it typically means subordinate debt from a state or local housing finance agency, often at below-market rates with deferred payment terms. The senior lender, Freddie Mac, gets the benefit of this subordinate cushion without having to provide it.
The result is a capital stack where the senior debt is only one layer among many. The senior lender is not taking construction risk, lease-up risk, or basis risk. Those risks are absorbed by the tax credit equity, the subordinate debt, and the public subsidy.
This is the model that works for affordable housing in 2026. Market-rate multifamily development is constrained by high construction costs, expensive debt, and rent growth that has slowed in many markets. Affordable housing has its own constraints, but the capital stack is designed to absorb them. The public sector provides the land, the gap financing, and the regulatory framework. The tax credit equity provides the patient capital. The agency debt provides the permanent financing at a fixed rate with a forward commitment.
The constraint that changed is not the availability of debt. It is the willingness of the public sector to participate. Without the land donation and the trust funds, this deal would not pencil. The Freddie Mac loan would not exist. The LIHTC equity would not flow.
For owners and developers watching this deal, the signal is clear: affordable housing development is feasible where the public sector is willing to absorb the highest-risk layers of the capital stack. That means cities with strong housing trust funds, active housing finance agencies, and a political commitment to subsidizing development. It also means sponsors with the operational credibility to execute multiple projects in the same market.
For lenders, the takeaway is narrower. Agency debt for affordable housing is available, but it is not a standalone solution. It is the top layer of a structure that depends on subsidy. The credit committee is not underwriting the market. It is underwriting the subsidy.
The next thing to test is whether this model scales. Floret Hill is 121 units. The city donated 12 acres and $1 million. That is roughly $8,264 per unit in direct subsidy, plus the land value. Replicate that across hundreds of units in the same city, and the fiscal math changes. The question is not whether the capital stack works for one project. It is whether the public sector has the appetite and the budget to repeat it.