Right now feels like a great time to be a debt investor and a difficult time to be a core/core-plus focused equity investor over a near/medium term horizon.
Transitional debt spreads for new loans have increased anywhere from 100bps - 300+bps, which equate to 10%+ IRRs for those that lever their positions. Sure you won't hit a home run, but you'll get a great yield and almost certainty get 100% back at payoff, and even in severe distress are likely to recover most of your basis.
Equity investors need to determine a value (difficult to know right now), and if they whiff, it doesn't matter if they're able to keep it leased and collect 100% of rent over the next few years (which feels unlikely in current environment), they blew their IRR by buying at time high of a price when the market values were in flux. A lot of potential even in the low risk end of the space to miss your return threshold.
Curious to hear different opinions here, but to me it feels if you're an allocator targeting high single digit/low teen returns, the debt space would be the place to be for the time being.
Edit - just to be clear, trying more to compare transitional debt origination to core-plus acquisitions which generally are targeting the same return profile. I'm sure guys in the value-add/opportunistic field are going to have the chance to blow it our of the water here, same with guys that have been buying bonds, but that's not really what allocators in this risk space are looking to do.
