Why are LP's investing in development? (Risk/Spread not there)

I don't know what world you are living in lol, we are trying to raise capital for a development project and this is what every LP is saying. 

We are staying away from development deals and have been for quite some time now mainly for the reasons you noted.

LPs are looking at office? whattt

investing in an existing deal (lets say office/retail), where you can stabilize to a 10%+, exiting at a 6.5%-7% only taking on lease up risk? It seems like nobody wants to think outside the box.    

And this is your idea of thinking outside the box?  Lets ignore the premise of the question, which is pretty obviously wrong - very few new development projects are getting off the ground these days.

First off, the blithe assertion that you can buy office and stabilize it at 10% and then sell at a 7 is pretty silly.  According to who?  You act like that's a given, but there is a lot of execution risk there - saying there is "only lease up risk" is basically ignoring the entire reason those asset classes are trading at those levels.  You think LP equity wouldn't be thrilled to take those returns, if it was as easy to lease office/retail in 2024 as it was in 2014?  Think, McFly, think!

Second, there are a lot of reasons there might still be LP capital seemingly coming into the market right now.  Maybe these are commitments that were made a couple years ago, and the entitlement process is only now wrapping up.  Maybe some of the sponsors have got their land at such a low basis that the numbers you made up aren't actually accurate.  Maybe some LPs who invest primarily in development are deploying cash because they effectively have no choice - they have huge overhead to pay and can't actually take fees until they put out capital, and so they'll take any deal that even seems like it might work just to get something out the door.  Maybe they have a very rosy view of the mid-term interest rate environment and are gambling that they'll complete construction and rates will be meaningfully lower.

But as I said, how is your answer "thinking outside the box"?  Why is it even any less risky?  There isn't a ton of lease up risk for MF these days in most markets (assuming you don't price like a moron), whereas there are office and retail spaces which simply cannot find tenants.  Equating the lease up risk for the two is dishonest.  Obviously there is construction risk, but that's presumably being taken on by sponsors putting up completion guarantees.  Even if I grant you all that, simply buying some very middle-of-the-road assets doesn't strike me as "thinking outside the box."  It sounds like the answer of someone who isn't capable of thinking outside the box would give.  Not "lets find something new and creative to do!" but "lets all go buy the deals that were hot 10 years ago because all we know is following a trend, and if isn't the 2024 flavor of the month then it may as well be 2014's"