It is not just CMBS that is luring away investors from active development. Bob Dougherty, a principal with Buchanan Street Partners, tells GlobeSt.com that the company is interested in buying whole loans at discounts, B pieces of existing loans and buying -- as well as originating -- mezz loans. "That is where we see tremendous opportunities," he says. "We see returns starting at 15% and going to 20% on an IRR (internal rate of return) basis."

He compares those numbers to JV equity deals – arguably the financial lifeblood of real estate development -- which have a 150 basis point to 200 basis point higher spread, but with a lot more attendant risk. "We think risk-return ratio tilts significantly in favor of buying and investing in the illiquid loan space," Dougherty says.

Life insurers – a key capital source now that CMBS has dried up – also show signs of abandoning equity transactions. Todd Everett, managing director and head of Real Estate Fixed Income for Principal Real Estate Investors, told GlobeSt.com in an earlier interview that the company is putting more investable cash flow into CMBS because it sees a good relative value. "We are finding products on the secondary markets that are available at yields that are very attractive. This year, for instance, we can acquire AA CMBS and junior AAA tranches at yields in excess of 9%." (http://www.globest.com/news/1090_1090/hotseat/168354-1.html).