Ralph Grebow, Chris Ward, and Albert Praw all have the same problem. They want land, but they don't want to overpay for it. Unfortunately, that's a problem today, especially considering some of the land portfolios that Key Bank, the beleaguered IndyMac Bank, and other lenders have been putting out on the market.

"There is a lot of land for sale, but a lot of it is still not priced realistically," says Grebow, CEO for The Atlantic Cos., a developer based in Florham Park, N.J.

When banks have been able to move land, the lots came at a pretty steep discount. "To the extent they have closed, the banks have taken a pretty significant discount for the face value of the notes," says Praw, CEO of Landstone Communities, a division of San Francisco-based residential development investor Hearthstone. "It varies from a 20 percent discount to an 80 percent discount, depending on the location and the borrower."

When a bank takes that kind of discount, it has to have money in its coffers to cover it. For instance, if a bank has a $20 million note and sells it for $6 million, it has to cover the remaining $14 million with its reserves. "Most of these smaller banks just can't do that," says Ward, managing principal of Magnolia Florida, a Lake Mary, Fla.-based developer. "For them to recognize the real losses, they would be out of business."

So banks can't really budge. But buyers aren't either, leaving the classic case of the irresistible force meeting the immovable object. Praw says he's heard of buyers wanting as much as 35 percent unleveraged internal rate of returns. Ward has seen investors seeking returns in the 20 percent range.

Even without seeking such high returns, it can be difficult to make deals work right now. Grebow, who looks for infill land in Class A locations, sees the central problem being the plummeting cost of homes. Take this cost and subtract the impact fees, improvement costs, construction costs, and overhead, and he says lands need to be worth next to nothing to make a deal work.

"When we look at it, we really are trying use metrics based upon what you can sell a house for today," he says. "If I can sell it for $100,000 today, and you work backwards, you are at a price where the land has to be nothing. The banks are not at the realization where they are pricing it down to practically nothing."

Even if you can make the numbers work under those metrics, Ward warns that there's another inherent challenge in buying notes. "You have all of the issues with the owner [borrower of the note]," he says. "You're going to have to go through foreclosure. You're looking at two years of legal maneuvering to actually get to the real estate."

Eventually, Ward, who is doing land appraisals for banks right now, knows lenders are going to have to lower their prices to clear land assets off their books-or face dire consequences. Unless they have a lot of capital in reserve, someone else may eventually be clearing it out for them. Ward and others saw the federal government seize assets in the early '90s through the Resolution Trust Corp. (RTC) and believe this will eventually happen again.

"These banks can't write their loans down to what the real value is," Ward says. "Eventually, they've got to come in, shut down the banks, take the performing loans, and sell them to another bank. They'll take the bad loans and put them in an RTC and sell them for the real value. We're just waiting for that."

If it happens, that's when Praw, Ward, and Grebow expect to see the real deals hit the market.