EARLY LAST YEAR, Bainbridge Cos., an apartment owner with 8,188 units based in Wellington, Fla., announced that it had launched Bainbridge Distressed Property Services , which could, among other things, acquire troubled properties from owners and lenders. Bainbridge had commitments from a handful of institutional investors interested in a distressed platform. In recent months, the company has entered the home stretch on a few transactions. Still, none have closed. “On the deals that were really far down the road, we found during due diligence that there were a lot more structural type of problems on the older deals in great locations,” says Rick Giles , Bainbridge's managing partner of acquisitions and dispositions.

Most industry observers headed into 2009 believing there would be terrific buying opportunities. “We've tried [to buy distressed assets], and we've looked at a lot of REO loans and any other paper that's been shopped,” says Robert Lee , senior vice president of JRK Birchmont Advisors , a company with 38,000 units in 26 states. “Frankly, we haven't seen a lot of investment opportunities.”

A lot of hungry buyers and brokers point to the banks and, more specifi- cally, their prolific extendand- pretend policies, which seemingly delay the inevitable , as the culprit for this logjam. “People are finding that lenders extend loans rather than recognize losses,” says Steve Bram , a co-founder and president of George Smith Partners , a Los Angeles-based lender. “The government and lenders did not feel pressured to pay off loans that were upside down or headed to foreclosure. So, they just allowed them to sit in limbo.”

When banks did put assets on the market, many bidders felt strongly that they were not at distressed pricing.

In many cases, it was the underlying loan being sold, not the asset itself, that was the culprit. “Right now, the banks and special servicers are inundated with problem situations—and note sales are the easiest way to dispose of assets,” says Dale Conder , COO and chief risk officer with Boise, Idahobased financier A10 Capital.

The equity and mezzanine debt in these distressed deals also played a role in preventing their sales. “There are many complicated layers of equity and financing,” says Lili F. Dunn , senior vice president of investments at Alexandria, Va.-based REIT AvalonBay Communities . “You have to get consent from several investors that have conflicting investment objectives.”

With this sort of leeway, a lot of owners felt no rush to sell. “If the market isn't liquid, most people hold tight,” says Chad Christensen , president and a cofounder of Salt Lake Citybased Cottonwood Capital . “If the bank is not forcing them to panic, they're not panicking.”