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The vultures — buyers hoping to profit from South Florida’s troubled condo market — are eyeing the expanding inventory of thousands of unsold units. But they can’t get them for the rock bottom prices they are willing to pay.

The vultures put much of the blame on lenders who won’t agree to deals. Developers mostly have their hands tied by pricing set in loan agreements made before the condo market crashed.

The bargain hunters can be patient. They have the upper hand. The vultures represent a lifeline for lenders faced with mounting bad loans and developers who have no other option. Most importantly, the vultures have cash to close deals.

Several investors say they expect federal regulators will force banks and developers to lower their prices with tighter rules on the industry that will pressure lenders to write off assets.

Meanwhile, sellers and buyers are busy negotiating deals that may never be completed.

Peter Wells, managing partner of Denver-based Condo Capital Solutions, has raised $200 million and is starting another investment fund to buy distressed condos in South Florida. Since the beginning of the year, the company has been busy making offers, but its bids have all been rejected.

Wells said most of the company’s negotiations are with the lenders and many involve projects that are not in default or foreclosure.

“We have dealt with the developers but we find that they really don’t have any equity in the project so there is not much to talk about,” Wells said. “Most of the developers [with large unsold inventories] have been wiped out and the lenders are the real stakeholders, so we go to them.”

But lenders, who have millions of dollars tied up in acquisition and development loans for condo projects, aren’t ready to sell at the discount bulk investors are seeking, he said.

And they have the last word on the deal. Most condo project loans stipulate minimum release prices, or the minimum price each unit can be sold for, to ensure the developer has enough revenue to pay back the lender. When a developer wants to sell below that minimum price, the lender has to approve the write off.

“They are unwilling to write them down,” Wells said. “They are concerned if they write off one asset, they will have to write them all down and that could create a crisis in the bank.”

Matt Martinez, who represents a Connecticut-based private equity group with $200 million to invest in South Florida condos, also deals directly with lenders. Martinez has made offers on 32 condominium properties across South Florida in the past few months with little success. About 95 percent of his offers have been rejected, he said.

Broker Peter Zalewski of Condo Vultures Realty also is busy hunting bargains. He said he represents about 100 investment funds and has made offers on behalf of several funds that want to take advantage of South Florida’s condo glut. Zalewski, who said he has seen few major condo purchases, expects to close on his first deal, involving a Tampa property, next month.

One of Martinez’s recently rejected offers was for 135 units in one of three buildings converted to condos in North Bay Village’s Treasure on the Bay community.

The buildings were purchased for $50 million in 2004 by an affiliate of Geneva, Ill.-based Comprehensive Management Services, headed by Edward Carlson, according to county property records. The affiliate, KMC EC II, borrowed a total of $75 million to acquire and convert the buildings, according to property records.

While the developer sold the majority of the units in the first two buildings that were converted, only about 25 of 160 units in the third building have been sold.

It could not be determined how much KMC II owes on the loans. Martinez said he could not provide details on the offer due to a confidentiality agreement.

The lenders are Miami-based Titan Capital Florida, California-based Owens Mortgage Investment Fund, and Massachusetts-based Potomac Realty, according to county records. Potomac now controls the property, according to Martinez.

Cathleen Tullie, vice president of asset management at Potomac, confirmed the units are for sale but declined further comment.

The lenders filed a complaint to foreclose on the property in April.

Martinez also recently bid on units in a Fort Myers conversion project “controlled” by International Bank of Miami. The offer was also rejected. The bank executive in charge of the loan did not return calls seeking comment.

Despite their frustration, vulture investors say their time will come.

Martinez said he has seen the price gap narrow recently between what investors are willing to pay and the price lenders and developers want.

“The gap used to be about 30 to 35 percent, sometimes more,” Martinez said. “Now it’s more like 20 percent and the banks are actually calling back, revising their expectations and more willing to negotiate.”

Zalewski said he is looking at condos that are offered to individual buyers for an average of $400 per square foot. Developers and lenders are offering to sell in bulk for about $350 per square foot, well above the $225 to $275 per square foot value Zalewski and other bulk bidders are offering.

One reason for the gap: Many investors have to base the price on the value of the units as rental apartments, since they are not hoping to flip the units anytime soon.

Costs for homeowner’s association fees, taxes and insurance have to be factored into the purchase price, too.

“About 80 percent of your expenses can be for HOA and taxes alone,” said Daniel Sorrells, a research manager at Condo Capital Solutions.

Investors, lenders and developers are waiting for the market to hit the bottom, Wells said. “There is a lot of uncertainty out there,” he said. “Nobody will ring a bell when we hit bottom.”

Until banks are willing to take a short-sale, bulk condo deals will not happen, Zalewski said.

“There is not a lack of funding, product or willingness,” he said. “Developers want to sell, buyers want to buy, but banks don’t want to take a writeoff.”

Zalewski, Wells and others in the condo industry said the game will turn once regulators step in.

Some are expecting federal regulators will take drastic measures and require banks to write off certain real estate loans. Others say the stricter enforcement of existing regulations would be enough to create a “chilling effect” on the financial institutions.

Ken Thomas, a Miami banking analyst, said “anything is possible in the political environment” today, but he does not expect regulators to require lenders to take losses and write off loans.

“That’s a little heavy-handed under capitalism,” he said.

However, South Florida banks have already seen signs of regulation of real estate lending, he said.

He pointed to cases where regulators have questioned the documentation of a loan that was not delinquent and forced the bank to classify it as “nonpreforming” or write off the loan, Thomas said.

Zalewski predicts that as regulators get tougher, the nonperforming portfolios of lenders will grow and they’ll be more willing to accept the loss.

“[Lenders] are trying to tell themselves the problem is not there,” Zawleski said. “Some lenders are working with the developers to make it look like the situation is good, but once regulators draw that line deals will occur.”

Thomas said many bulk investors have an unrealistic expectation of how lenders will react to the troubled housing market.

Local and national “banks are well capitalized,” he said. “Even those banks that are reporting losses have the capacity to wait out many more quarters — in some cases, many years.”

Thomas said he often gets calls from bulk investors who want to know when the condo market will hit bottom. His answer: “We are not even near the bottom.”

“We are still on the downside,” Thomas said, “but lenders are getting unrealistic offers and they think they can wait this through — and once prices start coming back up, they can get better prices.”

Condo Capital Solutions’ Wells disagrees.

He predicts more bulk condo deals will be completed in 2009, but he said the company wanted to enter the game early to develop relationships with lenders and to get a feel for the South Florida market.

Zalewski said he expects a large number of units in conversion projects will start selling in the final half of the year, and that “higher quality” inventory — condos in new developments — will begin moving after that.

One of the biggest problem areas is downtown Miami, where there are several thousand vacant units in new towers and more buildings are under construction.

Most bulk investors said it’s too early to start making offers on projects in downtown Miami. However, Zalewski said he is working a deal for a package of units in a new downtown tower for about $200 per square foot. He declined to disclose the building’s name, but said the potential buyer is a foreign investor.

Offshore buyers are also willing to pay more for South Florida condos because of the weak dollar, he said. About 25 percent to 30 percent of his clients are foreign.

Legal issues, including potential lawsuits by individual condo owners, and homeowner’s association liability are other problems facing bulk buyers of condos.

An investor who acquires the remaining units in a failed development can be responsible for many of a developer’s legal liabilities, depending on the percentage of units owned by the investor, according to Martin A. Schwartz, an attorney at Miami-based Bilzin Sumberg.

Zalewski said those liabilities and other issues are “hurdles” but not “obstacles,” to acquiring the bulk units.

Most developers are willing to remain liable for any problems that surface in a project for a year after the sale, he said.

He said the one prime reason more deals haven’t closed: “The moment of capitulation has not occurred with the banks yet.”

Polyana da Costa can be reached at pdacosta@alm.com or at (561) 820-2065.