A major factor behind the lack of class A assets for sale is the propensity of lenders and servicers to do workouts with borrowers. In March, for instance, the apartment market saw $963 million in new distress, as per RCA. The real figure, however, was much lower, since $957 million of the total was resolved and/or restructured.

Distress, says Kelly, can be broken down into two categories: situations that are truly distressed financially, and those with looming maturities. While lenders and servicers will look to quickly shed nonperforming or lower-quality product, typically those with underwater loans, he explains, in the latter case, "you have good borrowers, good business operators with good business plans, but they're staring a maturity default in the face."

If the properties are performing and are in good markets, an extension is the most logical solution. "The most successful approach we're seeing is if you have a good operator with a good business plan, give it time to ride the wave for the next 24 months," relates Kelly. "That would also benefit your trustholders because it minimizes your transaction costs."

Lenders and servicers will be more likely to sell if it will be profitable and the sales appetite isn't yet high enough that the workout won't be the more profitable solution, says Debbie Corson, a Chicago-based principal with Apartment Realty Advisors and head of the firm's Distressed Asset Solution Group. "Even if the borrower is going to pay a little less than what the frenzied market would, it may be more worthwhile for them to work something out with the borrower than it is to go through the year or two of a foreclosure process," she explains.

Another factor keeping deal activity at a minimum is that lenders and servicers are being inundated with product, and are too busy trying to get their arms around the assets they have, let alone come up with a plan to dispose of them. "A lot of the special servicers are so bogged down with product coming in the door that they may be working on four assets, and trying to put together a plan for those four assets, and in the meantime, four more come in," says Corson. "What I see is a bottleneck."

If it's any indication, that bottleneck will worsen as time goes on. In a recent study, Fitch Ratings reported that investors are sending CMBS loans into special servicing at an increasingly rapid pace. The volume of securitized loans in special servicing grew to $81.7 billion at the end of the first quarter, and servicers are responding to the onslaught by adding additional staff and new technologies, or restructuring their organizations to better handle the growing load.

Most observers agree that unclogging this bottleneck will be a long-term process. For now, the best way for investors to get their hands on distressed multifamily assets is to enter the deal on the debt side—an approach that many players have embraced.

Here, the target is performing properties with large loans on them that will likely not obtain refinancing, says J. Kingsley Greenland, president and CEO of DebtX in Boston. When there's structural overleveraging, "a delevering of that asset has to occur," he says. "In many respects, a loan sale is the optimal way to handle a delevering, since it's difficult to foreclose on a performing property and simply forgiving the debt has its own issues." This trend will intensify over the next couple of years, he adds.

Yet investors may be disappointed with the pickings here, too, since the majority of deals these days have involved class B and C assets. And though the debt side is where the deals are, Caldera's Kelly points out that investors should be careful, since "the debt side is a quirky business. In that situation, you are a lender, not a buyer of real estate. It's tough for a lot of people to see the distinction."

Generally, however, most observers believe the opportunities for distress multifamily investment will grow over the second half of the year and especially in 2011 as the market finds its bearings.