There are thousands of unsold condominiums in Canada’s two priciest cities for housing, with not many buyers in sight. Who blinks first — buyers or sellers — is the biggest question that will determine whether sales pick up.

A wildcard could be private equity groups, which are already eying inventory in Toronto and Vancouver, hoping to profit from a turnaround in the same way corporate buyers did in the United States during the 2007-2010 U.S. subprime housing crisis.

Mark Goodman, a principal broker at Vancouver-based Goodman Corp., said he believes there is going to be wholesale massive acquisitions in the sector at some point.

“I have been approached by some major players across the country who have floated the idea for me to assist them acquiring distressed condo projects that are built and sitting empty,” said Goodman. “They would come in and buy hundreds, if not thousands of units in one fell swoop.”

The veteran real estate player, who is one of British Columbia’s top sellers of apartment buildings, said there are signals that the market may finally be “bottoming out” and he wouldn’t be surprised to see some of these groups move in to buy the unsold inventory, whether it’s with him or another broker.

Goodman said on the apartment side, his group has been participating in a growing number of court-ordered sales, driven by lenders calling loans.

“Essentially, there is blood on the streets right now, and it could be a couple of more years of this,” said Goodman, adding multifamily rental units in the Vancouver area are down on average 35 to 40 per cent in the last four years as landlords face the reality that their properties have declined in value.”

Greg Zayadi, president of Rennie & Associates Realty Ltd., is skeptical that somehow private equity is going to come in and buy unsold condos in the Lower Mainland, where his group calculates there are 3,472 unsold units, about 80 per cent of which are in concrete high-rise towers.

“Can’t they get it at a steal of a deal?” said Zayadi, noting that while there hasn’t been the crash needed to drive buyers into the sector, the possibility of bulk sales is being considered.

“There are a number of groups like us, others who are working in various forms to figure out what bulk inventory purchases would look like,” he said.

Part of the issue is that developers can afford to carry units for a little longer because inventory loans at relatively reasonable rates are plentiful today, and the loans are not amortized, meaning only the interest has to be covered.

“It is just status quo for a while as developers fight the market. Inventory is already priced below replacement cost (or the cost to build),” said Zayadi. “We are just not seeing huge discounts.”

For lenders, a loan, even just for 50 per cent of the value of the builder’s inventory, is relatively secure and usually short-term, for 12 to at most 24 months.

“You can get these loans from all types of lenders, forget tier one banks,” said Zayadi, adding rates are maybe eight per cent to 12 per cent depending on the loan quality. What happens in 12 months? A bulk sale might happen, or some stock might become rental if that market improves, he said.

Across the country in Toronto, Urbanation Inc. said last month there were just over 3,900 units unsold in the market, but that total doesn’t include defaults, which probably adds 3,000 units to the numbers, according to the research company.

“The private equity is real, just smaller groups,” said Shaun Hildebrand, the president of Urbanation, adding they are trying to grind out a low enough price to cover their costs of carrying the condo. “The thesis is hold it for three or five years, wait for it appreciate as the market sees a reversal in supply.”

By 2028, the theory goes, supply will again become constrained, and prices will start rising due to shortages. But condos will still never be an effective product based on yield, and mostly speculative again.

“We talk to groups who say they will buy units today and sell in peak values in a few years,” said Hildebrand, who doesn’t think that scenario will play out. “We see small batches of maybe 20 units changing hands. Nothing huge.”

In the interim, it is a waiting game for something that will trigger further price declines and prompt developers to sell unsold units at deeper discounts.

Anthony Scilipoti, president and chief executive of Veritas Investment Research, said the only way the condo market will resolve itself is with “pain” because there just isn’t demand for unsold units.

“I’ve always found it comical that there is talk of a lack of supply. There is lots of supply, it is just at what price,” said Scilipoti. “It’s also the size. Everybody wants a larger or extra large suite, and they are all made small.”

The Bay Street veteran, who had worked in the garment trade, said it is like a clothing store with a bunch of sizes people don’t want.

“Those get sold at 50 per cent off during regular time periods and then on Boxing Day they get sold for 50 per cent off the 50 per cent,” he said. “People who say it can’t go below a certain price because it is below the cost of replacement, but nobody is replacing it. It is like those end-of-line clothes.”

Continuing with the garment trade metaphor, the CEO remembers having stocked up on T-shirts he imported from China in the early 1990s. They were popular. He bought 2,500. The market turned, and he had 500 left.

“We couldn’t even give them away,” he said. He recalled taking all his tees down to the legendary Ed Mirvish, whose Honest Ed’s in downtown Toronto was famous for discounted goods. “They had cost me $3 (each). He said, ‘I will give you $1.’ I told him he was killing me, and he told me: ‘You came here trying to sell this. I don’t want these.’”

Call them “vultures,” but that is who is left to buy at the bottom of the market, when few people want your product, and Honest Ed stepped in at the only price Scilipoti could get.

Is that the next step for the unsold condo market? “It’s the lenders,” he said. Once they stop loaning money out, Scilipoti said, more speculative condo owners and developers will go into bankruptcy, but as long as there is money to finance it, the holding pattern continues.

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Betting on the demand returning feels more and more like a long shot, especially given declining immigration.

Until then, the waiting game continues, but today’s Honest Ed is out there. It’s just called private equity.