For real estate people who want to get their hands on hard assets and do something with them, distressed assets illustrate the maxim that you can't always get what you want, at least not right away. Getting your hands on bricks and mortar, in the world of distress, oft en means having to grab some paper first. As founding partner and managing principal Larry Kestin of New York City-based Glenmont Capital Management puts it, "Even investors who want to own property are required to pursue such assets via the debt."

Among those who want to own property is Sycamore Urban Properties of Irvine, CA. "We want the real estate," says Dan Flynn, vice president at Sycamore. The company has acquired distressed assets through both REO and note purchases, but in all cases, it's trying to get to the bricks and mortar. "We buy a note with the intent to take the property," Flynn says. "We are developers by background; our intention is to get to the real estate."

One of the reasons Sycamore and others find themselves buying paper to get to real estate is that lenders, in general, have shown a preference for disposing of distress via note sales rather than REO. In a nutshell, lenders are doing this because they're getting note-sale prices that are close to REO values while avoiding the risks, headaches and time-consuming procedures involved in foreclosing. Lenders "want to stay out of the chain of title and all the liabilities that go along with it," Flynn says.