ORANGE COUNTY, CA—Investing in and acquiring distressedcommercial real estate assets via note sales is not to bedone blindly or without understanding the risks involved. So saidspeakers at a recent Association of Corporate Real EstateExecutives of Southern California luncheon in Long Beach,CA, who pointed out both the opportunities and pitfalls within thissubcategory.

The panel, moderated by Carson Faris ofWestern Bay Group, emphasized that investors whopurchase bank notes who should be knowledgeable in many facets ofreal estate. To mitigate risk, investors should understandapplicable state and federal real estate laws, loan documents,borrower and tenant risk; environmental conditions; and entitlementrights. Faris said that the most important thing for any investorto understand when purchasing a note is that he is purchasing alender's position, not real property.

Meanwhile, panelists—which included state court receiver andprincipal at Coreland Cos. Pat Galentine;Bob Roades of Union Bank'sspecial assets division; Adam Weissburg ofCox Castle Nicholson LLP; and Matt Beck ofBeck & Co.—warned that buyers interested in pursuingbank-note purchases should not overlook a borrower's rights or realestate fundamentals.