That was the message he delivered to the National Association of Realtors in his address at their midyear conference. While the recession, the federal tax system and the new healthcare reform do impact this market, you don’t have to listen to the commercial doomsday story.

The world didn’t end as predicted this past Saturday, and there are plenty of opportunities for you to extend your investment portfolio or get started in commercial real estate investing.

I switched to commercial-only investing in 2005 and my number one tool is the Master Lease Option Method – a strategy for investing in commercial properties without the huge down payment, working with lenders or the personal risk associated with traditional investing.

Here’s how it works in a nutshell:

1. Locate an underperforming property. Check out my list of five great cities for underperforming properties.
2. Become the master lessee (tenant) of the building. Collect rent from the other tenants while becoming responsible for management.
3. Arrange for the property to professionally managed, so you don’t deal with the maintenance, repair or rent collection headaches.
4. Make small improvements to the building that will allow you to increase the rent you charge, and attract more tenants. Any increase in income goes directly to your pockets, since you have already locked in your monthly rent payment as a master tenant.
5. Negotiate an option to buy the property at a later date.

These deals are not impossible to pull off. I’ve done it and I’ve showed many people how to do it. The reason? I want more people to have as much fun as I do at work. My title is Chief Fun Officer. And, frankly, I’m sick of the doomsday story you hear every day in the media. It’s just not happening in my world.

So, if you want to have more fun and expand your wealth through the lowest-risk real estate investing method out there, check out my 3 free videos on the matter at MasterLeaseOptionMethod.com

* Constraints on commercial real estate lending eased during the first half of 2010, a trend that should continue as more lenders re-enter the securitization market and life insurance companies pursue a broader range of deals. Unlike a year ago, financing has become available for properties over $10 million, and some lenders have re-engaged higher-quality, lower-risk transactions in noncore markets. In addition to greater availability of financing across property types, price ranges and markets, lenders also have increased loan-to-values (LTVs) on new loans by an average of 5 percent from last year. Despite these positive developments, potential borrowers continue to face tight underwriting standards and stringent lender requirements compared to historical standards.

* While commercial mortgage originations during the first quarter remained depressed relative to figures reported from 2005 to 2007, conduits and life insurance companies drove up activity 12 percent from last year. During the first half of 2010, U.S. CMBS issuance reached $2.4 billion, approaching the 2009 total of $3 billion but still just a fraction of the $197 billion annual average reported from 2005 to 2007. Even when viewed against a less frothy period, such as 2000 to 2003, activity in the first half still pales by comparison. Recent CMBS issuance included multiple-borrower deals with subordinate tranches, a far cry from the ultra-safe, single-borrower transactions completed late last year, generating optimism the sector will soon offer increased liquidity.

* New CMBS loans price in the 6.0 percent to 6.5 percent range for five-year mortgages, with lenders targeting deals of $10 million or more. While these interest rates may be at the higher end of the spectrum, CMBS borrowers can often negotiate 30-year repayment schedules versus an average of 25 years for life insurance companies, offsetting the impact of interest rates on monthly payments. In addition, LTVs for CMBS loans can push into the low- to mid-70 percent range, versus 65 percent to 70 percent for life insurance companies, assuming the debt-service coverage ratio (DSCR) still falls between 1.25x and 1.35x.

* Next to the CMBS sector, life insurance companies made some of the most impressive headway over the past 12 months. This sector increased commercial mortgage originations by 131 percent during the year ending in the first quarter and recently began to compete more intensely for high-quality deals. While maintaining strict underwriting standards, life insurance companies have begun to actively pursue new business in major markets, increasing their scope to include nearly all price ranges and property types. This demonstrates a strategic shift from last year, when most life insurance companies focused on rewriting maturing loans already in their portfolios. As 2010 progresses, life insurance companies will increase lending as their commercial/multifamily portfolios outperform the broader marketplace; as of first quarter, this segment boasted a delinquency rate of just 0.31 percent.

* Despite the recent delisting of Fannie Mae and Freddie Mac from the NYSE and expectations for government-mandated changes in the quarters ahead, their multifamily lending arms should remain operational, benefiting apartment investors. New loan originations by the GSEs slipped in early 2010 and may continue at depressed levels this year, however, due to a paucity of deals within their target criteria.

* While commercial lending will increase this year, risks to this outlook remain. High and rising delinquency rates, particularly among commercial banks and within the CMBS sector, will drag on confidence. Maturities also pose significant challenges, as declining property values have turned many owners upside down on their mortgages, making it impossible to refinance without additional equity contributions. Approximately $535 billion of commercial mortgage debt will come due between 2010 and 2011, including $110 billion of CMBS. Of the CMBS loans slated for maturity during this period, more than 14.5 percent have DSCRs of 1.0x or less.

from Marcus and Millichap Research Services

Translation Please

That’s a lot of industry jargon but in a nutsell it means that insurance companies are looking for deals, LTV’s are slowly increasing, lenders are willing to negotiate on loan terms, government sponsored multifamily lending is safe for now and at least 14.5% of the loans coming due in the next year aren’t eligible for refinance without a significant cash injection from the owners. That means commercial foreclosures will increase and banks (and owner/sellers) will be looking to offload non-performing commercial deals.

If you’re looking at picking up commercial deals in the next year or so, god for you. I think it’s a smart move. BUT… don’t go in thinking you can get financing for an under-performing or non-performing asset. You’ll need private money and syndication training.

Sam Zell

Sam Zell, one of my personal real estate investing heroes, has put together a $625 million fund to buy distressed securities backed by assets including commercial real estate.

The 67-year-old billionaire filed a private-placement notice last month for Zell Credit Opportunities Fund LP, described as a private-equity fund that received its initial backing from a pair of unidentified investors.

The only thing I don’t like about this announcement is that the media is perpetuating the “vulture real estate investor” stereotype by calling what he’s doing grave dancing. But since he coined the term himself….

The point is when in doubt follow what the really rich, smart guys are doing. And Sam is raising private money to buy distressed commercial paper.  Opportunity!

Oh, and did you catch the part about the money coming from two private investors? That’s raising private money, guys. Even though Sam is a billionaire, he’s not using his own money.  So, have YOU started raising private money yet?

Read the article in its entirety here:

http://www.bloomberg.com/apps/news?pid=20601103&sid=aiM0qVKDpGP8

The problem is that many investors think a 100% loan to cost (LTC) loan is readily available from commercial hard money lenders. Unfortunately, this is NOT the case. Most will require that you or your investment syndicate have a minimum of 30% cash into the deal.

There is no 100% loan to cost commercial loan. And no hard money lender that I am aware of that will lend the money for the down payment anymore. There are some commercial lenders that will advertise a 100% LTC loan but they will either 1) take your upfront fee money and decline the loan for some stupid reason or 2) require participation (major equity + 6-10 points) in your deal.

The way that commercial investors get the money they need to fund the down payment on a commercial investment is typically by syndication. That’s putting together a group of individual investors as equity partners to invest as a group.

So, if you are looking to make the move to commercial investing I think it’s a great decision. But if your plan is to borrow the down payment from a hard money lender, you’re wasting your time. Your time is better spent developing your network of private lenders and investment partners.

Fannie Mae and Freddie Mac are getting tough on cash-out refinancings for multifamily borrowers.

The government-sponsored enterprises (GSEs) are changing the way they underwrite cash-out refis, with Freddie Mac announcing stricter terms in January and Fannie Mae expected to tighten up in the coming days.

A cash-out refinancing—when a property is refinanced for more than it owes, and the owner pockets the difference—is a critical strategy for many multifamily owners. They’ll often take the equity from a refi of a strong property and balance their portfolio by investing the cash in a weaker one.

This is especially crucial now. At a time when many markets have seen declines in rent and upticks in vacancy, owners are looking to the GSEs to provide just that kind of strategic liquidity to help prop up underperforming assets.

But 10-year cash-out refis from Freddie Mac now offer 75 percent loan-to-value (LTV) ratios and a 1.30x debt service coverage ratio (DSCR), and it gets even tougher for five- and seven-year loans. Previously, 80 percent LTVs and 1.25 DSCRs were the norm.

While tighter underwriting standards is the prudent thing to do in bad times, the changes could have unintended consequences. “You wonder if this will crimp some potential opportunities for developers to tap into places that can help them ride through this downturn,” says Phil Melton, a senior vice president at Grandbridge Real Estate Capital. “Now, you’re trapping the equity within a specific transaction.”

One of Freddie Mac’s strengths is its ability to assess individual transactions and make adjustments to its credit parameters when the deal merits it. But to what extent will the company adhere to its new rulebook?

“It’s still a little early to see how Freddie is going to apply these standards,” says Don King, head of GSE production at CWCapital. “Early indications are that they are sticking pretty hard to these new credit and pricing standards.”

The changes to Freddie’s cash-out refis were part of a larger move toward more conservative credit standards. The company also announced stricter terms for conventional five- and seven-year loans in January.

In general, the concern on these tighter standards is that it will make a bad market worse. It’s a delicate balancing act for the GSEs, who have become the last men standing in the multifamily debt market.

“If we’re cutting back the amount of money we can lend to an acquisition, we are increasing the pressure on real estate values, which makes the problem worse,” says King. “You risk falling into the death spiral.”

Fannie Mae is expected to announce similar changes in early March. Fannie will likely institute underwriting floors for sizing five- and seven-year loans. For top deals, the underwriting floor will likely be 6.25 percent on a five-year deal and 6 percent for a seven-year deal. Lower-tier deals would be underwritten at even tougher standards.