I truly believe that relationship financing is the revolution that will change real estate investing in the future. And, that’s just what syndication is – building relationships to pool capital and make more deals.

As you’ve heard me say, my business didn’t take off until I started raising private money. I went out and started talking about my deals with people who wanted better returns on their money. I then built a network – a syndicate of private investors – to invest in more properties and bigger deals.

Without the relationships I built with my investors, I wouldn’t be where I am today. The syndication team is crucial to getting rich in today’s real estate market.

The way I got to where I am today is by finding money to pool (and, yes, it’s legal as long as you follow the rules) and building a great team of investors.

Keys to Working with an Investment Team

1. Disclosure – Playing by the rules and letting my investors know what they were getting into (a fractionalized trust deed and a joint venture agreement. See my video series to learn more about these.)
2. Building trust – Disclosure is part of it, but trust goes beyond disclosure. Having a genuine interest in making profitable deals for my investors is my number one priority. It should also be yours.
3. Networking always – The more you network; the more potential partners you’ll find for your syndicate. Providing more opportunities for your team shows your passion for “getting rich as a team.” And part of that is extending the team.

Learn more about private money syndicates in my four-part video series – free at www.syndicationsuccess.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.

Every real estate syndicator who I speak with recognizes that there’s a lot of money sitting on the sidelines that’s just terrified to move into the marketplace. But the irony is that the money on the sidelines knows that a lot of money is being made in real estate — and the simple fact of the matter is that lots of investors just don’t know how to make it. They’re looking to the real estate professionals across the country to identify the right kind of deals to make the money.

So how do we move the money in from the sidelines?

In order to move the money in from the sidelines, you have to show the investors that you have a business plan that’s not dependent on market timing — because the smart money knows that no one can predict the bottom of the market. The trick is to create a smart business plan for each and every property that you have an interest in acquiring. Investors will invest in smart business plans that resonate with them.

I have a specific strategy that I apply that helps me to know what kind of properties are the right ones, and the analysis is very simple.

I look for distressed assets — properties that have problems that I can fix. There are three kinds of distress in the marketplace.

The first kind of distress is “owner distress.” In a situation with owner distress, the owner of a property is on fire. That means that the person has some financial pressure, personal pressure, or other pressure that forces that person out of the market. Properties that are being sold by owners who are on fire are typically sold at fire sale prices, and if you can take a person out of their misery with cash or new financing, inevitably you’ll find yourself with a very handsome deal.

The second kind of distress is “property distress.” In a situation with property distress, the building is a mess. It might have broken windows, broken walls, or a vacancy problem that’s out of control. And it requires some form of rehabilitation that a seasoned professional (with great expertise in rehabilitation) can put back together.

The third kind of distress is “market distress.” Everybody knows that we’re in a situation right now where there’s a lot of market distress. Market distress is the one kind of distress that I want to stay away from. However, most people feel that market distress is exactly what they want to buy.

Since there is market distress everywhere, all of the properties are markedly lower price now than they were in the past, but when those properties will come back and be worth more is not a function of how smart or savvy one of us is. My ability to add value to these conditions is completely out of my control. I avoid situations that are dependent on the correction of markets, because I have no control personally on when the markets will come back and therefore I have no control over when a property will start to escalate in value.

My formula is very simple. I look for properties that are subject to owner distress or building distress, where I can use the experience that I have and the skills that I’ve acquired over many years in order to work a business plan that will correct the deficiencies that the owner had or that the building has.

By using a formula, the focus is on owner distress and building distress. The syndicator (a.k.a. the quarterback of the deal) can bring investors, capitalize a transaction, and then can use the skills of his team to put the project back on track, generally increasing the value of a property by 30% to 100% in a very short amount of time.

However, the trick to making money in a situation subject to owner or building distress is to turn the property over and take a profit — not waiting for the market to rebound.

I’m a value added investor. The investors who are involved with me likewise are value added investors. They are opportunistic. In the venture capital business, those kinds of opportunities are called “vulture.” Vulture investments or opportunistic investments are in trouble. We find properties that are at the bottom, not because of the market, but because of factors that we can correct.

So my advice is as follows. Look for the deals that have problems that can be fixed using the expertise of the team, and when you find those properties, profits are almost certainly going to be yours, as long as you can execute on the business plan that you put in place for that property.

This is the way that smart investors make a lot of money. Remember that more money is made at the bottom of a market than at the top. But you have to be sharp — or work with people who are sharp. Bet on a sure thing. Find properties that have owner distress or building distress, and you’ll see more money come your way than under any other strategy that I’m aware of.

About Joel G. Block, President of Growth-Logic, Inc. Often dubbed a “Growth Architect” by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and faculty member of the iLearningGlobal community.

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.

Check it out here…

http://www.lassiterrecommends.com/privatemoney

If you decide to grab a copy of the course, I have a special bonus package for you featuring MORE free training with ME personally.

Check it out and let me know what you think.

http://www.lassiterrecommends.com/privatemoney