JF1675: Big Time Commercial Lender Has A Secret For Success In Any Market Cycle with Jack Miller
Okay so the secret is not so much a secret, when the economy changes, and changes his business, Jack and his team will reinvent themselves and business. They continue to thrive regardless of what is happening outside of the business because of this. Hear how to change on the fly for continued growth and success at any level. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“The only thing in life you can be sure of is change, so you might as well embrace it” – Jack Miller
Jack Miller Real Estate Background:
- President and Founder of Gelt Financial Corporation
- Since founding Gelt, has made over 10,000 loans in excess of 1 Billion Dollars.
- Based in Boca Raton, FL
- Say hi to him at https://geltfinancial.com/
- Best Ever Book: Behind the Golden Arches
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jack Miller. How are you doing, Jack?
Jack Miller: I’m doing excellent, Joe. How are you doing?
Joe Fairless: Well, I’m doing excellent, too. I like that, and looking forward to our conversation. Jack is the president and founder of Gelt Financial Corporation. Since founding Gelt, he’s made over 10,000, in excess of one billion (B) dollars. Based in Boca Raton, Florida. You can learn more about his company on his website, which is in the show notes, so you can just click that.
With that being said, Jack, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jack Miller: Sure. I started in the commercial real estate lending business many years ago. I’m 56, I started when I was about 17 or 18. I started when rates were in the teens; I’ve experienced all sorts of markets. We lived through the last recession/depression/whatever you wanna call it, and with that comes a lot of grey hair, some broken bones and bruised ribs, and some embarrassments along the way… But we’re survivors here, and as you said, we’ve done well over 10,000 loans and well over a billion dollars in business, through literally decades now. We’re well over 30 years old.
We love the business. We’re very lucky. We have a very committed team, who really enjoys what we do, so it makes every day a pleasure. We get to help people throughout the country. Everyone’s fairly new; no one lived through the last recession in 2006-2011. I said you’re right, you could say we’ve been in business almost 40 years, we’ve been doing deals, but the truth is we’ve had to reinvent ourselves at each cycle.
Joe Fairless: To the best of your knowledge and memory, can you take us through each of the cycles and what you had to do within that cycle to reinvent yourself?
Jack Miller: Sure. In the beginning – I started, as I said, in my late teens, early twenties, and rates were high; rates were 15%-16%, and they dropped to 13%, 12%. You just had to be alive and show up to work, because the rates were dropping so quick… It was pretty easy.
The first real cycle or downturn happened – to me, at least – in 1989. And what happened — it was called Long Term Capital, and it was affecting the Russian economy; Reagan was president… And all of a sudden, the secondary market dried up. At the same time, a lot of the governmental policies put in place by, believe it or not, going back to Jimmy Carter, came to roost with affordable lending. Back in the day, the government was putting unbelievable pressure on lenders to lend money to people who frankly couldn’t afford it. And if you didn’t do it, they called you discriminatory. At that point we chose to get out of the residential, owner-occupied business. So we went from five offices, way before computers and internet – we went from five offices, about 55 people, to one office and about seven people, within a 24-hour period. Then we just had to reinvent ourselves. We had to ride out the wave.
But the big one was in 2008 to 2011 crash, which was a global economic meltdown. We had found that the whole market had collapsed, and everyone knew that real estate was a little overvalued and everyone was expecting a 10%-20% drop, but the government got involved, and due to a lot of regulatory issues, they called everyone’s loans. So we had to totally reinvent ourselves at that point as a company, and frankly it took us a long time to do it. It probably took us ten years to do it, and it was painful. I don’t wanna tell you it was fun; it wasn’t fun. A lot of nights proverbially crying on the sofa and feeling sorry for yourself, but you have to start from scratch, and we did, in terms of how we approach things.
At the same time, technology was changing very rapidly. Back in the day, I remember when fax machines came out (I’m dating myself), that was huge. But with the internet, everything has changed. We do business now all over the country, by one location, 24/7. Everyone operates on the internet now, including us.
I always say, change is inevitable. You have to embrace change. It’s the only thing in life you can be sure of, is change, so you might as well embrace it… And we’ve just learned to embrace it.
Joe Fairless: You mentioned you had to reinvent yourself and it took around ten years for the 2007 stuff… What specifically did you do to change how you were approaching things?
Jack Miller: At the time, prior to the crash, we were one of the largest – if not THE largest – non-bank lender in the Philadelphia Mid-Atlantic region… Which means people who weren’t going to banks were coming to us. We were one of the originators of the fix and flip program, and we were largely funded by banks. We would borrow money from banks and lend it out.
And what happened was, at the direction of the Federal Government, all of our banks – and we were performing – called all of our loans at once. So all of a sudden you get letters from banks that say “Hey, I want 10 million dollars in seven days, or I’m gonna throw you out the window. I want 8 million, I want 6 million.” They all called our loans. So we went from a high-volume shop borrowing money from banks, to currently we do not deal with banks at all. We refuse to deal with them. In fact, most of the work we do is very sadly banks are calling perfectly paying loans, and we’ve gone from an environment where underwriting decisions were made at the bank level and at a regional level; now almost every underwriting decision throughout the country is made at the governmental level.
So we now do a lot of loans who are paying their banks perfect, but for different reasons the banks either are calling the loans, refusing to lend them money, not renewing their balloons, or putting them in default. But instead of being funded by banks, we’re funded by equity. It gives us a lot more latitude, and frankly, we don’t have to put ourselves at risk of the tides of the government.
Joe Fairless: So you have investors who invest with you, and you then lend that money out to qualified applicants at a certain rate, and you get the spread.
Jack Miller: That’s correct. Family offices, very high net worth individuals. That’s correct.
Joe Fairless: Do you have a clause with them where you won’t be in a situation where Armageddon happens again in the economy and they want to do what the banks did to you, but because there’s this clause in the contract they can’t do that, where you can’t get 10 million dollar pay up in ten days?
Jack Miller: Yes, we do… And by the way, we had it in there with the banks as well, but when the economy collapsed… A lot of people forget what it was like during those years. It was literally [unintelligible [00:09:02].10]. So even though we had those clauses in our contracts with banks, frankly the banks didn’t care, and the government didn’t care. So when it’s the Wild West, as it was during those times, all bets are off. It almost doesn’t matter what you have in the contracts. But to answer your question – absolutely, we do.
Joe Fairless: What type of deals do you work on? Tell us some of the ranges of types of stuff you work on.
Jack Miller: Sure, I’ll give you examples of some deals we’ve recently closed. We recently closed – I think last week or two weeks ago – a family-owned 4 or 5 gas stations in New Jersey. They paid their bills perfectly, hardworking, what I call soul of the earth; hardworking, everyone in the family worked for the family business, paid their bills perfectly, and a major bank would not renew their loans and put them in default because they weren’t verifying the correct income. They looked at their tax returns and they weren’t verifying all their income, through write-offs, and different paying salaries, and debt service coverage.
So the bank had started foreclosures. We were probably a month away from sheriff’s sale. Again, they were paying their bills perfectly and had great credit. We refinanced them. It was a great deal for us and it was a great deal for them.
We did another deal in New York, again, within the last two weeks. It was a mixed-use property; I think two stores, six or eight apartments… A bank had the loan. It was owned by a mother and a daughter. The mother was in her eighties, she lived in another country… They wanted to refinance it, but because the mother was living in another country, the bank wouldn’t do it and put it in foreclosure. We did it.
That’s standard for us – we take people with problems, and because we’re a small company, we can understand their issues, and we do those deals.
Conversely, we did a deal in Florida, again, within the past few weeks. A guy found a great deal on the property, didn’t have any money, we financed 100% of the property for him. I think he only came up with the appraisal money, probably $300-$400, and we gave him 100% of the money to buy it and fix it up, and he’ll flip it.
Joe Fairless: That’s really interesting. I’d like to talk a little bit about the last three things you’ve mentioned – the two scenarios plus that last thing. First, let’s talk about the two scenarios and then maybe we can talk about some other scenarios like that.
The first scenario – I was writing notes while you were talking; I think I caught it where the issue was they weren’t hitting some loan covenants based on a certain debt coverage ratio… Did I hear that correctly?
Jack Miller: You heard that exactly correctly. They were paying their mortgage perfectly, and because they were in technical violation, the bank would not extend it, and they put them in foreclosure.
Joe Fairless: Okay, so one was they put them in foreclosure because they weren’t adhering to a certain loan covenant as it relates to the debt service coverage ratio, right?
Jack Miller: Correct.
Joe Fairless: Okay. The second scenario was a different group had a performing property, but one of the owners lived out of the country, so they wouldn’t refi into another loan, right?
Jack Miller: That’s correct.
Joe Fairless: What are some other scenarios like that? And I ask because I find that really interesting… So that we can talk about some other esoteric scenarios, but that might come up with some listeners down the road, and it’s good to know now, “Hey, if I have a property where I own it with my grandpa, and he lives out of the country, after listening to this I might double-check with the bank that it’s okay that when we go for a new loan, they’re okay with that.” So what are some other scenarios that you can think of, that you’ve come across?
Jack Miller: In the area of technical defaults, I’ll give you one… I’ll divide it in two – I’ll give you one technical default, and I’ll give you a new purchase.
Joe Fairless: Okay.
Jack Miller: We did one in Pittsburgh, I’m gonna say right before the end of the year, maybe in December. A guy owned two retail centers and an office building that were 100% stabilized. Beautiful, big properties, nice tenants. He had another fourth unrelated property which was in Chapter 11. The bank called his loan for a technical reason, he was in technical default, and threatened to put him in foreclosure.
Joe Fairless: Because he had a separate property going through bankruptcy?
Jack Miller: That’s correct. Most people don’t read the loan documents in any great detail, and they don’t think that banks are gonna call a loan in technical default. And really prior to the last economic meltdown they didn’t. What happened in the last economic meltdown was all the rules had changed. Now you have what’s called TDRs (trouble debt relief) and the regulators are putting unbelievable pressure to get rid of any loans with any WARTs on them.
In this case, this guy had a loan of about 3,5 million dollars, which he was paying perfectly to the bank, but the bank put him in default and said “Hey, unless you pay us off, we’re gonna take these properties because of the governmental intervention”, because of a fourth unrelated property. If you would go through the loan documents that you sign, it would scare the you-know-what out of you. So he was thrilled to come to us, because he was scared to death of losing these properties, which by the way, I think were in his family for 20-30 years.
We did a property in Atlantic City, New Jersey. A nice, young couple owned what’s called a BodeGo, a little grocery store.
Joe Fairless: Sure.
Jack Miller: You know how they sell lottery tickets there, and the newspapers, and probably some beer, who knows what. Hardworking, soul of the earth people; just great people. They worked their behinds off. They were renting, and the opportunity became available to buy a property two doors away. They tried every bank in the area and they could not get financed because theirs was a cash business, they didn’t verify a lot of income, a lot of the money for the down payment was not seasoned in the bank, they had large deposits… It didn’t meet a bank’s guidelines, and it was frankly too small for a bank. They only wanted to borrow $100,000.
We looked at it, we literally approved it within an hour of us seeing it, and we closed the loan two weeks later.
Joe Fairless: Now, what questions did you ask in order to approve it in that short period of time?
Jack Miller: We looked at their current business, we saw how long they were there, we looked at their credit, which was not in-depth, but we saw they were paying their bills. They were in business for 8-9 years. They were putting 30% or 40% down… So you can tell very quickly when you talk to someone and you look at some preliminary documents – we did that under a no Income Verification Program – that these guys are gonna be great payers, and these guys are just good people.
Joe Fairless: As far as that down payment not being seasoned, why would a bank care about that? And why did you not care about that?
Jack Miller: Banks care because, again, regulatory issues. They wanna make sure that it’s not borrowed money, it’s not ill-gained money, or anything of that nature. We on the other hand said “Look, they’re paying X for the property” (I think it was 175k), and that was the market, and I think we lent them like $100,000. We looked at it and said – you know what, in a lot of communities it’s commonplace to borrow money or have family chip in and support one another, whether with loans, or gifts to each other… So we looked at it and we said “This is an incredibly safe loan.” And I have news for you – again, we’ve done tens of thousands of these loans, but this particular type of loan, where they’re probably getting the money from what we call chipping in from the family to help them, it’s commonplace… And these loans almost never go bad. Never.
Joe Fairless: Now, let’s talk about the third thing you mentioned initially, and that is a 100% loan. Will you go over that again?
Jack Miller: Sure. And by the way, I’m telling you about one guy which happened to be in Coral Gables, Florida, but we’ve done this thousands of times, and we actively look for this. So this is just one guy. The guy approaches us, and it turns out he knew of a property he could buy cheap… It’s a long story, but his mother was friends with the lady who used to live there, who passed away… A whole big story. But he thought he could buy well below replacement value and market value. He actually was a prison guard, and he thought he could fix it up for X dollars… But he didn’t have any money.
We looked at it and said “It is a good deal, and whether he can fix it up or we have to use a contractor to fix it up, either way it’s a fantastic deal.” So we financed the purchase price, the closing cost and the repair money for him.
Joe Fairless: Why do you actively look for deals like that?
Jack Miller: Oh, we love those deals. First of all, it’s a feel-good loan. When someone comes to us with the idea to make money by using their hard work and their ingenuity, and their sweat, and their toil, we just love those deals… When someone says “Hey, here’s an opportunity, here’s the vision. Help me get there.” And look, we make money off it, too; we’re certainly a for-profit, and we make a good amount of money off those. But we find those very satisfying to do, and usually they work out very well. I’m not saying — there’s always cost overruns, and what you think is gonna take 90 days always takes double the amount of time, but… We love that product – buying something below the market, fixing it up, and either reselling it or renting it. We’re always looking for those deals.
Joe Fairless: Based on your experience in the industry, what’s your best advice ever for real estate investors?
Jack Miller: Get rich slow. Most people want to get rich quick, most people are looking to be extremely aggressive, and I tell people “Get rich slow.” The people who wanna get rich quick usually at the end of the day they lose everything.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jack Miller: I’m ready, I’m excited!
Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.
Joe Fairless: Okay, best ever book you’ve recently read?
Jack Miller: It’s a tough one; I’m an avid reader. But I would say “Behind the Golden Arches.” The story of McDonald’s.
Joe Fairless: What’s the best ever transaction you’ve done?
Jack Miller: There’s been so many of them… I could go on, because — this is recently in my head; there was an owner of a retail chain of auto part stores in the Delaware area, husband and wife team, worked probably 30 hours a day. Not 24, 30. They’d built this business up, and again, the bank put them in default. They were literally weeks away from losing their business, their house… They were a mess.
We came through, we saw the deal, we closed the deal… They were so emotional. I remember, after closing, her thanking us so much; I broke down in tears on the phone. And I have that story — I don’t wanna say every day, but there’s everyday another story where we’re helping people that the banks are abandoning people. So there’s thousands of those stories down there, and I love them all.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Jack Miller: Being too optimistic, letting someone’s passion sell me. We get calls, and almost all investors only see the good; they don’t see the bad, they don’t see the potholes along the way… So you have to separate yourself from that, and be prepared for the worst; hope for the best, but be prepared for the worst.
Joe Fairless: What’s something that you’ve done to safeguard against that in your process?
Jack Miller: First of all, we have systems, policies and procedures, so we really try not to make exceptions to the rules, because the rules are there to protect us… But I try not to become emotionally involved in the opportunity. Because when you do, at least I sometimes let down my guard; and when I have my guard, it’s actually not only for my benefit, it’s for the potential borrower or client’s benefit.
I like to think the best reason that people come to us — look, it’s money, it’s a commodity; my money is the same as everyone else’s. It’s because our depth of experience, of not only me, but of the staff. So we are constantly helping our borrowers from being ripped off by contractors, and realtors, and everyone else down there. I think that’s a huge value-add that we bring, that most people just don’t have that experience.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?
Jack Miller: Go to geltfinancial.com. That’s a great way.
Joe Fairless: Thank you so much, Jack, for sharing the insights that you have from multiple decades in the industry, and how you reinvented your company after a couple cycles that we discussed on the show, as well as the challenges that borrowers might come across. A lot of them can be unique challenges, but if there’s a lot of different, unique challenges, then odds are then one of those unique challenges might come up again, and not become as unique, because it seems like there’s a lot of scenarios that you talked about, with technical defaults especially, given the troubled debt relief acts, as you recalled earlier.
The international owners who couldn’t refi, having a separate property going through bankruptcy, and then that being a domino effect for someone’s other properties, being in technical default through a debt service coverage ratio so they won’t renew the loan – all these things are things that we should keep in mind as real estate investors should we be coming up on a refinance, so that we make sure that we are proactively addressing it, versus being put in a corner.
Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Jack Miller: Joe, thank you very much for educating America on real estate. You’re the man.