Today’s guest is Malcolm Turner
Malcolm has over 25 years in the financial services industry but specializes exclusively in commercial lending. In 2007, he co-founded Castle Commercial Capital LLC, a national commercial mortgage banker and brokerage based in Southfield, MI.
Show summary:
In this episode, Sam interviews Malcolm Turner, co-founder of Castle Commercial Capital LLC. Malcolm shares his journey into commercial lending, starting with his background in financial services and his transition from residential lending to commercial lending. He discusses the challenges and opportunities in the current market, emphasizing the importance of finding the right financing options for different types of deals. Malcolm also talks about the benefits of bridge lending and gives examples from the self-storage industry.
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Intro [00:00:00]
Starting a Commercial Mortgage Brokerage [00:00:49]
Surviving the Financial Crisis and COVID [00:03:21]
Specializing in Multifamily and Bridge Loans [00:05:46]
The importance of speed and time in closing deals [00:11:34]
The risk and challenges of unbankable deals [00:15:40]
Strategic repositioning of a hotel property [00:19:16]
The challenges and opportunities in the current market [00:22:27]
Using premier properties to feed applications and keep occupancy high [00:23:34]
The importance of meeting with a finance guy ahead of a deal [00:24:36]
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Connect with Malcolm:
YouTube: @CastleCommercialCapital
LinkedIn: linkedin.com/in/malcolmturner/
Facebook: https://www.facebook.com/malcolm.a.turner
Twitter: @CastleLoans
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Malcolm Turner (00:00:00) - A lot of people that were doing bridge loan deals that shouldn't have. Mm. And so now with the price increases, okay, they're not competitive and it's like, oh, bridge loans are bad. No, that deal should have never been in a bridge loan in the first place.
Sam Wilson (00:00:14) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Malcolm Turner has over 25 years in the financial services industry. He specializes, though, exclusively in commercial lending. In 2007, he co-founded Castle Commercial Capital, LLC. They are a national commercial mortgage banker and brokerage based in Southfield, Michigan. Malcolm, welcome to the show.
Malcolm Turner (00:00:46) - Thanks, Sam. Thanks for having me on. I'm honored to be here.
Sam Wilson (00:00:49) - Absolutely. Malcolm, The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less. And you tell me, where did you start? Where are you now and how did you get there?
Malcolm Turner (00:00:58) - I started in.
Malcolm Turner (00:01:01) - Well, how far you want to go back? I started in financial services as a financial advisor. And then the laws changed with Glass-Steagall, where everyone got in everyone's backyard. You know, insurance guys selling brokerage and broker, selling insurance and got into residential lending. That was a tremendously lucrative at the time. You couldn't do deals fast enough. There wasn't enough appraisers to do them at that time. This is oh five, oh six, and was having a conversation with my pastor and his office one day about me doing the right thing for a client, which meant putting him in a fixed rate FHA loan, and my manager wanted me to put them in an option arm that would have blowed up three years later had we, you know, you know, new had a crystal ball. And I was like, Yeah, but this guy is a single guy. First deal. We should do the right thing, right? Oh, there you go, Malcolm Talking about that. Do the right thing. Stuff, you know, and I said to my pastor, why he's doing the right thing.
Malcolm Turner (00:01:57) - A batch of dishonor. And he says, Well, if you were going to do a company, you know, mortgage broker, brokerage, how would you do it? I'm like, well, do commercial because commercial is about the numbers. It's not about the kitchens and the bathrooms. It's the math. You know, And we talked about I said, you set up an office and you have to build relationships with lenders and do this, that and the other. And that's about all it would take. It goes, Great, let's do it. I was like, Oh, I thought we were talking hypothetical. He's like, No, I love you like a brother and I trust you with money. We should do it. And I was like, okay. I was like, Well, I love you too, man, and I trust you. But the only thing about mortgages. So we would be doing all the work and we're splitting the money and I don't want to mess up our relationship.
Malcolm Turner (00:02:41) - And he's like, Yeah, you're right, Malcolm. I totally get that. Tell you what, you you don't have to train me. I get it. I'll be humble, let you coach me. Um, let's build a legacy for our families, and I'll fund it. And you set it up, and then we'll be evenly yoked. I was like. Okay. And that's how Castle Commercial Capital was born 16 years ago.
Sam Wilson (00:03:06) - Wow. That's a that's an unconventional story. I love that getting into lending in 2007 doesn't seem like the most favorable time to start a company like that.
Malcolm Turner (00:03:21) - It was not. Our saving grace was the residential market crashed first. Commercial really didn't get pounded until 2010. That's about when the, you know, it finally caught up to commercial. You know, but since then, we've survived the great financial crisis. We survived Covid. You know, we've even survived just the latest rate increase over the last year because there's been quite amount, quite a bit of turmoil, especially on my side of the table.
Malcolm Turner (00:03:54) - You know, lenders have gotten and all lenders are going out of business. You know, when lending stopped during Covid and in March of 2020, by the time June and July rolled around, some of those lenders didn't make it, you know, and we're still here. So I'm I'm I'm glad to do that. But, I mean, that's not because I'm special or anything like that. But I've always recognized like when Covid hit, I said, okay, no one's funding right now. Not sure when they're going to kick up. So let's redo our website. It's a great time to do it. Let's redo our marketing. As a matter of fact, let's come out with a commercial mobile lending app. Let's do that. You know, and so I've always tried to stay out front and say, okay, you know, like Wayne Gretzky said, you know, he's great because he skates to where the puck is going. Not to where the puck is, you know. And that's up the side.
Malcolm Turner (00:04:51) - And then we just wrote our book financing the Bankable deal, you know, And so I was at the commercial, the National Commercial Mortgage Brokers Conference in Vegas last year, and I was talking to a bunch of commercial lenders and saying, Hey, I'm writing this book. Where do you guys think the market is going and what's it doing? And, you know, did I cover everything? You know, Is there anything I missed? And one of the guys was somewhat skeptical. And we had a breakout session the next day. And during the breakout session, he found out everyone on the panel had done business with me. But him. He was like, Wait a minute, you did business with him. You did along with him. And both of the guys going, Yeah, he sure did. Yes, he does. They're like, Well, okay, well, you got to get us in there, right? You know? And I was like, Yeah, okay. You know, that's awesome.
Sam Wilson (00:05:38) - That's awesome. Well, tell me this. What what is the type of lending that you specialize in now?
Malcolm Turner (00:05:46) - Right now, most of our business is multifamily. Most of our businesses are multifamily and we kind of slid into the bridge loan, the bridge lending space because you know, the market for deals. That are picked over and everyone's fighting for. If the market is this big, those deals are this big.
Sam Wilson (00:06:09) - Right.
Malcolm Turner (00:06:10) - And so there's another you know, this is a stat a lot of people don't know, but like 85% of commercial loan applications are denied. Yeah. Believe that are denied. Right. That doesn't mean that the other that the the 15% are great and the other 85% are terrible. You know, there's probably another 25%. Of those deals that are doable. They just don't know how to do them when their bank says no. Right. Right. And so I was at a a commercial multifamily meetup and a banker was doing the presentation on financing. And at the end of it, they said someone asked the question, well, outside of there were a small community bank outside of you guys doing loans, who else can do them? Another way to do multifamily as well, the small banks and big banks.
Malcolm Turner (00:07:02) - And I was like, That's it. And they were like, Yeah, just just those two. And that was from their perspective, Right, Right. And I was like, okay. So I posted in the group on their Facebook page. There's seven alternative ways of financing deals between Fannie Mae, Freddie Mac, USDA, FHA, HUD, Right. Private lending, bridge lending. There's a whole smorgasbord of options, you know, and everyone's getting in the business. You have insurance companies, pension funds, hedge funds that are setting up mortgage funds. So there's plenty of capital in the marketplace. Now, deals, on the other hand, is another story, but there's plenty of capital to get to get deals done right. Just no matter what, it's going to cost you. And then if you're buying, can I price my deal where the cost of capital makes sense, you know?
Sam Wilson (00:07:54) - Right. Right. That that's the the kicker right there. Can I price my deal where the cost of capital makes sense? And, you know, there's a lot of fear, I think, in the marketplace right now.
Sam Wilson (00:08:09) - What are we on? And you would know this stat better than me, but I read it maybe. A month ago. That year to date, transaction volume in the multifamily space was down 75% nationally. The rising interest rates are a concern, as you said. You know, you guys have weathered through that. But having, you know, specializing in the bridge lending space, there's a lot of people that look at bridge lending now, especially with a, you know, suspiciously. They look at it and go, oh, absolutely. Bridge lending. Don't I got to go? Like, that's not for me. Tell me why it still is a good option for the deals you guys are getting done.
Malcolm Turner (00:08:51) - Well, I think you start with when is it inappropriate? Mm. Right. If you have a cherry deal, it's cash on like crazy. You got tremendous occupancy or expense ratio is is fantastic. The property condition is great, the location is great. You know, you don't need a bridge loan.
Malcolm Turner (00:09:16) - And what I've seen is for convenience and speed and just, you know, again, convenience because it's not as many hoops to jump through. A lot of people that were doing bridge loan deals that shouldn't have. Mm. And so now with the price increases, okay, they're not competitive and it's like, oh, bridge loans are bad. No, that deal should have never been in a bridge loan in the first place.
Sam Wilson (00:09:39) - Right.
Malcolm Turner (00:09:40) - You know, so for me I look at if the deal has something wrong, if it's got what we call heron on the deal, poor occupancy, poor cash flow, you know, there's all time. There's a situation where there's a time sensitive thing going on. Like, for example, I had to deal with closed where there was two partners, two guys partnering on a deal. They own the property probably about 5 or 6 years when I was getting a divorce. And and, you know, sometimes you see it coming. Sam Right. You sort of know the handwriting's on the wall, right? And the one partner says, Look, if you're getting divorced, we got to get out of this partnership because I don't want your wife winning, winning your half of the deal, and I can't be partners with her.
Malcolm Turner (00:10:28) - Right. You couldn't make it work. I sure as hell can't. Right. So. So they were looking to get out fast. Their property manager was my client. So I have been he's been I do commercial real estate meetup here locally in Southfield, Michigan. And this guy's been coming to my meetups a couple of years and he had about ten rental properties. And so we did a portfolio loan, cashed out of his cash, a bunch of equity out of his residential. And then literally 45 days later, these guys said, Hey, hey, Rob, do you know anybody that might want to buy this property? Because we got to get out fast. And he was like, Hey, me, me, me, me, me. Right. He's already been the property manager and he had the cash and he knows what the issues were with, with the property, right. And there were certain things they were they should have done, but they weren't doing. They could have made it more profitable.
Malcolm Turner (00:11:25) - And so he knew where it could go. So we financed that deal, got those guys out, and we closed in like 30 days.
Sam Wilson (00:11:33) - Wow.
Malcolm Turner (00:11:34) - You know, and for the speed for closing that quickly and beating the attorney right to the courthouse, you know, he got that property at like a 15 know 18% discount to value. Right? Right. So for some sellers. Speed and time. Let's just say time is more important than money. Right, Right, right. And so, you know, you have to say and play a blue ocean strategy. And say, okay, where am I looking at deals that no one else is looking at and then how do I make that work? And then that's where a bridge loan could come in. And even if the deal is is fine and there's no pressing issues like these two partners had, you might still offer that lower price. But I will close quickly. I will close in three weeks. I will close in 30 days or less, you know, and see if they bite now, if they don't bite.
Malcolm Turner (00:12:32) - And he says, okay, fine, you didn't you know, you didn't bite. I guess I won't have to go the traditional route, you know, because there's going to be a higher cost with the bridge loan. Sure. Right. But if I'm getting an 18% discount off a value. I don't care.
Sam Wilson (00:12:47) - Right.
Malcolm Turner (00:12:48) - The math works, right?
Sam Wilson (00:12:50) - Well, hopefully the math works, because even if it's a discount, if the current cash flows don't cover the, you know, the current expenses, then it becomes an interesting, interesting equation.
Malcolm Turner (00:13:02) - Well, right. That's where the math has the math. Right. Right. And I say that in my in my book. The math has to work. Right. Right. And you can't fall in. And one of the mistakes sometimes investors will make is they'll they'll find a deal or maybe it's a deal that been paying on for a long time. It finally comes available. They get a shot at it and it's a bad deal. And I'm telling them it's a bad deal.
Malcolm Turner (00:13:28) - They got other advisers telling them it's a bad deal and somehow they still trying to make it work. I remember I had a guy shop a deal to me three times in two years. In the first time, I was like, Yeah, I don't think this is going to work. He didn't listen. He went to someone else, you know, didn't work, pay some guys money up front to quote unquote pre-approval or some nonsense. Okay. And came back to me. And then the third time, a real estate commercial real estate brokerage here in town say, hey, Mac, I got a client coming in tomorrow. He's got this big deal downtown Detroit. We're trying to make it work, you know, I know it's short notice, but can you meet me in my office at 10:00? Because he doesn't have his financing set. And I was like, sure, sure. I walked up to the meeting and the guy's name the broker's name was Levi, right. And I was like, Hey, Levi, how are you doing? Is that good? He's like, Malcolm.
Malcolm Turner (00:14:20) - I was like, Mike. And Mike was like, Hey, Malcolm, how are you doing? I'm like, Good. He was like, Oh, you know, each other. I was like, Oh, yeah, right. And we went to talk about the deal and he was like, Yeah, I got the spreadsheets. Like, It's okay, Mike. I got everything on your deal. I don't throw that stuff away. So everything you submitted to me is all those financials still the same? Yeah. Okay. Well, your options. The options I gave you six months ago. The options I gave you a year or two years ago. I'm probably the ones you still should take. And he wasn't willing to listen. He was so in love with this deal. He just couldn't let it go.
Sam Wilson (00:14:57) - Mm hm. And it was a deal that should have just been let go, is what it sounds like. It was just a bad deal.
Malcolm Turner (00:15:04) - It was. Well, it wasn't.
Malcolm Turner (00:15:05) - I won't say it was a bad deal, per se. It wasn't a great deal for him. Right. And he ended up losing it. Someone else got it. And, you know, long story short, it was a deal that was probably like a million and a half. And I just saw it. It sold for like 5.20.
Sam Wilson (00:15:22) - Wow.
Malcolm Turner (00:15:23) - So, you know. But but if I you know, they always say, you know, there's there's more than one way to skin a cat. Sometimes there's only one. There really is only one. And if I say this is how you make it work and that's how you get it done and the guy doesn't want to do it was nothing I can do. I can only advise.
Sam Wilson (00:15:40) - You can only advise. Let's talk a little bit about your financing, the UN bankable deal book. And again, you know, this kind of goes obviously hand in hand with bridge loans, things like that, that help get some of these deals across the across the finish line.
Sam Wilson (00:15:56) - But what are un bankable deals and why? What's compelling about those that makes people even want to buy them? I mean, if banks are looking at it going way, way, way too much risk, kind of like you looking at it going, Hey. That's a that's a challenging deal. Like what? What's the motivation behind someone trying to get deals like that done And what's the what's the I mean, just give me some color behind that if you can.
Malcolm Turner (00:16:21) - Sure, sure, sure. I mean, from my perspective, a good bankable deal has got some hair on it that scares the willies out of everybody else. So one, you're not going to have a lot of competition when it comes to negotiating the deal, because most people, I think, don't think it's possible. Right. To you know, like I said, it may have cash flow issues or occupancy issues. And the question becomes, does your team because I believe teamwork makes the dream work. Right? Does your commercial real estate team have a plan? To turn that property around.
Malcolm Turner (00:16:59) - You know, sometimes that that property, that own banker will deal is a hotel that's failing miserably as it is a lot of hotels right now, Sam, that are in trouble. A lot of the biggest category of deals in foreclosure and forbearance. Our hotel deals. Okay.
Sam Wilson (00:17:18) - It's not it's not office space.
Malcolm Turner (00:17:21) - No, it's hotels. It's hotels.
Sam Wilson (00:17:25) - Tough. Why?
Malcolm Turner (00:17:26) - Because if I'm, um. Ford. Okay. And I'm leasing 50,000ft², and I've got a five year lease, right? I'm paying my bills. Right? Right. For may try to negotiate with the landlord, but I'm paying my bills. Yeah, okay. In a hotel, though, right? It's consumer based. So Right. So the consumers are like, Yeah, that area's not that hot anymore or we don't like that property anymore or it's not managed well. It can drop like a hat. You know? And so as an investor, though, sometimes we know in commercial it's about highest and best use. Right.
Malcolm Turner (00:18:14) - So one of my examples in my book is about strategic repositioning. I had a client, she bought one of these, um, drive in like motel type places. You know, we're talking about, you know, the movies. You pull up to it, that's where everybody hides out and trying to hide from the FBI. You're on the lam. One of those type hotels. And she closed off the place. She put wrought iron fencing all around it. She made it senior only because seniors only need about that much square footage. Right. She took the wall out and the and the back of the unit in between. So she made two units. One one unit is like their living area and the other unit is a bedroom. Sure. Bedroom, private bath. Right. The other one was like a little living area with a kitchenette. Okay. She provided housekeeping for them. She provided meals for them three squares a day, all for all inclusive price of, like 2500 a month.
Sam Wilson (00:19:15) - Wow.
Sam Wilson (00:19:15) - Okay.
Malcolm Turner (00:19:16) - The square footage was only 432ft². We? You know, that thing was cash flow and like crazy, right?
Sam Wilson (00:19:30) - I'm sure it was.
Malcolm Turner (00:19:32) - You know, And so she's like, let me do it again. And so that's where now if she goes to get a loan for multifamily. That's not going to work there. Look, this is a hotel, right? You're going to have to do some renovations to it. We don't know about your experience doing that, you know? How successful is it you're going to change the use? What about. But if somebody has a plan and they've got it worked out and she had a chef that would come in in the in the clubhouse of the of the place, he would cook meals for all the residents on a daily basis. It worked out. It cost her like $5 a meal. Wow. Right. The maid service, same thing. And the great thing about the maid service. They're all seniors, right? They're on fixed income. They loved the fact that meals, housekeeping, everything was included for her.
Malcolm Turner (00:20:26) - She knew her property was going to get kept up because the maids going in there cleaning everybody stuff. And if somebody was having a rough time, if they were sick or they weren't doing well, the maid would know first. Sure. And say, Hey, Mrs. Johnson, And you know, Unit three B is struggling. You may want to call her adult children, have them come check on her. You know, So it was a way to better manage the property as a property manager because the maid was giving her all the gossip on what was going on with the place, you know, and every unit was maintained well, and she made a really good profit. Oh, and she gave them cable, right? Because she gave them like basic cable. And the only thing those tenants had to pay for was their own cell phone.
Sam Wilson (00:21:08) - Wow.
Malcolm Turner (00:21:09) - Wow. And that was not a bankable deal. But that was where, you know, and I believe she bought that property all in between the renovations and the purchase was like a mill one.
Malcolm Turner (00:21:23) - And I think the value of our cash flow was something like 2.4. Wow. And then when I met her, she wanted to cash out, refi and then go buy her another one. Sure. And I was like, Absolutely.
Sam Wilson (00:21:37) - Absolutely. Yeah. Because you got the model. I mean, that's it. And I think that's what I'm hearing you say here is anything that is outside of the ordinary, it's not maybe cash flow positive and or if it is cash flow positive, the value add plan has not yet been implemented. A heavy value add plan has not yet been implemented. So what you need are a couple of things. Tell me if I'm wrong, but you need someone with a skill set to implement the heavy value add plan. Yes. And then, you know, obviously, you know, that's really it. In the second part is to have that plan. So if you have those two things inside of a deal, maybe that non-traditional or the lender's traditional lenders won't look at, you need to go to the non-traditional route, which is through maybe somebody like yourself that helps specialize in that.
Malcolm Turner (00:22:27) - Okay. And there's money for you know, there's money for all of that. And as lenders who aren't scared. Of a value add project. Right. They're not scared of even if it's like a straight, like obviously repositioned, but also just, you know, this is a property that maybe market rents are 1200 a month and the current rents are like 700, 800 bucks. The owner is like, you know, 82 years old. And he just didn't feel like putting everyone on a new lease. So the whole rent roll is month to month. You know, it's on the market and the bank is like, Yeah, yeah, we didn't want to do that. But if you've got a guy that's got, let's say, 4 or 5 properties already in the area, he's bringing in applications, right? Rental applications from those other properties. Okay. He knows I can fill up those 20 units easy, no time. You know, I know guys, they do self storage like that. They'll have a great location and they'll they'll have one property.
Malcolm Turner (00:23:34) - That's the real big marketing property. It's on such a great corner that property is always filled and they use those extra locations to fill other self storage. They got like 5 or 6 other self-storage units that are not on great locations, so therefore they were cheaper.
Sam Wilson (00:23:50) - Right.
Malcolm Turner (00:23:51) - Right. And they use the one premier property, right? The trophy property to feed the applications and keep the occupancy high and the other self-storage properties that they have.
Sam Wilson (00:24:02) - That's awesome. I love it. I love it. Malcolm, I've learned a lot from you here today. Learned about bridge lending. You learned about the times when it's a good application and a good opportunity to use that. Talking about your book Financing the Unbreakable Deal, we've talked a lot about the advantages of using bridge lending, convenient speed. The yeah, just went kind of through a lot of those details on that. I've learned a lot from you. Certainly appreciate you taking your time to come on the show today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?
Malcolm Turner (00:24:33) - They can find us on YouTube.
Malcolm Turner (00:24:36) - We have a YouTube channel, Castle Commercial capital. You can find us on YouTube. Our website is Castle Commercial Capital. I also have my book website, which is financing them. Bankable deal. They can learn more about the value that's in our book and if they want to book consultation, I offer this to all of your listeners there. They can have a free consultation for half an hour with me to discuss the deals that they're working on and future deals, because one of the best ways to be really effective with your financing and I put this in my book is to meet with your finance guy ahead of the deal and say, Hey, here's where financing is at, here's where it's going, here's the best deals to get done, and then go out in the marketplace and see which. And it's amazing. Sometimes I'll have a conversation with someone. And literally three days later, I found just the deal you were talking about. Really? Yeah. But it's like and I'll end with this, it's like getting a car, you know? I got a black Toyota Venza, XLE.
Malcolm Turner (00:25:36) - Not a whole lot. I'm on the road. Most. We don't even know what that car is. I didn't know what it was. I fell in love with it when I saw it. Right now, I see them all the time. Every day. Right? Right. It's like once you get an eye. For certain types of deals. You see them. You know, I've got an eye for commercial real estate. You know, I personally like to buy single tenant leased properties that are vacant. So every time I'm driving down the street and I see an empty McDonald's or a former Baskin-Robbins or a close Starbucks, I'm like, ha ha ha. And then I'm reading What's the other tenants around that? And most people just drive by those places, right?
Sam Wilson (00:26:15) - I love it. I love it. Malcolm, thank you for taking the time to come on the show today. We'll make sure we include the links to your book and to your website there as well. There in the show notes.
Sam Wilson (00:26:25) - I certainly appreciate your insight and your time.
Malcolm Turner (00:26:27) - Hey, thanks for having me on, Sam. I appreciate. It was fun.
Sam Wilson (00:26:30) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
