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Show Summary
In this episode of the Real Estate Pros podcast, host Kristen interviews Pete Moore, managing partner of Integrity Square, about the Halo Method and the Halo sector. They discuss the evolution of wellness into a more defined concept of Health Active Lifestyle and Outdoors (HALO), the importance of strategic partnerships in the health and fitness industry, and the critical role of real estate in maximizing business profitability. Pete shares insights on navigating lease agreements, the significance of exit strategies, and highlights key takeaways from his book, ‘Time to Win Again,’ which draws parallels between business and sports.
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Captain HALO PTMO (00:00)
You could get them in, but it also matters what the lease agreement says. And that’s the important part of what I’m trying to deliver here is don’t have a templated lease agreement and just agree to certain clauses, like fight for every clause that’s gonna matter. And the most value you’re ever going to make on a business or on a piece of real estate is the exit. So you’re gonna make a certain amount of money annually, but there’s nothing, there’s no bigger wire transferKristen (00:03)
right?Right.
Captain HALO PTMO (00:30)
ever coming to you until you actually sell.Kristen (02:04)
Welcome back to the Real Estate Pros podcast. I’m Kristen and I’m here with Pete Moore, who is the managing partner and chief dream architect of Integrity Square. They’re one of the leading M&A firms in health, active lifestyle and outdoor spaces. He is also the author of Time to Win Again. So I’m excited to get into the HALO method. Thanks for being here, Pete.Captain HALO PTMO (02:24)
Awesome, thanks for having me on. I appreciate it. I look forward to sharing some wisdom or experiences or things that you should not do in the industry related to our health active lifestyle outdoor clients.Kristen (02:35)
Yeah, how about you go into this HALO method that you guys have or the type of clients you work with.Captain HALO PTMO (02:40)
Yeah, so we call it the HALO Sector. And what happened was, I’ve been doing this for 26 years now, although I don’t look it, thank you, appreciate that. No, I’ve been doing this since 1999, and I used to work at a private equity firm that bought Gold’s Gym International, and then bought some of the franchisees and turned that into a much more professionalized corporate run franchise or.Kristen (02:48)
YouCaptain HALO PTMO (03:03)
After I worked there, I started doing advisory work as a merger and acquisition specialist. The last 15 years, I started my own firm back in 2010 called Integrity Square. And I used to tell people I’m a health and wellness banker. So you would come to us if you had a chain of orange theories and you wanted to bring in an institutional private equity partner, you would come to us, we’d put a book together and a financial model.and let’s say you had 20 locations in Texas and you had the right to build another 30, the private equity firm would come in, buy majority or minority stake in your business, you would take money off the table and they would help you grow out the rest of your territory. So we did five of those area development deals with the Orange Theory entrepreneurs that bought states and bought territories. We did the same thing with several Crunch Fitness area developers. ⁓
We just sold a chain of clubs down in Houston to ⁓ a plant fitness area developer. So as you look at the HALO sector, that includes anyone in the fitness centers, the boutique studio concepts, anyone doing workout recovery, health and beauty, anything self care, healthcare. ⁓
But I’ve been telling people I’m a health and wellness banker, is how I started. And I used to have trouble saying the word wellness and made it seem, you know, you know, interesting or like attractive place to put money. So I went on Google before pre-chat GBT and I Googled where does this word come from? And it turns out there was a doctor at the Mayo Clinic back in the 1950s. His name was Dr. Halbert Dunn.
and he was a biostatistician looking at all the chronic diseases. And he saw the increase in obesity and diabetes starting back in the 50s. And he’s like, I gotta come up with a movement to change this. he basically came up with the antonym of illness is what wellness was started, which basically means that you’re not sick. It has nothing to do with optimizing who you are. It has nothing to do with science. It has nothing to do with nutrition the way we
Kristen (05:06)
Mm-hmm.Captain HALO PTMO (05:15)
it today. was more of just like living a healthier lifestyle, making better personal decisions. So as we kind of have gravitated towards all the information we know from blood work, from supplements, from vitamins, from what type of exercises you need to do, diagnosing how to not get obesity and not get childhood diabetes, like those things are all based on behavior choices and foods that are poison. So I was trying to comeup with something to better define what we’re trying to do and I don’t want to use the word wellness anymore. So we came up with the acronym HALO which stands for Health Active Lifestyle and Outdoors. We’re trying to have the companies that are in the industry to say I’m part of the HALO sector instead of saying I’m on the health club.
Pilates studio on a destination wellness resort on a vitamin and supplement company where you kind of like sit under this HALO umbrella of everyone that is going to either provide products, services, or experiences to a HALO consumer. Like I’m sure you probably make choices in your daily life. What kind of vitamins am I taking? What type of supplements am I taking? Am I going to buy an infrared sauna? ⁓
or am I gonna put an extension on, or am gonna redo my backyard? All the choices that you make are about how you live your lifestyle. And we think the HALO acronym that we came up with at three o’clock in the morning, one morning just ⁓ from a dream or something, ⁓ they said, hey, that’s actually a great acronym to better define what these companies are doing and start with the consumer. So the consumer is the HALO consumer. And then all the companies kind of like have a pin
wheel around what services they’re providing to it. And by defining the space as HALO instead of wellness, it opens it up to a lot more companies that should be talking to each other. So getting into real estate in a second, but.
There’s no reason why a planet fitness or a lifetime fitness does not have a deal with Dick’s Sporting Goods to run their entire e-commerce, right? If I have the data of what you’re doing inside of a health club and you come to a health club two or three times a week, wouldn’t it be great for me to send you a $20 Nike gift card to buy a new pair of shoes if I know you’re running on a treadmill and you’re training for…
Kristen (07:24)
Ready?Captain HALO PTMO (07:40)
this specific marathon or if I can curate certain products and services, knowing what you’re doing inside of the club, I can redirect that to an e-commerce provider and take an 8 % affiliate fee or have someone that’s in the hotel industry that wants to target people that go on trips that are going on marathons and triathlons. There’s no reason why those partnerships don’t happen. There’s also no reason why companies that areKristen (08:06)
Yeah.Captain HALO PTMO (08:10)
doing blood work or doing… ⁓Med Spa or anti-aging or longevity don’t have partnerships with health clubs or open up inside of a health club where there’s 600 to a thousand people a day working out. So by creating this acronym and umbrella, we’re launching a HALO public company index on January 1st. I want to try and get the right people in the room because you get the right people in the room, then they start to work together. And what it does for us is it’ll maximize the unit economics of a health club operator or
fitness studio because now they have all these ancillary revenue streams that’ll make their business more profitable and then over time if they come to integrity square to help them sell their business I’ll be able to sell the business for more money right because there’s more opportunity and they’ve also maxed out what they’re the authority on so I’ll pause there
Kristen (09:04)
Yeah, I mean, that’s all so interesting. And I do agree with you. The HALO acronym is probably a much more powerful way to sell this rather than wellness, which is very overused and broad. ⁓ Can you talk about this HALO sector? Because I know you work with the same companies over and over. What makes it such an attractive sector to be in?Captain HALO PTMO (09:23)
Yeah, well, look, I think…The consumer is a lot smarter than they used to be. And I think they look at the ingredient labels on foods much more than they did before. I think the, I don’t know even what generation is an 18 year old these days, generation like Z or I don’t even know what they’re called, maybe AA or something, maybe like resets again. All those kids are on their phones and they go into the gym. Male and a lot of females are going in doing Olympic squats. They’re going into posing rooms.
Kristen (09:41)
Yeah, my beauty, yeah.Captain HALO PTMO (10:43)
They’re bringing their weightlifting gloves and their belts. So we’ve kind of got a resurgence of strength training. And then a lot of people that are older that never went into a club start taking these GLP-1 Ozempic and Wugabao.and start to realize that you can take these drugs, but you have to work out or else the drug basically deteriorates and pulls out a lot of your muscle and your strength. And as you get older, you know, most of the injuries happen, you know, from falling down or for hurting yourself, you know, while you’re trying to do some basic activity like pickleball, you know. So from a standpoint of like where the market is, think the only mark, the only place you would rather invest
than HALO would probably be in AI, robotics, and space are probably the only three things that are more potentially lucrative or growing as fast as the HALO sector.
Kristen (11:45)
Yeah, amazing. you know, working with these companies over and over, I know that, you know, you’re very plugged into cashflow and how it benefits, you know, these partnerships.Captain HALO PTMO (11:56)
Yeah, mean, look, there’s a number of, I tell people now, if you’re in the HALO sector and you work for a company that’s owned by a large private equity firm, you’re basically in the major leagues of baseball, to use that as an analogy. I use a lot of sports analogies, but if there’s a one billion to $10 billion.investment firm that owns your company and is a great example would be a company called EOS Fitness which is in California. They just bought 23 gold’s gyms by the way in LA County. ⁓
So that company was originally 17 Gold’s Gyms and then we sold that to a private equity fund. They rebranded it to EOS and then they went from 17 clubs to I think they just opened up their 158th club. And each one of their clubs had about an average of a million dollars of cash flow or EBITDA. Very, very profitable model.
Low price, high volume, 2.0 is kind of what we call it, HVLP, where a plan in fitness would be a 1.0.
And that’s a great example of a company that is growing their corporate team, growing their footprint. And what they’ve done on the real estate side is that they’ve been able to court a number of real estate investment trusts and real estate developers that know the value of what their box generates from a unit economic model. It is more than happy to go and build out a location for them because they’re guaranteed effectively that they’re going to get their rent paid.
We’ve done deals with groups that have sold into LA Fitness as an example. There was a company out of Tennessee, Kentucky, Ohio years ago called Urban Active. And what they do is they set up a real estate company, partnered up with an operating company, and go and build locations in the best site, spot you can. No one ever said to me, I got this really terrible location next to a Whole Foods or Trader Joe’s. No one ever says that. So location is
Kristen (13:58)
great.Captain HALO PTMO (14:01)
extremely important in this business. And there’s a lot of real estate investment groups and personal investors, you know, that have gotten in and bought shopping centers that were dilapidated. And then they brought in somebody like a plant a fitness operation or crunch to be the anchor tenant. And then you can build off of that.You can build off of the benefit of having a tenant that is going to bring in 500 to 1,000 visits into your parking lot a day. So if you’re a real estate investor right now and you’re looking at probably not an A because I don’t think you could buy an A property from a…
potential investor that owns that to make sense for a personal investor to buy that real estate. They don’t have to get institutional money just give them a size. But let’s just say for example, you were in, don’t know, pick something similar to what I did recently. Let’s say you were in Jacksonville, Florida.
And let’s say you, you of course, you saw that there was an old movie theater that went out of business and there were a couple of tenants, maybe like 10 tenants that were around there, like an ice cream shop, a hair cutting place, a, you know, a… ⁓
massage envy and you said, look, there’s no one in the movie theater and I’m going to buy this property cheap because they don’t have a tenant generating a cash flow. And you were able to bring in a crunch fitness or a planet fitness or some operator that had really good financial performance. Bring those in there. You can make a great business of just increasing the value of that real estate by bringing in credit worthy tenants under 10 to 15 year lease agreements that then
you could finance your building off of, or you could sell the building based on that value of that cash flow. So there’s a lot of opportunity, I think, for individual investors, I don’t know if you’ve heard, retail investors, that say, I want to some real estate, and I don’t want to try and buy multifamily homes because there’s a lot of competition there. But there might be people that don’t have a vision of what’s going on in their local market, and they can look back and they say, oh, that movie theater you
to be very successful, I’m not sure why they can’t find a tenant. And if they have the local knowledge of what the consumers in that area are comfortable with, or if there is a way to rehab that location, targeting a health club as the key tenant, or trying to bring the health club operator in as part of closing that deal so you know you’re protected, ⁓ that’s a great way to create value.
Kristen (16:43)
Absolutely, and I know that you have some tips and tricks, of, ⁓ you know, clauses and sections that people should consider when they’re going through this.Captain HALO PTMO (16:52)
Yeah, a guy used to work for, Peter Brockway, he taught me something 25 years ago. He said experience is what you get when you don’t get what you want.Digest that for a second. Experience what you get when you don’t get what you So I like to say we have a lot of experience working on deals where certain things happen and you’re like, wish that client focused on their lease agreement when they signed it, when they were an entrepreneur doing their first deal and not basically having this as an issue with getting the transaction done. So as an example, if we’re helping someone sell one club ⁓ in Jacksonville, we’ll take as an example. ⁓
the buyer is gonna take over that lease. The buyer always wants at least 10 years on the life of the lease because if I pay you five times cash flow, then I wanna make sure in five years I effectively got my money back if the cash flow least stayed the same. And I wanna make sure I have another five years to operate in this location so I can double my money on that deal. Does that make sense?
Kristen (17:57)
Yeah, absolutely.Captain HALO PTMO (17:58)
And I also want extension terms that I can activate without having to go back to the landlord and potentially going to fair market value or have an escalator or what have you. once I get a deal negotiated between a buyer and a seller, now I also have to deal with, okay, how do we get the landlord to give us a lease approval on the lease assignment? And the thing that’s interesting is in a lease, which could be anywhere between 20 pages to 60 pages,lot of sections that are very important that people don’t negotiate upfront because they don’t have the exit in mind of what’s going to happen in year 5, 7, 10 and that’s when they come to integrity square as their potential banker to help them sell the company.
So anytime you have a lease assignment clause, the best thing you could have if I’m a tenant is I can have a clause that says I could transfer my lease to anybody I want without your consent. Okay, that’s the most, you know, that’s like on like the polarized side for like best for the tenant, right? On the landlord side, I want to be able to ⁓ approve the lease assignment, you know, at my own sole discretion. That would be like
the two opposites of it and where you kind of meet in the middle is that a landlord will say that I will allow a lease assignment as long as the credit worthiness of the tenant that you are selling to is at least or greater than what I have today. and also the landlord will say well look if I transfer this lease and this new buyer doesn’t pay, know got a personal guarantee from you right now.
Kristen (19:34)
No.Captain HALO PTMO (19:46)
I want to give that up, right? So you’d have to try and get…the new buyer to either put a corporate guarantee, but they won’t get a personal guarantee from anyone because the way private equity and institutional money works is they set up a company.
If you had Christian Capital Partners, you wouldn’t sign personally on a deal that you do because to you, that’s an investment you made. You’re not the entrepreneur running the business. So the landlord is now sitting there saying, okay, I could have this plan of fitness operator come in. I’m giving up the
Guarantee from the guy or the woman that’s been paying me every month for the last seven years But what I get in return for that and also let me look at the financials of the of the plan of fitness buyer And then I’ll decide if I’m okay with it right so the lease assignment clause is extremely important
clause to negotiate and not just gloss over when you’re a lease. On the buyer side, on the lessor side, but also on the landlord side. Try and get the right to approve anything because that affects your cap rate, that affects the value of your business, and that affects the type of tenant that you’re have. So as I referenced earlier before we got on the call here, if you do a deal where you’re landlord for LA
And LA Fitness used to have the most beautiful balance sheet in the world. They had no debt until they relevered the business and put over a billion dollars of debt. But before that, if you got LA Fitness to sign a 10 year or 11 year lease, you could sell your property and value the cash flows that come in from LA Fitness at a 7 % cap rate. Which basically would be, know, 14 times their annual lease payment.
what LA Fitness did because they grew so quickly and they had so many locations, they started to get very savvy on how they treated landlords. And instead of treating landlords as a partner, they decided to treat landlords as a rented space, okay?
Not saying like people that like rent out their house to Airbnb have like the best guests, I think there’s like a, you know, like you got to put down a deposit in certain places because you might break a lot of stuff because you don’t care. It’s not your own right? So what LA Fitness did just as an example is one, they’re giving someone the benefit of valuing their property at the highest potential value at the lowest cap rate. But what they’re also doing is they’re saying, hey, you want to play with me and you want to get my potential upside. We need to deal with some of the downside of dealing with LA
And
let me tell you what that is. The first thing is, when COVID hits, I’m going to send you a letter, Miss Landlord, that you’re in breach of the lease and I’m not paying you. And you actually owe me two weeks in March because I didn’t have quote unquote quiet enjoyment of my space. And 1,200 people that worked for me got COVID and they got COVID in your property, your property. So you didn’t even provide me with a safe environment, which is what is pursuant to the lease. So if you want to sit down,
and you want to have a conversation about me paying you rent during COVID, I think we’re going to have a conversation of you owing me money during COVID, which is completely different than every other operator that was trying to basically ask for forgiveness and empathy from their landlords. They said, no, no, no, we’re going to flip this story around. Now the narrative is on you, not me. OK? So those are some of the things to think about when you go and try and get a big fish in your shopping development.
Kristen (23:53)
Wow.Captain HALO PTMO (24:03)
You could get them in, but it also matters what the lease agreement says. And that’s the important part of what I’m trying to deliver here is don’t have a templated lease agreement and just agree to certain clauses, like fight for every clause that’s gonna matter. And the most value you’re ever going to make on a business or on a piece of real estate is the exit. So you’re gonna make a certain amount of money annually, but there’s nothing, there’s no bigger wire transferKristen (24:06)
right?Right.
Captain HALO PTMO (24:33)
ever coming to you until you actually sell.So focus on what happens in a scenario where I need to sell. What are some of the obstacles in my way to sell? And how do I eliminate those obstacles before I get to the point where I go back and I ask for something and I need to get the answer quickly? So if I’m already have a buyer for my plan of fitness chain and then I go to you as the landlord and say, hey, I’m selling a plan of fitness, I have you have this demo
which is another thing that landlords stick in and say, hey, if I redevelop the property, I get to kick you out, give you six months notice, and I’ll invite you back in at a higher rent, and you’ll just take a pause for your business for two years. Well, that might be okay for Dunkin’ Donuts, okay, but it doesn’t work for a health club or a membership-based business where I have to rebuild my entire membership, right? So if there’s a demolition clause in a lease, that’s very troublesome for me as a tenant.
Because the buyer is just going to say I’m not taking that risk that I paid you five times cash flow for your business and The day after I close I get a notice from the landlord that I got six months to vacate not gonna happen Right and there’s not much that I can do about that, know So the buyer and the seller on this specific thing that’s going on right now Based on the experience of what you get. There’s really nothing I could do except You know plead to the landlord that the buyer is a better financing
you
corporate guarantee that if you do want to redevelop your property, you could borrow off of their balance sheet as them as a tenant, then you know, sister and brother operator that’s been there for 25 years. So if you are a real estate developer or an investor as part of this audience, and you have grandiose plans over the next 10 years of potentially knocking down what you built and rebuilding it, if you can negotiate in a demolition
clause, that is a huge, huge upside option value for you. And see how many of your tenants you can actually get to agree to it, because some of them don’t even read it.
Kristen (26:45)
Wow, I mean, that’s really practical advice for people. I really appreciate you breaking all of that down. And that’s, mean, just another reason to talk to someone like you who has so much experience in this. ⁓ I mean, there’s so much to talk about. We’re quickly running out of time. Tell us all about your book, Time to Win Again, before we wrap up.Captain HALO PTMO (26:50)
Sure.Yeah.
Sure. So during COVID, my team and I wrote this book called Time to Win Again.
and it’s about how to run your business like a sports team. 52 takeaways and it’s caricatures so it’s kind of like the business book, Good to Great meets Where’s Waldo, very easily digestible. What spurred this on was during COVID, my team and I were only working on bankruptcy deals, which is some of the most demoralizing and stressful time that you’ll have as a banker when you’re basically just fighting with people that…
or in the restructuring department of a law firm or a debt provider. These are not conversations where you’re trying to get a high growth multiple and working on orange theory deal and we’re talking about is this gonna be a 10 times deal or a 12 times deal? You’re talking about trying to salvage the business. So we’re working on five of those at the same time. And then I watched The Last Dance by Michael Jordan talking about the Chicago Bulls and realized that there’s a lot of
takeaways from running and building a dynasty in a sports business that people don’t really do in the real world. if business was called business ball, then probably people would run their business on wins and losses. And did my team make the playoffs yet? So over the last five years, we put the book out three years ago.
But over the last five years, I’ve been talking at lot of seminars and workshops and events, and I’m saying, what constitutes a win with your business? And how do your employees know if they won or lost or not? So people have created dashboards to say, what constitutes a win? So you know as an employee, this is what winning financials look like, this is what winning net promoter score looks like, this is what membership base looks like. And then some of the takeaways from the book are,
Do you watch sports at all? you a big fan of any? What do you watch?
Kristen (28:59)
Yeah, basketball.Captain HALO PTMO (29:02)
Okay, basketball. Look, every team in basketball gets six timeouts, right? And they usually take all six. And in football, the same thing. But no one takes a timeout in business to say, hey, we got a problem, let’s fix this. Or, hey, I should update my software. And I’ll say to someone, you look, you don’t do personal training, you know, on electronic funds transfer monthly. They’re like, yeah, we’re going to put it in, what’s the 7th? I think we’re going to do that like June. I’m like, why don’t you just do it now? Like, take a timeout, do it now. You’re leaving money on the table. ⁓Kristen (29:31)
Yeah.Captain HALO PTMO (29:32)
Yousay like hey, we’re gonna do this renovation. We’re gonna add more strength equipment. Like when are you gonna do it? Like we’re gonna do it like April. I’m like why don’t you take a timeout? Okay, because you know you need to do it and instead of pushing things off take a timeout like you do in basketball You know reset the team figure out what the plan is and go do it
Also, a lot of people that work in the HALO sector played team sports growing up or played some sport. And when they enter the business world, they want to still feel like they’re part of a team. So why doesn’t everybody in a health club have a jersey, you know, whether it’s a soccer jersey, basketball jersey, I was just with a guy who owns a professional hockey. Everyone should have a hockey jersey with their name on the back. Okay. So did you play any sports back in high school or college or anything?
Kristen (30:18)
Yeah, I play basketball.Captain HALO PTMO (31:00)
Okay, if anyone, so if you worked at a health club.and they put your last name on the back of the jersey with your favorite number that you used to wear. And they said to you, hey, if you leave here, taking your jersey back, okay? And we’re gonna take your name off and we’re gonna put someone else’s name on it. You take your job a little more seriously because you’re on the playing field and you wear a jersey, right? And when you’re wearing a uniform, you play better. So a lot of the groups that we’ve worked with have actually taken this under advisement and bought their team football jerseys or hockey jerseys.
And that’s what they wear in the club now and now they’re known by their last name instead of trainer or staff It actually says your last name on it ⁓ So there’s 52 takeaways like that and in the last takeaway the last takeaways is take the points which means like if you’re if you’re you know close to the end zone and You can kick a field goal and take three points instead of trying to get to seven and maybe get zero if you’re selling your business as an example and you want 25 million dollars for your business and our
Kristen (31:41)
Yeah.Captain HALO PTMO (32:04)
or another bank delivers you a deal from a buyer at 23 million, right? Just focus, take the points on the 23, because the incremental two million does not change your life. The 23 changes your life. So getting the last dollar of every deal and thinking that’s a win is actually short-sighted, because you want to sell your business for a good price, you don’t want to sell it for like the last dollar, because that’s when the buyer probablycomes back and says, I overpaid for the business or you didn’t disclose something to me and I’m gonna go and try and find things that you maybe didn’t disclose properly and try and get some of that money back. So, take the points is the last chapter of the book. Now nobody has to buy the book, I just told you everything. No problem. All right, it’s like 49 more.
Kristen (32:50)
No, there’s a bunch more tips. ⁓ Yeah,that’s amazing. Well, thank you so much. I mean, I think people had a lot of good takeaways from this. Tell everyone where to find you and where to find your business.
Captain HALO PTMO (33:01)
Excellent.Yeah, so I got a podcast called HALO Talks, H-A-L-O Talks. We’ve got 600 interviews that we’ve done so far over the last eight years with operators and investors in the HALO sector. We run some called HALO Academy, which is a two week executive bootcamp. And then our firm is at integritysq.com, Integrity Square. Thanks for having me on. Great talking to you. Awesome. All right, we’ll send you a book out and let us know when this launches.
Kristen (33:23)
Amazing. Well, thank you so much for being here, Pete.Amazing. Well, thank you everyone for listening. Hope you learned a lot, got some inspiration for your own business and also some practical advice as well. And we will see you back next time.
