Why “Sexy” Commercial Real Estate Deals Can Destroy Your Returns | Teal Henderson

Teal Henderson (00:00)
Yeah. It’s gonna be for lack of a better word, we tell this to the guys, it’s the sex appeal of the offering, right? The guys are always looking at an offering that comes their way and they get super excited because they see these outrageous returns in short amount of times, and they’re not really taking out those numbers and putting in their own numbers. We tell the guys when you get an offering, it’s like somebody sliding into your DMs and sending you a picture.

That picture is photoshopped and filtered, best picture they’ve ever taken. And then you go and meet them at the coffee shop, maybe, and they don’t look anything like that, right?

Scott Bursey (02:10)
Welcome back to the *Real Estate Pro Podcast*, powered by Investor Fuel. I’m your host, Scott Bursey And today we are joined by Teal Henderson of Bones Investment Group. Teal brings over 18 years of high level industry experience, having closed over $2 billion in net lease commercial real estate transactions. She also brings that championship level discipline from her time as a Division I athlete at UNLV.

Pros today, you can expect to learn how to bridge the gap between high performance athletics and high stakes wealth preservation. Teal, welcome to the show.

Teal Henderson (02:50)
Thanks so much. I appreciate it.

Scott Bursey (02:53)
It is just awesome having you here and to help our listeners get up to speed. Please give us the front row seat and how your career ignited and where you’re pouring your fuel now.

Teal Henderson (03:05)
Sounds good. Yeah. Well, it really started from I come from a family office that was involved in commercial real estate. I was born in Aspen and grew up in Hawaii, so two really great real estate markets that always had great appreciation. But my family was involved on the commercial side. So that’s really my brother and I are both in the commercial real estate business because of that.

And it really morphed into after playing tennis for UNLV, wanting to help athletes get into the space because they are missing from the table. So after about eighteen years on the brokerage side just transacting net lease properties and transactions, I really wanted to do that same thing for athletes, however they needed a lot of education.

To really understand not just real estate as a whole, but specifically this type of commercial real estate. So I started this company back in 2018 and wanted to focus on, you know, educating athletes so that they could also have a safe space to learn and then a safe space to invest money into real estate transactions that would provide them with some cash flow to replace their salaries when they’re done playing in their their sports, but also

give them some generational wealth, creation opportunities.

Scott Bursey (04:30)
That’s such a powerful origin story. And Teal, what caught my attention about you was the way that you’ve been able to take that Division I competitive edge and translate it into a massive two billion dollar track record in commercial real estate. That takes a lot of firepower.

Teal Henderson (05:38)
Yeah. Well, I think athletes are are actually really primed to be great in real estate. And I think they’re just not sure where to start. The discipline, right, that all these athletes have, the work ethic that they have. I love hiring athletes and we have hired, you know, NFL players that have retired that are now in our company, crushing it, like on the leasing and the brokerage side, because they just

They’re coachable, right? They’ve learned their entire lives to be laser focused and to see what the goal is and reach the goal no matter what, right? They’ll run through some brick walls to get to the prize. So they’re really great to work with. And it’s been it’s been awesome being able to see the light bulbs come on so that they feel like they have a second career or another locker room, if you will, that’s on the real estate side outside of their sports.

Scott Bursey (06:36)
And that is awesome what you’re doing. Teal, curious to know, how is your specific background as a competitive athlete giving you an an advantage in discipline that most investors just don’t have?

Teal Henderson (06:52)
Yeah, I think it really is the ability to kind of focus in and be laser focused. A lot of investors that I meet along the way, they’ve got so many different things going on in different markets and in different even in different asset classes that I I’m in awe. I’m like, how do you do all that? We do a lot of one thing and we stick to that one thing that’s good. And when you get to the division one

or the professional status of your sport, it’s because you’ve really honed in on one thing. So like staying in your lane and really getting good at your craft, I think it gives an advantage. And then on the business side, being able to be an athlete and create a company for athletes, there’s a little bit of trust that’s already baked in there versus someone who was not an athlete or who wasn’t married to one or have children that are

It gives me a little bit of an advantage when I’m talking to athletes because there’s a little bit of trust, and understanding that we we’ve come from the same place and we’ve dealt with the same amount of, you know, discipline and work ethic and and sacrifices. You have to be able to make sacrifices, as you know, in real estate to really get your your dream going.

Scott Bursey (08:10)
Staying in your lane. I love that. That mental toughness really is a competitive asset. How do you coach your clients to apply that same discipline when the market turns volatile?

Teal Henderson (08:22)
Yeah. Luckily on the commercial side, we don’t see as many, you know, dips and valleys and and peaks either, right? We’re a little bit more steady, Eddie in the middle, which is nice. And the first thing is, is just like these athletes, when they go to a new team or when they go from high school to college or college to the pros, there’s a learning curve. And so for us, the biggest or the first thing that we want to do is make sure that they get educated.

So we really participate in that with them. We make sure they’re invited on our calls. They come to our real estate conferences and we do Zoom classes every 60 days or so that peel back the curtains. Whether you’re in any of our deals or not, athletes are invited to sit in on those calls so that they can learn what the life cycle is from how does an acre of land turn into a Chipotle that’s gonna pay you cash flow for the next 15 or 20 years.

So just giving them that playbook, if you will, right? It’s a new playbook, so you’ve gotta break it down for them, let them spend some time getting reps in it and practicing before they’re ready to go out and actually execute.

Scott Bursey (09:34)
Staying ahead of the curve. That’s so critical. And digging into the details, where do you see athletes usually hit a wall when they’re trying to manage wealth preservation for the first time?

Teal Henderson (10:20)
Usually it’s getting into bad deals. I don’t think I’ve had any athletes come to me that haven’t had some type of misstep. And it could either be, you know, that they got into a bad deal that they just didn’t realize was a bad deal or a deal that looked good on the surface or started out well but for whatever reason. they just don’t know what they don’t know. So they have an interest, they have capital.

But they don’t have the education or the ability to analyze those deals properly. And so it’s usually them getting into a bad deal. And for some of these athletes, there isn’t enough runway or time in their career to recoup that money that they’ve lost to be able to keep going. and which is unfortunate. So what we’ve done is really said, okay, instead of you laying out a lot of money for one deal.

You can put a small amount of money into this partnership where we have multiple deals and we’re all in it together. And then they get that diversification, but they also get to be educated along the way so that when they are ready to go and buy their own property that’s going to be cash flowing for their family forever, then they have that understanding of what the market, the tenant creditworthiness.

What are the lease terms that they really want, right? The location attributes and salient facts that they need to know. So it’s a process, but it always starts with the education.

Scott Bursey (11:51)
It really does. And thank you for that great breakdown. Teal, I’m interested in your take on the current commercial market. What’s the biggest blue ocean you see right now for someone focused on net lease properties?

Teal Henderson (12:07)
Yeah. There are a lot of opportunities out there. just with creating new ground-up developments, we are extremely busy. We have over 700 acres across the country under development for different tenants across the country. And so there’s always that book of business, right? These companies, investment grade, medium grade, mom and pops, there’s new companies coming on the line, new concepts.

But there’s also a mandate for these companies to grow, right? There’s there you kind of see in the social media, you see a lot of people focusing on, like, somebody, you know, some concept is closing down X number of stores. what they don’t say is that there’s also an opening of even more stores. So there’s always this net positive of new locations coming up. There’s also a lot of properties that people can get involved with in.

that maybe are on very old leases where the rents are way below market. And so they’re gonna be buying something at a lower price point. And that tenant is either going to have to come up to fair market value rents or they’re gonna have to leave and you’ll be able to get new fair market rents that’s going to increase your, you know, cash flow immediately. So your cap rate is going to go up significantly. So there’s lots of opportunities out there. There’s also a lot of growth.

Right. Especially we’re in Florida. We focus on a lot of the tax-free states, obviously, Texas, Tennessee, Florida, et cetera. So there’s a lot of growth in Florida alone. You know, we were at a point where there’s a thousand people moving in. So for us, that means a lot of new homes and apartments and retail follows rooftops. So we’re always paying attention to where the residential growth is.

And then looking for surrounding land around that that is going to be able for to be us for us to be able to develop it for those services that all those homeowners and new residents are gonna need, like coffee shops and grocery stores and places to shop and places to take their cars into and and and places to eat. So we are always looking at where the population growths are.

And kind of following that and looking at where the path of development is, right? In Tampa, if you’re downtown or south, there’s really no new land. There’s no open land, right? So you have to go north and central to find, you know, raw land and where all the development is going.

Scott Bursey (14:41)
You just move the needle for a lot of people. And teal, looking at the big picture, what is the biggest hidden threat you see rookie investors ignoring when they look at commercial real estate deals?

Teal Henderson (15:34)
Yeah. It’s gonna be for lack of a better word, we tell this to the guys, it’s it’s the sex appeal of the offering, right? The guys are always looking at an offering that comes their way and they get super excited because they see these outrageous returns in short amount of times, and they’re not really taking out those numbers and putting in their own numbers. We tell the guys when you get an offering, it’s like somebody sliding into your DMs and sending you a picture.

That picture is photoshopped and filtered, best picture they’ve ever taken. And then you go and meet them at the coffee shop, maybe, and they don’t look anything like that, right?

That’s the way they’ve got to treat these deals is take out all the fluff. Take out all the because they’re gonna send you the best case scenario, right? So it’s gonna be if all the stars aligned, you might be able to make this kind of return on this deal in this amount of time. So what we’re trying to teach the guys is take out all the numbers.

Know what you’re looking at and put in more conservative numbers and instead of best case scenario pricing and returns, look at worst case. And if you’re still interested in the deal with kind of the worst case pricing and pro formas, then keep doing your underwriting. But if the best case has a very small margin of where you want to be, pass on it. Right. That I think that’s the biggest lesson that we try and teach the guys is that there’s always another deal coming.

Don’t ever feel like you’re forced or pressured into doing something quickly because it does take time to underwrite. Then the more time you get familiar with your property and underwrite it, and there’s four pillars that we teach them. Location obviously is number one. Even if you’ve got a 25-year lease in there with a ground lease with McDonald’s, at the end of that 25 years, you might just be left with your property.

And so you want to make sure your location is in the right market, in the right location, has the right size, et cetera. The creditworthiness of your tenant. Is it a corporately backed lease or is it a franchisee owner operator? And if so, how many units are going to be guaranteeing that lease? What is their operational, historical, you know, successes? And then we talk about the lease terms. Obviously, very important. That’s your contract. And then we talk about the overall market.

You know, one of the kind of hard fast rules that we teach the guys is if the population in the market that you’re looking at is stagnant, plateaued, or is declining over the next five years, don’t buy. Why would you? Right? Especially in the commercial real estate space. The tenants are looking for growth. They’re looking for traffic counts to continue to grow. And if you’re in a market where the population is starting to decline, you don’t know why it’s declining, but

But it it’s declining for a reason. So stay away from those markets.

Scott Bursey (18:27)
That’s a huge distinction right there. And Teal, let’s pivot to your team dynamics at Bones Investment Group. What is the most critical talent you look for when hiring to ensure you keep your edge?

Teal Henderson (18:41)
Yeah. Well, I like hiring athletes, obviously, because they are driven. the work ethic is unmatched, they’re laser focused and coachable, like I’ve said before. But I also look for somebody who can think outside the box because especially in development, we’ve got to be able to see a parcel of land, whether it’s one acre or a hundred acres, and say what’s possible on here, right? So I need people who have vision but who can pair it with

being able to crunch the numbers and sharpen their pencils. Because you know, developers, we see that one way that this is gonna be a home run. I need people around me to tell me the hundred ways that this could be derailed so that we can have our defenses for it and plan for that, right? So it’s kind of a balance of yin and yang.

You wanna have those people that can see the vision and go out there and hustle and get the right tenants and get the, you know, the deal and the project pushed through the finish line. But you also need that back office that’s gonna be making sure your numbers every month have been sharpened, making sure the accounting is done, making sure that you are looking at all the different ways that you can save money. So there’s a little bit of a balance there.

Scott Bursey (19:58)
That’s a brilliant way to vet talent. Definitely something for our pros to note. And Teal, very interested to know what does the next twelve to twenty-four months look like for Bones Investment Group?

Teal Henderson (20:13)
Well, we have about seven hundred acres with about three hundred of them new ones coming on the market here that we’re gonna be closing on in the next twelve months. If it’s a if it’s a mixed use project where we might sell off our multifamily parcels that we might have to do because the county requires it, maybe we’re an employment center because of how much commercial space we’re putting together.

We might have to place some multifamily or residential units on our property. We might sell that off. Or if we have an industrial space, we might sell that off and we really focus on the retail space. we’re going to have in that instance where you have a mixed use, you’re gonna be in it for three to five years.

Because it’s probably gonna take you a year or so to get through all the permitting and zoning and entitlements, right? Especially if you’re taking agricultural or unzoned land or farmland and you’re turning it into, I want this space to be retail, I want this to be big box, this can be multifamily, this can be industrial, this is hotel or office. So if you’re doing a big project like that, just expect it to be, you know, up to a five year time frame.

Right. And your horizon is way out there. So we have deals that are like that. And then we have shorter deals where we’re picking up something where maybe there’s only a year left on a lease and they are 30% below market rents. And we’re gonna hold it for a year and either renew with that tenant at market rents or we’re gonna get a new tenant in there. And then as soon as that new tenant comes in, we’re turning around and flipping it and putting it into another, you know, project with the ten thirty one exchange. So

It really depends on your timeline, but for us for the next twelve to twenty four months, we’re gonna continue to look for new land to purchase and we’re gonna be completing the, you know, five hundred or so that’s already under construction acres and really getting those out to the market. Some of them will hold for long term cash flow and some of them will sell and turn do redeploy into new assets and new projects.

And then sometimes we sell just to return capital to investors, things like that.

Scott Bursey (22:28)
Exciting and thank you for sharing that. This is very curious to to me and I think our pros are gonna love to hear it from you. If you were starting from scratch today with no portfolio but all the financial education you have now, what is the one move you’d make to ensure your wealth lasts?

Teal Henderson (22:50)
Would definitely look at assets that cash flow. there’s a lot of opportunity out there, it’s speculative, right? It’s it’s some ground-up, you know, developments, or somebody gets a piece of land and they they’re not sure what they want to do with it, or they want to build some townhomes or some condos or you know, something like that. There’s a lot that can go wrong with that.

Right. There’s a lot that you don’t know. There’s assumptions there. You’re assuming you can build it for a certain amount per door. You’re assuming you’re gonna be able to rent them or sell them for a certain and those are all forecasted in the future. and so for us, the reason why we focus on the commercial side is there’s a lot more that’s locked down, there’s less that’s left up to assumptions, right? Because most of the time we are not

closing on our properties on our land until we have some permits in place and also either some LOIs or some leases. So we have a longer due diligence period. We ask for the longest that we can get to actually get those things rolling so that we know what we’re doing with that property that’s going to create cash flow and we know how much cash flow. And we don’t have unexpected expenses.

If you have a fourplex, you have no idea what your expenses are going to be month to month, year to year. It’s very hard to put into a pro forma what your returns are going to be because you actually don’t know what all your expenses are going to be. You don’t know if any tenants are going to break leases. You don’t know how long it’s going to take for you to release it. You don’t know what kind of damage they’re going to do to your property. And on the commercial side, especially on the net lease, we kind of take out all of that risk.

Because we’re getting that lease from Chipotle or Panera or Starbucks prior to us usually even closing on the property so that we can really know what our numbers are and what our cash flow is. So for new investors, I would really focus on stuff where you can count on cash flow. We teach that to the athletes, like use your NFL or your NBA money to

To buy assets that are cash flowing and live off of that cash flow so that when the sport goes away and those big checks go away, you still have those assets that are cash flowing. So I would stay away from speculative projects if you’re a new investor and go with stuff that already has leases in place or at least an LOI letter of intent and that you can really kind of count on it. There aren’t a lot of assumptions in that pro forma.

Scott Bursey (25:22)
That is some high octane fuel right there for sure. And Teal, you have brought a lot of great fuel to the show today. But is there any words of wisdom or any additional advice you like to leave with our pros?

Teal Henderson (25:36)
Yeah, don’t do don’t go alone. find that a lot of our athletes are out there trying to do a deal because they know that they wanna buy some real estate. They know it’s a good asset and vehicle, wealth vehicle, and so they’re out there trying to do things alone. Or maybe they know somebody that flipped a house and so they’re like, Okay, I’m gonna ask him what he did and I’m gonna try and do it. That’s really not enough educational basis or knowledge to be able to do that, and that’s just kind of putting your

your capital in jeopardy. So we’re always telling the guys, put your team together first. Know what you want to do, know what your budget is, right? And what you can spend. And then say, okay, I’m gonna need to have a real estate attorney. Let me find a few and find out how much they charge because I’m gonna need someone to look at my contract. I’m gonna need someone to look at the lease or whatever it is.

And then find the contractor or the developer or somebody else that’s already done it at a high level for a long period of time. So that’s really my that what I’d like to leave your your investors with is find your team, figure out where you’re weak, right? Where’s your weakness? Where do you not have as much experience? And go partner up with that person. You know, you might have capital, but you don’t have development experience. Find a developer that needs capital.

Right. And put that partnership together. So that’s kind of what we did. We knew that there were a lot of athletes that had interest in real estate and they’ve got capital that they want to invest, but they don’t know what to do next. And they’re not going to know how to buy or how to develop. So that’s where we can partner with them and we can add to them what they’re missing. And then we can do more deals with them coming in with us as investors.

Scott Bursey (27:23)
Powerful. So powerful. Thank you for that, Teal. And Teal, for those of our listeners that want to keep this conversation moving, stay in your lane. You know, collaborate with you. What’s the best way for them to reach you?

Teal Henderson (27:37)
Really, you can either reach us through our website. There’s a contact form and we check that every day. or they can find me you know, just because of the nature of the beast of who our investors are. I’m on Instagram at Bones Investment Group or Teal Henderson. I do a lot through messaging in there. but yeah, there’s I’m not hard to find. I work a lot.

Scott Bursey (28:01)
Teal, this has been an absolute masterclass. Thank you for joining us today at the Real Estate Pros podcast.

Teal Henderson (28:09)
Thank you for having me. I appreciate it. Love being able to share what we’re doing with the world.

Scott Bursey (28:14)
And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be filling your tanks with the lineup of elite guest, just like Teal Henderson, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.