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Thursday, Jun 8, 2023

Making Way for Workouts

Bay Club Co., which operates a chain of 22 country clubs in California, is shedding its Thousand Oaks location and plans to do the same with its fitness facility in Canoga Park. Both sites, which the San Francisco company inherited when it bought 11 Spectrum Athletic Clubs in 2015, do not match the country club and sports resort model that Bay Club is now pursuing, and as a result, it’s turning over ownership to a new operator. Curtis Harman co-owns 50-plus sports and fitness franchises, including five in the San Fernando and Simi Valley markets. His company Harman Fitness in Chatsworth plans to take over the Thousand Oaks location from Bay Club, and it’s negotiating on the Canoga Park facility as well. To take over the businesses, Harman has to renew the existing property leases as they expire. Harman’s current facilities – which include Crunch Fitness, Ultimate Fighting Championship and CR7 franchise locations in five states – serve customers looking for quick workouts in a gym rather than those who stay to swim, eat and play sports, which is the profile of Bay Club members. “These are a little bit different for us – they are larger clubs,” said Harman, referring to the two locations. “But they’re in good locations and already established.” Country club ambiance New York hedge fund York Capital Management bought a majority stake of Bay Club in 2014, which led to its purchase of the Spectrum portfolio. It also helped fund Bay Club’s recent $100 million investment into renewing leases at seven Los Angeles facilities – all beach cities – and included the $73 million acquisition of the Manhattan Country Club in Manhattan Beach in June. Those locations include Pacific Palisades, Santa Monica, Redondo Beach and Rolling Hills Estates. The clubs offer outdoor sports amenities such as swimming, tennis and golf in resort-like or country club settings which Bay Club promotes to a target market of families. The Thousand Oaks site, perched atop a steep hill on Willow Lane overlooking the 101 freeway, offers a gym, two indoor basketball courts, a swimming pool, a café, locker rooms, steam and sauna rooms, a massage area and offices within an 88,000-square-foot building. Matthew Stevens, Bay Club’s chief executive, said the location falls in between the subcategories of California’s fitness market. It’s more of a luxury athletic club than the sports resort and country clubs that the Bay Club wants to operate. “Our philosophy is that like other businesses, the lower-price, higher-volume category has succeeded well, and country clubs have done very well,” he said. “The clubs caught in the middle have struggled.” The company considered adding the tennis courts and outdoor pool that its other sites offer, but that would have required an estimated $30 million to buy the 9-acre property it current leases and build it out. Builders would have had to cut into the steep hillside beneath, or develop the parking lot, which would have put the club’s parking capacity below the city’s required minimum for sports facilities. And the project would have had to go through the local entitlement process, Stevens said, and address other elements. The company decided to abandon the idea. “All those are part of that decision, and ultimately we were not able to get to a ‘yes’ answer on those factors,” Stevens said. Bay Club Thousand Oaks’ membership fell 50 percent from 2008 to 2015 as Spectrum struggled, and stayed flat under Bay Club’s ownership, he explained. The Canoga Park location faces similar membership issues. However, the beach city properties and businesses fared better during those years, Stevens explained. Other factors also contributed to the company’s decision to close Thousand Oaks, Stevens said, one of which was it could create the country clubs it wanted elsewhere in the state. “If we weren’t going to be that sports resort, then this location is better as a lower-priced, higher-volume operation,” Stevens said. New life Harman is not buying Bay Club’s business at Thousand Oaks but is negotiating to renew the lease before it expires at the end of September so the club doesn’t close. He plans to sign for 10 years with two, five-year options at a market rate rent, and expects to take over the property and business Sept. 1. The landlord will be putting $1 to $1.5 million worth of renovations into the facility, and Harman plans to spend another $1 million to add tanning services and new fitness equipment. “We’re trying to create a newer high-end product,” Harman said. Memberships currently ranges from $100 to $175 a month, with some less expensive packages, he added. In Canoga Park, Harman said he expects the lease negotiations, which will determine if he takes over the business, to finalize in the next month or two. The roughly 100,000-square-foot facility needs more renovation, he added. Mike Tingus, president of real estate brokerage Lee & Associates – LA North/Ventura Inc. in Sherman Oaks handled the lease deals for both properties. Finding real estate is a challenge for fitness and sports facilities, Tingus said, and that has contributed to an under-served market for such tenants in the Conejo and San Fernando valleys. Operators have a hard time finding the right-size building with sufficient parking in an easy-to-find location, he explained, and the area’s less than 1 percent industrial vacancy rate has made the situation harder, Tingus added. But the Thousand Oaks property has those elements as well as highway visibility. “This is a significant deal in our marketplace, because it’s significantly difficult to find,” he said. Landlords and cities also don’t typically want fitness facilities because they take up lots of parking, Harman said, and can’t afford a lot of rent. But the growth of e-commerce is forcing many retailers out of brick-and-mortar spaces, leaving retail landlords on the hunt for tenants – and they are pursuing him for the first time in his 30-year career, Harman said. “I’m starting to find that Dollar Tree and those kinds of convenience shopping are going right next to me,” he explained. “We take up some parking but provide a lot of traffic.”

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