2020 Issue 3 | GearedUp
Development Continued from page 41
PF ensure it ’ s in a position to capitalize on both space and member acquisition ? When will the sector hit bottom ? Will an overall economic downturn play a part ?
PF Development President and CEO Dave Leon points out that in some areas more than stores are closing . “ In the U . S ., I have mostly small markets . It ’ s not just retailers closing but also economic drivers such as Halliburton Oil in Wyoming , a major employer in the area , and now , the coal industry is threatened ,” he said . “ These closures leave the consumer with fears , which is not an ideal situation to restart development .”
Barbato ’ s wait-and-see approach has him watching what happens with market rents and landlords ’ positions while he tracks each closure that features a box that might be suitable for Planet Fitness on United PF ’ s market planning map . “ It will take time for retail closure and bankruptcy announcements to flow into the real estate market ,” he explained .
Willaeys echoed the idea . “ We feel the boom of available space will create an interesting dynamic for us as we look at new locations , but the key here will be patience . The downfall has yet to be fully realized ,” he said . “ We must understand each market ’ s availability , and we ’ re entering a different period of a positive position for us to negotiate these leases .”
The best deals may come with the departure of competitors from the market both in terms of membership and space . For example , PF Development ’ s Leon snagged a next-door rival ’ s location recently that will be utilized as presale space for a coming Planet Fitness . PLNTF Holdings utilizes marketing efforts focused on pulling in potential members as the competition closes .
Impact Fitness not only sees the exit of competitors as a member acquisition opportunity but also as a chance to save a little money at the same time . “ We ’ re targeting both their member information and their top performing locations ,” Willaeys said .
PFGP follows the same pattern , including buying member lists and working with landlords to take over former fitness spaces . The franchise group began negotiating deals in several markets after competition was shuttered and reached out to its brokers to begin gathering information on each competitor in PFGP ’ s ADA to get the jump on future closures . “ We are working on a deal to take over a competitor-occupied location in Florida and are evaluating five other deals to take over another competitor ’ s spaces in Washington and California . In our smaller market ADAs , we expect to see ‘ mom and pop ’ gyms close . Here , we will reevaluate the market and address it from a first-to-market standpoint ,” Beyer said .
Working with outside partners such as brokers , lenders and general contractors can speed up the ability to develop or snag deals when a franchisee is prepared to make that move . Even if development schedules are on ice , now is the time to begin reaching out to discuss plans .
“ This has been key for us – opening up early dialogue with your broker and potential landlords can create opportunities even before they hit the market . It ’ s never too early to start those conversations and be up front with any possible restrictions you
“ I believe that if we take the blows with grace and dignity and all parties commit to our great brand , we will come out the other side stronger .”
– Dave Leon PF Development President and CEO
may have for the deals or timelines ,” Willaeys suggested .
After 35 years in retail real estate and thinking he “ had seen it all ,” Schachter said 2020 has reiterated the need to remain nimble and prepared for the unexpected . To help stay ahead of the game , ECP-PF Holdings began strategizing with its real estate brokers in each market to identify impacts unique to the area , particularly in target areas identified for new clubs . “ Since there will be new spaces potentially available that are not yet obvious , it is important to be proactive to contact property owners to let them know of our interest ,” Schachter said .
Remaining in contact with general contractors , architects and subcontractors and taking advantage of the lull to streamline processes can lead to time and cost savings down the road . “ We are working several deals with newly available boxes ,” said Dodd . “ Contractors have extended us more time to pay . Brokers know that we have new COVID-19 language and we cannot take delivery right now , but we will negotiate to lock in good sites . Our organization has been sharing cash flow analysis with lenders along with trends .”
Planet Fitness Growth Partners is also devoting time to including new COVID-19 language in leases . Beyer outlined the three areas of focus : force majeure , rent concessions and co-tenancy issues . Although force majeure is based on state law , PFGP sees the need to identify specific language on pandemics , natural events or other items . Rent concessions are conditions for government assistance , and Beyer said the same should apply to landlords . The additional lease language on concessions could include agreements on continuing to pay pass-throughs , address defaults or early terminations before full repayment , requirements on auditing and establishing repayment plans up front . Finally , mandatory closures should be carved out and rent reductions based on percentage of occupancy .
While the influx of properties in the commercial real estate market could drive down prices , the pandemic may impact other areas of development in a less favorable way for PF franchisees . The cost and availability of materials and extended timelines are side effects developers should factor into plans .
PF Michigan Group , which has 50 locations , notes a tightening in the market of available materials and anticipates a price increase of up to 10 %. “ We will need to reevaluate project budgets and construction schedules for new projects once we resume construction to appropriately compensate for any additional material costs and timelines associated with supplies of said materials ,” explained Art Nichols , director of facilities and construction for the organization .
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