Building Blocks:
Controlling the Costs of Construction
2017 Issue 1 | GearedUp
28
National Fitness Partners ran into a few issues when it was opening this PF club in Mechanicsburg, Pennsylvania. The site was situated in a patch of wetland that required additional research before site work could begin, and the company also had to build a bridge over a small stream.
When building a new club, the feeling that money flows like water is a common sentiment. On top of typical opening costs, such as equipment and advertising, comes a flurry of expenses tied to acquiring land and completing site work.
The decision to build a club is largely fueled by location and financial capability. If by Christina Cannon vacancy isn’ t tight and leasing is an option for the market where you want to enter or expand, then the capital you would spend on new construction might be better used elsewhere. If you do need new construction to get into a market, you are left with two options – purchasing land for a ground-up build or seeking out a build-to-suit opportunity.
“ Why pay a landlord a high rent when we can build a building and essentially rent it to ourselves and use the rent to pay a mortgage?” said Frank Kindler, franchisee with National Fitness Partners.“ You can then keep the building as an investment or sell it for a CAP rate and recoup your investment and actually possibly pay for a large part of the cost or all of it.”
“ It comes down to the opportunities you have for the site that you want. I’ m a developer of last resort so to speak, so if I can hold onto my capital and get a deal on a location that I really want and come up with very little capital and pay a higher rent, I ' ll do that. If I had the choice and I could either buy the real estate and charge myself the higher rent or step into a situation where I do a buildto-suit and pay someone else the higher rent, I would rather own