The past few years has seen L.A. Fitness International LLC take advantage of a glut of vacant big-box retail stores to fuel its growth into one of the country’s largest fitness-club operators.
Now the cofounders of the Irvine-based company, which had an estimated $1.1 billion in revenue last year, have embraced a new strategy of their own: buying fully occupied big-box locations.
A Newport beach-based LLC with ties to LA Fitness’ founders last month bought a 58,450-square-foot retail location in Santa Ana for $12.1 million. The 12-year-old building—at 2840 S. Bristol St., about a mile north of South Coast Plaza—traded hands for about $207 per square foot in an all-cash deal.
A Burlington Coat Factory store leases the entire building, according to Paul Bitonti, a vice president of investments for the Newport Beach office of Marcus & Millichap Real Estate Investment Services. The retailer has another seven years on the lease, and rents at the building now total more than $1 million annually, according to marketing materials for the property.
The monthly rent of about $1.52 per square foot is about twice what a typical Burlington Coat Factory store pays, according to Bitonti, who represented the seller in the deal, which property records show to be an affiliate of Cincinnati-based developer Russ Group Inc.
Mark Thiel, a senior associate in Marcus & Millichap’s San Diego office, represented the buyers, listed in public records as an affiliate of BluPacific Holdings LLC. BluPacific is reported to be headed up by Chinyol Yi and Lewis Welsh, who cofounded LA Fitness in 1984.
Records show BluPacific affiliates bought at least two other fully leased retail buildings in the past year: a 20,000-square-foot property in Central Florida leased to Office Depot and a 10,145-square-foot-building near Phoenix leased to KinderCare.
Brokers said the Santa Ana building was bought as income property. There’s been no indication that the new owners plan to convert the Bristol Street location into a gym, even though the property’s size is in keeping with other area vacant retail locations that LA Fitness has turned into new fitness centers.
Recent Additions
Recent local additions to LA Fitness’ portfolio include a 63,000-square-foot Mission Viejo gym near Crown Valley Parkway and the Santa Ana (I-5) Freeway, as well as a 50,000-square-foot location at Irvine Company’s Crossroads shopping center, near Culver Drive and Barranca Parkway.
Both the Mission Viejo and Irvine locations filled space once used by defunct retailer Mervyns.
LA Fitness, which now runs about 510 clubs across the country, expects to open another 225 by the end of 2014, company officials said last month.
Expansion plans for LA Fitness include about 50 new club openings this year, another 75 openings in 2013, and about 100 more the year after that.
Thirty of the 34 LA Fitness locations undergoing fit-out construction were vacant big-box sites, officials said last month at an International Council of Shopping Centers event.
The company is expected to be the largest fitness center operator in the country by year’s end, according to trade publications. It currently trails San Ramon-based 24 Hour Fitness for that title, though a string of acquisitions and new gym openings are expected to vault it to the No. 1 spot by the end of 2012.
Private Equity
LA Fitness is majority-owned by a trio of private equity firms: CIVC Partners and Madison Dearborn Partners of Chicago and Siedler Equity Partners of Marina del Rey.
Madison Dearborn is said to be the last of the three companies to invest in LA Fitness, paying a reported $600 million for a 20% share in the club operator, which was formed in 1984. It is unknown how much of a stake Yi and Welsh, the company’s chief executive, still have in the company.
The company ranked as Orange County’s 12th largest private company last year by revenue with $1.1 billion in sales, according to Business Journal estimates.
