The Coronavirus pandemic has taken its toll on a number of industries, but few have been hit harder than the fitness industry. Fitness gyms, from your classic big-box fitness center stocked with free weights, machines, cardio equipment, and maybe even a pool or basketball court, all the way down to trendy boutique studios were among the first businesses ordered to close and are among the last to be allowed to open.
Fitness is a treasured part of California’s culture. California is, after all, the state that gave us Muscle Beach, the first Ironman winner, and the country’s first bodybuilder Governor. But beyond that, California’s culture of health and fitness is deeply engrained and the gyms that make it possible are an invaluable part of it. But now the very survival of the industry threatened.
Most of us who walk into a gym spend think a lot more about how to shed a few pounds than how much it costs to rent the space, supply all the equipment, insure for everything that can and will go wrong, and staff the facility. Many clubs, even some of the big names in the industry, are small businesses owned by local franchisees. They employ thousands of people across the state. But it is an industry with slim margins and large overheads. Businesses are taught to prepare for a “black swan” event, but few if any could go several months with zero revenue and zero insurance coverage.
Clark, who has decades of experience in the industry, thought he had seen it all. But he never expected to see every club he managed see its revenue entirely cut off all on the same day. “We could either stop billing our members or keep billing them for a service we legally were not allowed to provide them and probably end up on the wrong end of a class-action lawsuit. We wanted to do the right thing, so we did. The flip side is that now we have every single creditor trying to be first in line to collect from a business that has had no income since March.”
It will be a slow road to recovery for the industry too. Statewide regulations for reopening procedures were just released. https://covid19.ca.gov/pdf/guidance-fitness.pdf. “We don’t know exactly what we are walking into, but my best guess is we will see a decline of 35 percent and I have no way of knowing when that will rebound.” Clark cites factors like spread containment, a potential vaccination or treatment, and loosening or tightening of government restrictions as some of the unpredictable factors that the industry’s recovery will depend on.
Clark says that some of the “industry players” have been accommodating of the crisis that is crushing the industry. But not everyone. “Some of our landlords have even been accommodating. With most of them it’s been more of a discussion of ‘how can we keep you here’ as we try to figure out what the new economic reality is for the industry. Most are taking a wait-and-see approach right along with us.”
But there has been one major exception at one of Clark’s newest clubs. Lakha Properties — San Diego, LLC, the Belleview, Washington-based commercial landlord and developer, served a Notice of Default to its Crunch Fitness tenant at University Square, claiming that by missing just one-half of a month’s rent while the club was ordered shut during the pandemic, Crunch Fitness defaulted on its lease. It is typically the first step to an eviction action. “I can’t believe a landlord would try to evict a business before it is even legally allowed to open again,” said Clark, who thought the landlord’s bullying tactics were disgraceful. Of all of Clark’s clubs, “They’re the only ones [who are trying to default the tenant on its lease], and I think everyone in the center and everyone who is looking into leasing one of their units anywhere should know about it.”
Lakha Properties is part of the Lakha Investments and Fortress Developmentconglomerate, owners of at least 10 million square feet of commercial properties in and outside of California. It even acquired a $31.5 million property for development in Washington State, and was featured in Forbes Magazine. Apparently Lakha’s success hasn’t stopped it from stepping on the necks their struggling tenants, who are often small business owners like Clark.
Clark, a former full-contact Karate champion who is now fighting to keep his businesses on life support, sees the irony in Lakha Properties kicking them while they’re down. “We would have expected a little compassion and understanding from the company we’ve been paying rent to for a year. This business employs scores of people in San Diego, and serves thousands in the community who love their gym. I don’t think Coronavirus has to kill the fitness industry, but I guess landlords like Lakha just don’t get it.”
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