In this Gym Owner’s Podcast, we interview commercial real estate expert Ken Jorgenson, national director of CARR, the country’s leading provider of commercial real estate services for healthcare tenants and buyers, on how successful gym owners can secure the best lease terms.
Here are several key ideas we learned about real estate leases and negotiations from our conversation. For the full interview, tune into our Gym Owner’s Podcast hosted on YouTube.
What concessions should you fight for in a gym lease?
Don’t settle for a 70-page lease just because the rate and terms are to your liking. Instead, ask questions and expect concessions. Here are a few Jorgenson suggests.
- Build out time — This concession lets you delay payment for a certain number of months while undertaking construction and permitting process. Depending on where you live, the permitting process could add months to the project. Often, Jorgenson attempts to set rent payment starting dates based on when permits are approved – a tactic not always appreciated by the landlord. This is where it is critical to have someone in your court who knows how to have these conversations, he explains.
- Tenant Improvement Allowances — This ask can save you thousands. With this negotiated concession, a landlord invests in the construction of such areas as bathrooms, locker rooms, and office space.
- Renewal terms — The best renewal terms should give you the option of staying but commit you to the entire time. Lease terms set at 10 years with two five-year options to renew are common.
- Maintenance — Who is financially responsible for the HVAC, roof, or any construction due to shared space?
- Exclusivity and Parking — Does the lease allow retail in your gym, or will your growth be restricted in some other way? These and other issues, including parking availability are key points to discuss with your potential landlord.
- Free Rent — This valuable concession provides new gyms’ ramp-up time after opening during which they do not have to pay rent.
How important are lease renewals?
Very important. Most leases are over market value by the time their term is up because of the annual rate increases built in to most contracts. Truthfully, it is at your lease renewal where you have the best opportunity to save money and make improvements to the property.
How so? By bringing in a professional broker to represent you. A commercial real estate agent researches the market and can build a case for you to your landowner. He will first figure out if you’re paying over market value, which is common for long-term leases. Then, he will help you analyze the local area for similar properties and often persuade the landowner to treat you as they would any new tenant. In the end, well-negotiated lease renewals often result in lower cost per square-foot and improvement concessions.
What is the timeline for most build-out’s with an agent’s help?
- New properties leases: Nine to 18months. This timeline is from start to finish – researching market, touring sites, negotiating properties, navigating legal terms, and construction with permitting.
- Buying building, condo, or land: Nine to 24 months. This scenario depends on the individual situation and may take longer than 24 months.
- Lease renewals: Start discussions 12 months before the renewal date. This gives you enough time to negotiate terms, find a new space and move, if necessary.
Much of this differs market-by-market, which is why it is good to work with an agent familiar with the area.
What is the biggest mistake even successful gym owners make when signing leases or buying properties?
Not conducting their due diligence before signing a lease or contract.
This mistake can be avoided by building a good team, which should include a CPA, an independent commercial real estate broker, and an attorney. Don’t allow yourself to be pressure into buying property before it is fully vetted by outside professionals.
Jorgenson tells of a business owner who paid $1.5 million for land with sensitive equipment buried underground. The unintended mistake halted his plans to build on that site. Now, he is selling at a loss.
Another healthcare owner negotiated their own terms for an office space. Only to learn they now pay significantly more per-month than fellow tenants.
Where can I go for more information?
Visit our Gym Owner’s Podcast and listen to our interview with Jorgenson. His insights are good place to start researching the industry and, even better, his advice will save you money. After all, we all need an expert on our side.
Gym Insight
We are a gym management software company established in 2008 by gym owners just like you. We designed and wrote our own software for our gyms before starting Gym Insight. Since then, we have continued our tradition of custom building all our own software tools and features. Insight now provides fully integrated club management, member management, sales tools, payment processing, and 24/7 access solutions at affordable month rates – with lifetime pricing guarantees. For more information call us at 855-367-4967 (855-FOR-GYMS) and ask for Anthony or Natalia.
