Founded in 1984 in the Los Angeles suburb of Covina, LA Fitness has built itself up into one of the dominant fitness franchises in the country with clear aspirations for additional growth. Known for their amenities and high energy workouts, LA Fitness currently has 675 locations across North America, with additional locations in Canada. Currently based in Irvine, CA, LA Fitness is a privately controlled company.
Net Lease Overview
LA Fitness stands out on its own as a net lease investment for many different reasons. The fitness industry is one that is continuously changing and redefining itself, especially nowadays when everyone is prioritizing their self-care and making physical fitness part of their normal routine. LA Fitness has been able to incorporate the ever-evolving fitness classes and exercise trends into their locations, and have been able to stay a dominant player in the market. Their clients are familiar with the product, know what they will getting, and can partake in the latest fitness fads.
LA Fitness locations tend to lease big-box retail in shopping centers or around strong retail corridors in order to maximize their exposure. Being in these locations can also make visiting the gym more convenient for their users’ daily routines. Typically, LA Fitness locations tend to be under a triple-net lease, meaning the responsibilities for maintaining the building falls on the tenant, and the rental income with no expense outlay. These leases will also feature escalations, usually every 5 years, as a natural hedge against inflation.
Look to LA Fitness to keep expanding as they try to increase their market share. The fitness industry is always evolving, and having a recognizable and respected name in the industry can go a long way in the eyes of prospective clients and investors.
Judging from this graph, we can see that the cap rates for LA Fitness locations are very similarly aligned with the rates for the STNL market, including deals with 10+ years. LA Fitness cap rates seem to remain around the STNL cap average showing that these locations provide good return and are strong investments, nearly 4 points higher than a fully passive Treasury Bill.