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Building and Renovating in a Tough Economy Can Still Be a Smart Move

Tightening credit markets have made it difficult to finance new club construction and renovations. Indications are that we may get some relief this year, but the fact remains that tight budgets and limited funds will have a deep effect on what and how we build, lease and even renovate for the next few years.

The tendencies to conserve money, build cheaply (if at all), hunker down and resist renovating all sound reasonable, but ultimately, that may be shortsighted. This actually could be the best time to set up your business for future success. Good deals can be found, and with focus and careful consideration, you can parlay a tough economy into future success.

Coupled with the many challenges we face are opportunities. Construction costs are down, allowing us to build much more with less. Lease rates in most markets have dropped, and landlords are willing to provide more build-out allowances than ever to help bridge the funding gaps. Searching for ways to grow during tough times may sound adventurous, but with vision, professional help and careful planning, it may be the smartest way to build your future.

Building new clubs from the ground up can be a smart move. In the long-term, owner-occupied real estate is still a sound investment. Since location is one of the primary markers of any good real-estate deal, knowing precisely where to build is critical. To make the right decision about where and what to build, consider hiring a firm with experience in analyzing the market, calculating potential memberships, evaluating the competition and providing clear data about your project. These findings and reports also will show the banks that you did your homework and can help you get funded.

Staying focused on the available funds once the location is secured becomes paramount. Even though construction costs are the lowest in years, restricted budgets can still yield less-than-desirable buildings.

Design is a great differentiator. Entering a new market with less than the best possible design you can afford will leave you vulnerable to competition. Even at modest budgets, hiring an experienced architect that you trust early in the process can save you big money in actual money spent and in the future value of your building.

If you decide to rent, this recession has yielded vacant primary and secondary spaces in most markets at historically low prices. Not only are the rents much more affordable, but landlords are providing a lot of incentives towards the build-outs. It's not rare for a landlord to provide funding for a large part of tenant improvements.

I advise my clients to negotiate a tenant work letter carefully with the landlord. This work letter should outline the landlord's obligations for construction. It also becomes an important tool to getting your club built on budget because simple miscalculations can cost you later. The landlord should be responsible for keeping the building shell secure from the elements, including items such as the mechanical units on the roof, power and water. Other incentives, such as allowing the landlord to do part of the interior build-out, should be taken as cash instead. Also, negotiating a flexible date, calculated from when the space gets a certificate of occupancy rather than a fixed date from when you sign, allows you to open the club before you have to pay rent.

Renovations are a great way to get a membership boost. Studies have shown that the greatest jump in membership occurs after major renovations.

Again, with construction costs low, you can get a lot for your money. Since there already is a track record, banks are more willing to lend money for improving assets than they are for new ventures. But before you start renovating your club, consider what your whole club may need.

We advocate a thorough analysis of your entire club to develop an action plan. This evaluates all aspects of the facility, as well as how current and future programming are accommodated. Consider developing a long-range master plan that can be implemented in phases to give your club's design a boost every few years. Clearly understating your strengths, weaknesses and opportunities is important for allocating limited resources appropriately.


Rudy Fabiano, a registered architect and interior designer, is president of Fabiano Designs, an architectural firm for health clubs, wellness centers, sports clubs and spas. The company has produced more than 400 projects in the past 20 years.

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