“Before COVID-19, there was a big move for gyms to fill up the larger retail space where stores were that were closing,” Jerry Markowitz said, “I suspect all those types of things are on hold for now.”
By Michael A. Mora | November 10, 2020
A health club chain based in Deerfield Beach filed for Chapter 11 protection in Delaware on Monday.
And James D. Silver, a partner at Kelley Kronenberg in Fort Lauderdale, said the YouFit Health Clubs’ bankruptcy case is part of a line of similar health club chains which have filed for bankruptcy protection, such as LA Fitness and 24 Hour Fitness. These filings will have an adverse impact on mall operators and landlords.
“You are seeing a lot of stresses out there on these mall owners and landlords that need to pay their own bills and rely on rental streams from companies beginning to file bankruptcy,” Silver said. “The larger implications could be that malls become more of a renter’s market, because of businesses out there being able to get space for significantly cheaper.”
The mandatory shutdown starting in March caused by the coronavirus pandemic forced fitness chains all across the country to close, severely impacting the financial health of the industry, which in the pre-pandemic have grown to more than $30 billion a year, according to Statista. And Jerry M. Markowitz, a partner at Markowitz Ringel Trusty & Hartog in Miami, said this interrupted a trend.
“Before COVID-19, there was a big move for gyms to fill up the larger retail space where stores were that were closing,” Markowitz said, pointing to a mall operator at The Falls in Miami replacing a vacant Bloomingdale’s with a large gym. “I suspect all those types of things are on hold for now.”
One of the reasons these gyms are on hold is their financials. In the YouFit bankruptcy petition, it reported about $110 million in debt while also proposing a stalking horse sale in which the top lender has a $75 million credit bid. But, Markowitz said, YouFit’s financial woes predated COVID-19.
“They’ve been in a very serious effort for over a year to try and sell the company and hired some very reputable investment bankers to help them with that process,” Markowitz said. “They marketed it pretty extensively and nobody else came along. It certainly seems like they are in pretty bad shape.”
Now, the case will go before Judge Mary Walrath in the U.S. Bankruptcy Court for the District of Delaware.
(l-r) Isaac Marcushamer, partner at Mark Migdal & Hayden in Brickell, James D. Silver, partner at Kelley Kronenberg in Fort Lauderdale, and Jerry M. Markowitz, partner at Markowitz Ringel Trusty & Hartog in Miami. Courtesy photos
Isaac Marcushamer, a partner at Mark Migdal & Hayden in Brickell, said part of the problem facing mall operators is the disruption of the traditional health club model. These traditional health clubs, which have been moving to malls, would have rows and rows of machines, large classes and amenities.
“Before COVID-19, there were certain companies that were starting to take on that model,” Marcushamer said. “I don’t know how many people who have gotten on the Peloton bandwagon to workout at home are going to be willing to go back to the traditional gym model.”
Marcushamer said it is easy to look back and wonder how these traditional model gyms did not see the rise of online workouts coming. When fitness equipment like the Peloton provide a variety of workout options for an entire household for about $40, it is a challenge for traditional model gyms, like YouFit, to survive moving forward.
“The universe of possible customers may have well permanently shrunk,” Marcushamer said. “Just on the acceleration for adopting that fitness trend.”
