Petaluma Planet Fitness gym owner buys Santa Rosa building to expand, hoping coronavirus restrictions will end before opening

With Sonoma County gyms only able to operate outdoors currently during the coronavirus pandemic and a number of local operators embroiled in a statewide legal battle to allow greater reopening, it may seem like a bad time to expand.

But for one fitness club owner, it’s the best time in years to make such a move.

The owner of the existing Petaluma franchise for Planet Fitness and a couple of other locations elsewhere in the state has made a significant bet that by the time his planned south Santa Rosa location late next year, COVID-19 restrictions on gym operations will be lessened. DiLorenzo Santa Rosa Real Estate LLC on Oct. 26 purchased the former Toys R Us store at 2705 Santa Rosa Ave. for $6.3 million, or nearly $166 for each of the building’s 38,000 square feet.

Planet Fitness is set to lease 18,000–22,000 square feet of the facility, once a secondary tenant is secured, and open by late fourth quarter of next year, according to Scott Landgraf, part of the SRS Real Estate Partners team that brokered the deal for DiLorenzo and is scouting for East Bay corporate-owned locations. The plan also requires approval from other owner in the shopping center then a green light from the city.

“Right now is a good time for Planet Fitness in the Bay Area, because boxes are opening up that were not available in the years before,” Landgraf said. “If COVID continues to be an issue a year from now, this will be a different story.”

Sonoma County has been in the most restrictive tier of California’s four-color reopening plan since that latest approach by state officials to address the pandemic went into place in late August. In the purple tier, designating “widespread” transmission of the COVID-19 virus, California bans gyms, restaurants, winery tasting rooms, brewpubs and other indoor operations from inviting in the public.

Because of that, a number of local gyms have been moving equipment and exercise mats outside, and recently have been securing tents as wet winter is in the forecast. Sonoma County health officials on Wednesday appealed to state public health regulators to consider increased local testing and adjust the county’s metrics accordingly, perhaps moving it up to the red or orange tiers. Those levels allow 10% and 25% indoor gym occupancy, respectively.

But for a startup gym such as the planned Planet Fitness, missing the opening window can lead to a big hit to revenue, Landgraf said. In a normal year, gyms make up to 20% of their annual sales in the first month of the year.

Almost 11% of health club members sign up for memberships in January, but 80% of those New Year's resolutions are abandoned by February, according to the International Health, Racquet & Sportsclub Association.

In September after the new four-level Blueprint for a Safer Economy system was rolled out, the roughly 300-member California Fitness Alliance sued the state, alleging it unfairly targeted the industry for risk of COVID-19 virus transmission, didn’t consider clubs’ protocols for containment and demanded that gyms be allowed to reopen. The group estimated that about one-third of California gyms have closed for good because of the restrictions.

For those behind the planned Santa Rosa location for Planet Fitness, it has been longstanding effort. While the Santa Rosa Avenue location had been the target area during the several-year search, but after multiple attempts to buy land failed, that led the real estate team to work on getting a spot in the Kmart center at the north end of Santa Rosa, which was being reimagined as a multitenant locale, Landgraf said. But that plan ended when the store burned in the 2017 Tubbs Fire.

“We tried to lease, but there are not a lot options in that size,” Landgraf said, referring to 18,000–25,000 square feet sought for the club. “There had not been a lot of retail box turnover in Santa Rosa for quite some time.”

One of the challenges is that since the 2007–2008 recession, property owners have wanted to keep tenants that had signed leases at higher rental rates before the financial crisis, he said. Another location of the right size that’s still vacant, the former OSH hardware store on Cleveland Avenue north of Coddingtown regional mall, remains under lease to parent company Lowe’s.

The Toys R Us bankruptcy, part of the growing turmoil in retail that has hit a number of top industry names under pressure from e-commerce, opened the door for the new Planet Fitness location. Up to 20% of new fitness clubs nationwide are expected to open in shuttered stores, according to the IHRSA.

Toys R Us Property Company I, which emerged after the retailer’s bankruptcy reorganization last year with 168 former Toys R Us stores, did an off-the-market deal for the Santa Rosa Avenue location with DiLorenzo Santa Rosa Real Estate. The buying entity’s address is a Portsmouth, New Hampshire, car dealership owned by Anthony DiLorenzo, who also owns several other commercial properties in that area, according to public records and media reports.

Mark Koenig of Meridian Commercial and Annie Prupis of CBRE brokered the deal for the seller of 2705 Santa Rosa Ave., TRU RE I LLC.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.