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Fitness Industry Financial Crunch Creates Role for Top Lawyer

Aug. 5, 2020, 8:45 AM

A leading Crunch Fitness franchisee has recruited a lawyer with long-standing ties in the workout space as it seeks to capitalize on the struggles of competitors.

CR Fitness Holdings LLC, a Brandon, Fla.-based company backed by private equity firm North Castle Partners LLC, recently hired Christy Stross as its first chief legal officer.

Stross, the daughter of Planet Fitness creator Rick Berks, was most recently the top in-house lawyer and director of real estate development at YouFit Health Clubs LLC, a Florida-based company started by Berks that like a number of other gym chains is struggling in the economic fallout from the coronavirus pandemic.

Stross didn’t respond to a request for comment about her departure from YouFit and new role at CR Fitness, whose president Geoffrey Dyer praised her credentials.

“Her resume speaks for itself—she’s got 17 years of experience in the fitness business working under her father and building YouFit into a significant company in the southeast with 115 locations,” Dyer said. “There’s a lot of opportunity for growth post-Covid given the unrest in some of the major players in the fitness industry.”

Dyer said the expansion of CR Fitness throughout the southeastern U.S. created a need to bring legal counsel in-house. Akerman has served as outside counsel to the company, he said.

Dyer noted the June bankruptcy filing by 24 Hour Fitness Worldwide Inc. and the financial “headwinds” facing YouFit and Town Sports International Holding Inc., owner of New York Sports Club and other fitness brands. In late July, Gold’s Gym International Inc. finalized its $100 million bankruptcy sale to a German buyer.

“Fitness is like the night club business—you’ve got to constantly reinvent yourself and reinvest in the clubs,” Dyer said.

General counsel for Town Sports, 24 Hour Fitness, and soon-to-be-former Gold’s Gym owner TRT Holdings Inc. didn’t respond to requests for comment about the obstacles facing fitness industry lawyers.

Pamela Corrie, a managing director at investment bank Carl Marks Advisory Group LLC and a former bankruptcy and restructuring lawyer at General Electric Co., was tapped by YouFit’s lenders to serve as an independent manager of the business in May after Berks and Stross stepped down.

Corrie declined to discuss their departures but said the gym industry is like the restaurant sector in being among the hardest hit financially by the coronavirus.

She noted a myriad government regulations at the city, county, and state level that gym owners must account for at each of their locations. Lease payments, she said, are a major burden due to diminished revenue streams.

“From a legal point of view, you talk to your landlords about concessions, forbearance, and forgiveness,” said Corrie, adding that YouFit has closed 20 locations this year.

Corrie’s currently advising YouFit—which is owned by Berks and a unit of privately held financial services firm Perella Weinberg Partners LP—along with outside counsel Greenberg Traurig.

The law firm, along with Miami’s Stumphauzer Foslid Sloman Ross & Kolaya, is representing YouFit in litigation filed in Florida state courts by members accusing the company of deceptive trade practices. Lawyers involved in those cases didn’t respond to requests for comment.

YouFit’s lawyers have argued in court papers that the company continued to offer online programming and other services to members despite its facilities being closed due to Covid-19. In a motion to dismiss one case filed in June, YouFit cited a membership agreement that said an individual “will be billed on a monthly basis unless he cancels his membership, which he did not.”

Sweating It Out

CR Fitness hopes to utilize Stross’ legal and real estate expertise to broaden its footprint, Dyer said.

Dyer called CR Fitness one of the top-performing Crunch franchisees—the brand itself was sold last year—in the country. He expects to add another 90 clubs within the next four years thanks to an investment that CR Fitness received from Greenwich, Conn.-based North Castle in July 2019.

CR Fitness is pursuing new locales one at a time, usually by renegotiating leases with real estate developers seeking to fill vacancies created by bankrupt brands, rather than pursuing bulk acquisitions. Developers need foot traffic, Dyer said, and gym and fitness club operators can provide the people to help brick-and-mortar retail succeed.

Dyer said his own business hasn’t seen a large drop-off in users, despite most of its locations being closed from March 18 to May 18. In June, CR Fitness had a year-over-year gain in new members, he said. All members must now wear masks to CR Fitness facilities and put them on indoors if they’re working out within six feet of another member.

For those with the liquidity and “war chest” to weather Covid-19, YouFit’s Corrie echoed Dyer’s belief that the fitness space remains a savvy investment. But the industry’s business model is based on a continued volume of people signing up as new members, she said, acknowledging that YouFit’s number of new recruits slowed this year as current members have frozen or canceled their memberships.

“Everyone’s experiencing loss of census, so in order to keep going you’ve got to be wise in how you spend your dollars,” Corrie said. “Until people feel safe going into a closed space where people are respirating at a more forceful rate than normal, I don’t think we’re going to go back to normal rates of new members. It’s going to take a while.”

To contact the reporter on this story: Brian Baxter in New York at bbaxter@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com

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