Vanguard Realty Group

1390 Piccard Drive
Suite 120
Rockville, MD 20850
Tel: 301.795.1400
Fax: 301.795.1401

Washington Business Journal - by Sean Madigan Senior Staff Reporter

A local group of investors is pumping big bucks into the region's largest health club chain. They paid $75 million for Vienna-based Sport & Health, which has 26 health clubs and three day spas in the Washington area. Donald Konz, who co-founded the company in 1973, has returned as an investor and will serve as CEO -- a role he held between 1997 and 2003. "Under his control, Sport & Health was really at its strongest," says Kirk Galiani, the former CEO of Gold's Gym International and current owner of 12 Gold's on the East Coast. "He has a very good eye for real estate in the D.C. area."

Tom Fauquier, a principal at Vanguard Realty Group, put the deal together. Other investors include executives from Minkoff Development and Jonathan Adler, a publisher of real estate directories. The group bought the clubs from Carl Marks & Co., a New York investment firm that made its first investment in the company in 1994 and took control in 2002. An executive from Marks could not be reached for comment.

Sport & Health has about 80,000 members and about 2,200 employees spread across 1.5 million square feet of real estate. During the next five years, the partners will invest $50 million into the business and hope to double the chain's annual revenue, which is now about $80 million, according to Adler, who has become Sport & Health's chief operating officer. "We're not investors," Konz says. "We're operators."  Konz and Adler say local ownership gives them considerable latitude in decision making, a level of freedom most of the region's health club managers don't enjoy.

Aside from the YMCA of Metropolitan Washington, the biggest clubs are controlled by national chains such as Gold's, Bally Total Fitness and Lifetime Fitness.
Gold's, the largest chain of gyms in the country, has about 50 in the Washington-Baltimore region through a mixture of corporate and franchisee-owned facilities, says Dan Reiseman, a spokesman for the Dallas-based chain. Washington is a strong "very fitness conscious" market, and Gold's is always looking to expand its holdings "when it makes sense," he says.

Although the San Francisco and Los Angeles markets have more gyms per capita, Washington is a major health club center, too, Galiani says.  LA Fitness recently announced it would enter this market, and Galiani expects Minnesota-based Lifetime Fitness to add gyms as well.

Galiani and his brother John, along with a Florida-based private equity firm, leveraged a string of regional Gold's franchises to buy out the parent company in 1999. They sold it to another investment company for $158 million in 2004.  Adler says his team doesn't have any immediate expansion plans for Sport & Health. Instead, the company will focus on branding and improving its existing properties.