RealSource Arranges Sale of New Single-Tenant LA Fitness in Houston Metro, Lowest Cap Rate in the Last 18 Months

MarketWatch – 9/27/2021

RICHMOND, Texas – RealSource Group, a national commercial real estate brokerage company focused on retail, healthcare, automotive and education properties, announced the sale of a new single-tenant net-lease investment occupied by LA Fitness Signature Club at the Waterview Town Center in Richmond, Texas. Although the purchase price could not be disclosed, the sale achieved a cap rate of 6.60%, with less than a full primary lease term. RealSource’s Vice President of Investment Sales, Austin Blodgett, along with ParaSell, Inc., represented the seller, a private developer based in Houston. Blodgett and ParaSell also represented the buyer, a private partnership based in Texas.

“This is the first single-tenant LA Fitness property to go to market and sell post-COVID,” said Blodgett. “The last single-tenant LA Fitness to trade sold over 18 months ago in February 2020 in Hayward, California, at a cap rate of 6.62%.”

Blodgett continues, “With a cap rate of 6.60%, we feel that we have set a new post-pandemic benchmark for LA Fitness deals in the southwest going forward and a catalyst for a nationwide compression of cap rates for LA Fitness deals throughout the remainder of 2021 as investor demand increases for new single-tenant netlease properties occupied by LA Fitness.”

For the last 20 years, RealSource has served as a master broker for Fitness International, LLC, the operator of the brand names LA Fitness, LA Fitness Signature, Esporta Fitness, City Sports Club and Club Studio. With more than 700 locations across 27 states and Canada, Fitness International is one of the fastest-growing health club chains in the U.S.

The new construction, 47,000-square-foot LA Fitness building is located on 4.93 acres at 19409 W. Bellfort Street, near the intersection of Waterview Meadow Drive and W. Bellfort Street in Richmond, just off Highway 99.  

According to Blodgett, LA Fitness is highly visible from Highway 99, the main north-south thoroughfare, which has over 50,000 cars per day.

“We generated multiple offers within one week of formally marketing the property and secured an exchange buyer who was looking for a long-term lease in the greater Houston metro area,” said Blodgett. “The buyer decided to forgo several smaller exchanges and join forces with several partners to make the higher price point for their upleg. This is a long-term play for the partnership, which recognizes LA Fitness’ credit, best-in-class status, successful operating history as well as the desirability of this growing trade area. Also, the fact that Texas is an income-tax-free state drove them to buy in-state, which is a common theme we are seeing right now with out-of-state investors coming into Texas.”

Blodgett adds, “Additionally, there were three banks that offered aggressive loan quotes to take this deal on, which demonstrates that banks are looking favorably at the future of health clubs,” Blodgett said.  

Texas was one of the first states to successfully re-open gyms after the COVID-19 mandated closures. The LA Fitness Richmond location was operating at 100% capacity at the time of the listing and sale, noted Blodgett.

LA Fitness is located within the brand-new Waterview Town Center with approximately 525,000 square feet of retail. Co-tenants include Academy Sports, At Home, 7-Eleven, Quick Quack Car Wash, Valvoline, Chick-fil-A, Chipotle Mexican Grill, Texas Roadhouse, Whataburger, and more. A newly completed 850,000-square-foot Amazon distribution center is located across the street from LA Fitness.

A new 300-unit residential development, Synergy at Waterview, is slated to open in the first quarter of 2022 directly behind the LA Fitness building. The property is adjacent to Aliana, Houston’s second top-selling master-planned community including Aliana (4,000 homes), Harvest Green (2,000 homes), Fieldstone (1,500 homes), and many more.

Last month, Blodgett completed the sale of two, brand-new single-tenant 7-Elevens in Texas within two weeks of each other, a 7-Eleven with a fuel station in Arlington, which sold for a cap rate of 4.70% and a 7-Eleven with a Laredo Taco Company quick-serve restaurant and a fuel station in Houston, which achieved a cap rate of 4.50%.

“There is still a massive amount of liquidity in the market right now and the availability of good deals remains rather slim,” noted Blodgett. “This is keeping cap rates low for national credit tenants with new long-term leases in states that have had a less restrictive response to the pandemic.”

Blodgett adds, “We are seeing a lot more off-market transactions and exchange buyers willing to pay a premium to fulfill their exchange requirements. Any good deals that are hitting the market right now are getting multiple offers within the first few weeks of marketing.”