Irvine Health Clubs Facing Off for Battle of the Spas : Developers: Owners of new facility are banking on area's being able to support two luxury fitness centers.

By SUSAN CHRISTIAN

July 20, 1992 12 AM PT

TIMES STAFF WRITER

IRVINE —

Somehow, it’s fitting. Here in the epicenter of the buffed and tummy-tucked stand two of the nation’s most spectacular health clubs--facing one another across the San Diego Freeway, mirror monuments to Southern California’s preoccupation with appearance.

First came the $30-million Sports Club--a 125,000-square-foot spa with such amenities as a basketball court, swimming pool, rock-climbing wall, child care center and restaurant. Now, less than half a mile away, comes the $30-million Sporting Club--a 100,000-square-foot spa with such frills as a basketball court, swimming pool, rock-climbing wall, child care center and restaurant.

After more than seven years in the works, the Sporting Club is scheduled to open Friday, --making Irvine the only city in the United States with next-door “megaclubs,” as they are known in the industry.

“There is absolutely no other situation where two clubs of this size are in such close proximity,” said John McCarthy, executive director of Boston-based IRSA, the national health club association that began as the International Racket Sports Assn.

Health clubs, particularly in physique-conscious California, have managed to dodge the recession better than most businesses, according to IRSA statistics. Even so, Irvine’s unique claim to fame begs the question: Does a city of 110,000 people really need a matching pair of super spas?

The tale of two megaclubs began in the mid-1980s. Those were the days when money for new construction bulged in developers’ pockets. So many fancy office complexes were sprouting up in Orange County that they started to vie for singularity with snazzy attention-grabbers: shops, movie theaters, hotels, valet parking and car detailing services.

Birtcher, the Laguna Niguel-based developer, struck upon an idea to distinguish its proposed Lakeshore Towers from the other high-rises surrounding John Wayne Airport in Irvine. It decided to erect a lavish health club that would entice tenants to its plush office buildings.

This was, after all, the height of the fitness frenzy. Yuppies, who had just been dubbed such by Newsweek magazine, were signing up at health clubs as fast as they could flash their American Express cards. Hollywood even captured the craze in a 1985 movie, “Perfect,” starring John Travolta and Jamie Lee Curtis.

The Koll Co., meanwhile, caught wind of Birtcher’s plans. Not wanting to be upstaged, the Newport Beach developer decided to add its own megaclub to Koll Center Irvine North.

In what became a sprint for the finish line, the developers went after financing. Koll secured funds from Wells Fargo Bank. Birtcher garnered a commitment from the Japanese investor Nissho Iwai Corp.

Each developer lined up prominent health club builders. Koll landed the Los Angeles-based Sports Club Co., while Birtcher lined up the similarly named Sporting Clubs of America, headquartered in La Jolla.

But Koll enjoyed one unsurmountable advantage: it already had received the city of Irvine’s approval for a retail center with a small health spa at its office complex. Koll simply went back to the city and requested permission to use that same space for a much larger health spa. Birtcher, on the other hand, was starting the slow and tedious permitting procedure from scratch.

“We got stuck in the review process,” said William Kearns, a principal with Birtcher. “It cost us dearly, believe me.”

The Sports Club opened in February, 1990, a few months after Birtcher finally had gotten a green light from the city. Rumors abounded that the Sporting Club would never materialize.

“Everyone was betting that it wouldn’t happen,” said George Economos, senior vice president in the Newport Beach office of Grubb & Ellis brokerage.

Fueling those rumors was that the Sporting Club broke ground not long after obtaining city approval, only for the gaping ditch to sit untouched for more than a year while the first Lakeshore Tower went up nearby. Birtcher and the Sporting Club explained their inactivity by saying that they were taking time out to study the Sports Club and learn from whatever mistakes it might make.

Koll, too, assumed that it had come out the victor in the race and that Birtcher would back off. “I’m surprised there’s a second club,” said Dick Ortwein, division president of the Koll Co. “I mean, how fit do we all need to be?”

If Birtcher ever balked at going through with its megaclub, no one is letting on. “We believe in the club--we feel it’s a good amenity,” Kearns said.

Besides, he added, putting another type of building on the property would have involved a second round of time-consuming negotiations with the city. “If we decided to change uses for the land, we would have had to go through the review process again, and that’s something we didn’t want to do,” Kearns said.

Not that there’s some other kind of commercial building Orange County desperately needs right now, anyway, pointed out Economos: “We’ve got a glut of hotels and offices. The gamble on this health club is high, but any other competitive product on that site also would be a gamble.”

And Birtcher already had in place something that has been a rarity since the recession hit real estate more than two years ago: financing.

“The Japanese are long-term, committed players,” Economos said. “They don’t run easily. Birtcher would have had to carry vacant land if they hadn’t gone ahead and built the club. They probably figured, why not?”

Whatever the reasons, Birtcher eventually forged ahead, adding another chapter in what is sure to be a Goliath vs. Goliath story.

“Both of these companies are experienced, tough competitors,” McCarthy said. “It’s going to be war.”

As far as Michael Talla is concerned, the war has already erupted. “This (the Sporting Club) is one of the most ill-conceived real estate projects that has ever been done in Orange County,” the outspoken founder and president of the Sports Club Co. said of the soon-to-open spa.

Talla has been leading a fierce campaign against the Sporting Club since last summer, when--to the surprise of many--its construction at long last got underway. He periodically contacted the media complaining that the Irvine area could not support two megaclubs and that both clubs would suffer the consequences.

“Our facility can handle 9,000 members, and we’re now at 5,000--nowhere near capacity,” Talla said. Still, he said, the Sports Club is managing to keep its head above water: “We’re paying our debt service.”

For its part, the Sporting Club says that so far it has signed on 2,200 members, including a couple hundred Sports Club deserters.

Talla co-owns the Sports Club Co. with oilman and entertainment mogul Marvin Davis. The company originally focused on medium-size health clubs in the ‘70s and early ‘80s, constructing 10 Sports Connections throughout Southern California. In the late ‘80s it turned its attention toward megaclubs, building the 100,000-square-foot Los Angeles Sports Club and then the Irvine Sports Club--renowned in the industry as two of the country’s finest.

In Irvine, the company owns the Sports Club structure--built by Koll Construction--as well as the land. The Sporting Club likewise owns its Irvine facility, which was built by Birtcher Construction, but it holds a 75-year land lease with Birtcher.

Not one to mince words, Talla is quick to remind whoever will listen that his competitor down the street has three clubs in bankruptcy--yet another interesting twist in the saga of the dueling spas.

La Jolla developer Jack Naiman, owner of Sporting Clubs of America, has made luxury clubs his specialty--establishing 11 around the country. He also builds office complexes and, like many developers basking in the easy cash of the 1980s, spread himself too thin.

“He was expanding at an extraordinary pace at the worst possible time, in 1988 and 1989,” McCarthy said. “Even though his clubs have all been successful to varying degrees, they were over-leveraged.”

In July, 1991, Naiman put his Chicago, Atlanta and Boca Raton, Fla., clubs into Chapter 11 bankruptcy reorganization.

Those clubs have common Japanese lenders, C. Itoh & Co. and Mitsui & Co., said Darren Hodgdon, vice president of marketing for the Sporting Clubs of America. “We still manage them, and they all have remained in operation while we restructure the loan.”

Kearns admitted that Birtcher is “concerned” by the bankruptcies. “But each club is a separate entity, so one going under won’t drag the others with it,” he said. “Still, the negative publicity bothered us.”

What would Birtcher do if, in a worst-case scenario, the developer were stuck with the shell of a Gargantuan health club on its property? “I suppose we could turn it into an amusement park, or perhaps Crystal Cathedral South,” Kearns quipped.

There is scant chance, however, Birtcher will ever confront that dilemma. Megaclubs virtually take on a life of their own, leaving little danger that minor road bumps such as bankruptcies or foreclosures would shut them down, McCarthy said. “They’re too big to fail,” he said. “A bank could take one back, but then it would have to get someone to operate the club. A megaclub isn’t like a gym in a strip shopping mall that could be changed to another use overnight.”

So now Irvine has two gigantic health clubs, both apparently here for eternity whether business firms up or sags. The spas have some reason for hope: As a whole, the health club industry has remained in pretty good shape despite the weak economy. “It seems that people don’t view health clubs as a frill they can do without,” said Michelle Bates Deakin, managing editor of Club Industry, a magazine for health club personnel based in Framingham, Mass.

During the 1980s, club membership in the United States climbed at a rate of 10% to 15% a year, according to IRSA statistics. Growth has slowed to about 5% annually in the sluggish 1990s--but at least it has continued. Today, 17 million Americans belong to health clubs, compared to 12 million in 1980.

There are 12,100 clubs in the country. California, earning its reputation for vanity, has the most health clubs: 1,386, a whopping 11% of the national figure.

Orange County is home to about 100 clubs--most of them in the small to medium range, with small defined as under 20,000 square feet and a medium club measuring 20,000 to 50,000 square feet.

As of last week, the county was down one club. The Spa at the Center, a chichi little gym across from the Performing Arts Center in Costa Mesa, abruptly closed after running into difficulty with financing. Officials say the shutdown is temporary, but industry watchers had been speculating that the 3-month-old club’s hefty price tag--a $1,250 initiation with $99 monthly fees--would cramp its membership.

Irvine’s two megaclubs--which, for the most part, will compete only against each other--probably have little to do with the Spa’s headaches. Marketing research surveys show that people will drive a maximum of seven miles from home or the office to work out, said Richard Schwartz, national director of business development for Los Angeles-based PKF Consulting--which has done studies for both Irvine megaclubs.

Nor will the Sports Club and Sporting Club wreak much havoc on less expensive gyms in the vicinity. Megaclubs cater to a different clientele than, say, a 10,000-square-foot Nautilus Plus that offers only aerobics classes and weight machines.

“Joining the Sports Club or Sporting Club is like joining a country club,” Schwartz said.

“But if they engage in a price war and lower their rates, they might get some upgrades from the Sports Connection and Family Fitness Centers.”

That tactic is not recommended, said IRSA’s McCarthy: “Unless they have terribly deep pockets, a price war between two $20-million-plus clubs would be suicidal.”

A price war, however, is underway--although for now, it’s one-sided. The Sporting Club offers restricted memberships that cost as little as $250 initiation plus $40 a month. A “VIP” membership, which includes such perks as valet parking and private locker rooms, costs $700 for initiation and $120 in monthly dues.

“Three or four years ago, our clubs started at $400 initiation with $75 a month dues,” Hodgdon said of the company. “But the economy has changed, and the mind-set of the customer has changed. Today, we are not only competing with other health clubs but with mortgage payments and second cars.” Certainly, lower prices would mean a need for higher volume. “We break even at 3,800 members,” he said. “After about 5,000, the profits really kick in.”

The competitor may be waging a price battle, but the Sports Club won’t enlist, said John Aylsworth, the company’s chief executive officer. “We’re not paying much attention” to the Sporting Club’s price cuts, he said. “We’ve established a five-star facility, and I really don’t think we’re going to lose people.”

Memberships at the Sports Club run from $725 to $1,475 in initiation fees, and from $75 to $130 in monthly dues.

What happens next is anyone’s guess. “Conventional wisdom would say that both clubs can’t succeed, but conventional wisdom can be wrong,” said the trade association’s McCarthy. “This might prove something none of us expected. When you put two car dealerships next to each other, both of them do better.”

Birtcher principal Kearns summed up that great unknown in five words: “Let the spa wars begin.”

Super Spas

The Sports Club and the Sporting Club boast all the amenities that distinguish deluxe health spas from smaller gyms. In addition to the usual frills, both clubs offer their own personal touches. Most of the amenities unrelated to exercise--such as massage, a hair salon and child care--cost extra.

Both clubs

All-day aerobics classes

Swimming pool

Running track

Squash and racquetball

Basketball court

Jacuzzis and saunas

Rock-climbing wall

Car-wash and detailing

Massage

Private training

Restaurant and bar