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How to Design and
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a Winning Facility
By Donald DeMars
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As a design and development consultant that has specialized for
over twenty-five years in helping developers throughout the world,
properly evaluate and implement the most appropriate athletic and
fitness center development for each individual situation, it has
always amazed me how "unmethodical" most of these developers
approach this very complicated and risky process.

Largely this approach grows out of... "not knowing how to do it!"
This "free-floating ambiguity" on the part of the entrepreneur,
regarding exactly what is prudent to build, who to turn to for help,
and how to get started, usually brings to the surface...

The Entrepreneurial Spirit
It is very natural to get excited about one’s own "dream project;"
this is just human nature. But his excitement, if not held in check by
a disciplined and methodical process that is implemented to keep
risk at a minimum while achieving desired results, often leads to
less than desirable results. The entrepreneurial characteristics that
seem to always lead to problems include the following:

Entrepreneurs want to move too fast. They are so anxious to move
quickly, they "push the schedule" faster than is prudent. Carpenters
have an old rule, "measure twice, cut once." A more studied,
cautious pace always produces better results.

They do not employ the discerning and tough business scrutiny and
standards required to identify the risks and determine what is best
for the project.

They get their "hope" in front of their good common sense. They
"turn a deaf ear" towards anything that directs them to refine or "re-
think" their dream. They simply turn away from the facts, not
realizing that it is these things that may later surface and cause
irreparable damage to the project. Successful projects seldomly
end up the way they were originally conceptualized.

They underestimate the amount of capital required in the beginning
when adequate funds are needed to properly study and refine the
size, scope, feasibility, and business plan of the development.

They employ only "local professionals" to help them study, form,
and direct the development, rather than the most qualified,
competent and experienced individuals.

Adequate Information is the Key





There is an old adage that reads, "Without adequate information,
one cannot make responsible decisions. But with adequate
information, one cannot help but make responsible decisions."
Most of the problems that I have encountered in the health, sport,
and fitness center development business over the years have
grown out of the fact that the developer was simply uninformed and
unknowledgeable about development methodology in general;
about the development options available in the health, sport, and
fitness center business; and how market analysis; site selection;
the impact of competitors; and other essential items are key to
what is truly achievable.

Answers to all of the difficult questions that must be asked, grow
out of a commitment to research and information gathering in great
detail, every step of the way. Information leads the project from a
point of vague and unproven ambiguity, to a point of crisp clarity,
where the major risks are identified and can be managed, and
everyone involved in the project understands the realities and is
comfortable with moving forward with the project.

To be open to new ideas and opinions, to virtually "seek them out"
to test your assumptions and have your own views challenged, is
the key to innovation and the first step in finding the right answer.
Over twenty-five years ago, when I first started working in the health
/ fitness / sport / spa development business, I noticed the same
design flaws in steam rooms throughout the world. I began a
thorough and detailed investigation to document the problems and
determine the causes. This included on-site dismantling of some
steam rooms, interviews with manufacturers, maintenance
personnel and consumer users, and this led to not only where the
problems were coming from, but many innovations to get rid of
these problems. Over the years, we have continued to monitor
these new solutions, and have made further refinements to make
them perform even better. This would not have been possible
without a commitment to research and information gathering, as
this allowed us to "get to the heart of the matter," and make the
best informed decisions.


The Development Process
When managing risk at the very
foundation of the entire process,
the overall methodology we
recommend is broken into four
distinct phases:


Phase #1: The Discovery Period

Information gathering and analysis to develop a clear statement of
the project potential.

Reduce your "wish list" to a written Program Statement. Begin by
writing a clear, detailed narrative statement of your "wish list" for
the project. Included should be program component sizes and
adjacencies; the anticipated location of the project; the location of
similar or comparable projects; how you anticipate financing the
project; and why you think the project should be financially
successful. This is the absolute first starting point for the
development, and it is this concept statement that the information
gathering and analysis process will either justify, recommend
refinements to, or point away from.

Determine the True Feasibility of the Project. Identify, interview,
and thoroughly check the references on qualified development
consultants that have been involved in the fitness, spa, athletic club,
and leisure / recreational industry for a number of years, with
specific experience in the kind of project you are intending to
develop. Choosing this kind of consultant, and relying on this
individual’s experience and direction will "fill the gaps" of your
learning curve, and provide a more sophisticated overview of the
information being accessed for better overall decision making.
This consultant should be able to provide the following:

A translation of your "wish list" into a development program,
outlining the square footage / square meters of floor area needed
within the building envelope, and the amount of land required for
parking and landscaping, and any other required outdoor
amenities.

A Site Selection Analysis of any site options available or under
study, determining the best site and why it is best, and how and
why to get control of the site before further study funds are risked
on the project. "Site specific" feasibility studies are a solid
requirement for soliciting serious consideration by financial people.

A Competitive Analysis of the various competitors in the market;
showing which ones are more competitive than others; how these
competitors will influence the size and scope of your project, and
how your business is expected to perform in comparison to each of
these competitors.

A sophisticated Market Analysis of the trade area surrounding the
project site, showing a profile of the consumers expected to use
the project, the location and number of these consumers expected
to access the project, and all assumptions regarding the types,
volume and absorption of every type of revenue expected to be
captured in support of the project.

A breakdown of the anticipated project costs, including land, site
development costs, professional and other fees, construction
costs, furniture, fixtures, equipment, financing fees, and pre-
opening expenses. These projected costs must be real, and based
upon thorough research, comparables, and a first phase of "pricing
drawings and specifications."

An expense analysis of the fixed costs and operational expenses
anticipated over the first five years of the project, showing detailed
written assumptions on each line item of staffing, maintenance and
replacement, utilities, sales and marketing, etc., etc.

Finally, a "financial modeling of revenue, cost and expense," to
achieve a warranted investment number for the project. This
modeling effort usually adjusts the size of the scope of the original
"wish list" for the project, by providing true financial justifications.
As a minimum, this financial profile should show all the above
revenues, costs, and expenses for the project, over a five-year
period, plus financing assumptions, depreciation, balance sheet
and income statement, and an investment return breakdown
showing the investors break-even point, and when the equity will be
fully returned.

The Impact of a Good Presentation. Once the Feasibility Study and
general Business Plan of the project have been completed, and the
site chosen for the development is under control through an option,
a determination must be made regarding how much to invest in the
presentation of the project to investors, lenders, governing
municipal agencies, or any other entity that may influence your
ability to get the project done. Renderings, models, slide shows,
and other "presentation methods" may be needed. One of the
biggest mistakes made by developers, is that they under-budget
for this expense, and they under-estimate the value and impact that
a quality presentation will have on investors, lenders, and governing
officials.

Phase #2: The Financing Period

As in the preceding phase, the process of gathering information
regarding lenders to determine which ones may have previously
financed similar projects, and what their overall requirements will
be for a commitment, should begin as soon as your project plan
begins to take shape. A few things to keep in mind as you
approach this task include:

Understand What Lenders and Investors are Looking For. Lenders
and investors are not in business to risk their money; they instead
want an iron-clad guarantee that they will get their money back…
with interest! The more real your project is, i.e., the more believable
it is, the better will be your chances of getting funds needed to
make your project a reality.


The Major Things that Lenders and Investors are Concerned
About:

Are the projected revenues realistic? Being able to provide
balance sheets or actual proformas from similar or comparable
projects, or showing published articles on similar projects from
reliable sources that show the financial performance of such
projects, is extremely helpful.

Have the costs been developed by reliable sources utilizing realist
labor and material estimate? A letter from such a construction
entity, on their letterhead, substantiating the reality of such
projected costs is also helpful.

Has an experienced manager or management company given
input on the revenue and expense projections? Having the resume
of an experienced manager that is expected to manage the facility,
or a letter from a management company specializing in this type of
facility, acknowledging their involvement in and concurrence with
the revenue and expense projections for the project will be heavily
weighed by those carrying the financial risk.

Does the project building fit a singular use, and if the project fails,
can the building be easily converted to another use in demand, in
the same land development zoning? Presenting a "convertibility
plan," with the financial implications of this "back door" for the
lender or investor, may very well provide them "that extra needed
level of comfort," sufficient to get you a commitment on the project.

Don’t Provide Personal Guarantees for the Financed Portion of the
Capital Required. If your Business Plan is sound, and your
presentation strong, you should not have to take on this extra risk.
The debt-to-equity ratios most often seen in the financing of
projects in the fitness industry are 60% dept and 40% equity, or
75% dept and 25% equity. The more unprofessional your project
presentation is, aesthetically and financially, the more those at
financial risk will insist upon a larger investment risk for you. It is
always better to put your investment in the front end of the project,
and do a superlative job of analyzing and presenting the project, as
this will usually bring about a higher level of excitement and interest
in the project.


Phase #3. The Development Period

Having accomplished the project’s first major step in successfully
securing the project’s financing, the project can now be
implemented. The important steps in this phase include the
following:

Acquire and Prepare the Property. Finalize the purchase of lease
of the property, and complete the necessary civil and geotechnical
investigations required for proper development of the site.

Finalize your Design Team. Finalize your agreements with the
Architect, engineers, and special consultants chosen for the
project. Make absolutely sure that the professionals chosen have
adequate experience with projects like the one under development.
Check all references thoroughly. Visit their referenced projects.
Talk to project owners. Make sure you are completely comfortable
with the teams’ "chemistry" and potential ability to work together.
Your chosen Development Consultant should be able to assist you
in developing service contracts for these professionals that will
produce more accountability. Developing proper controls on
everyone involved in implementing the development of the project,
will keep you in control. The more control you have, and the more
accountability you insist upon from the professionals you are
involved with, the better will be the outcome.

Select the Contractor and Build the Project. As an American
development consultant and designer who has worked throughout
the United States, I have learned that you can not take a successful
concept in one region of the country, and expect it to perform
exactly the same in another region without making appropriate
adjustments based upon geographical, historical, and cultural
influences. Likewise, internationally, you cannot not just "drop in an
American product... and round off the edges!"

Different regions and different countries require different
approaches. In most countries, unlike the United States, the review
and approval process by governing authorities and general
approach by owners follows a Design / Build orientation and is far
more interactive and subjective, happening at different intervals
during the progress of the project. In the U.S., the process is more
objective, as drawings must comply with a clearly defined set of
building standards.

Having been involved in international design and construction for
many years has indeed challenged my methodologies and
preconceptions about how to approach a project. Not being able to
rely too heavily on "the crutch" of American materials, I have been
forced into numerous innovations to "keep a project’s required
technical and pure design qualities intact," while utilizing available
sources at hand.

The technological differentiation is not great between countries, but
the level of applied craftsmanship can be, and this is where I see
the biggest problems in the international approach toward the
design / build process. In general, after the architect completes his
design of the project, a construction manager or quantity surveyor,
who work for the Owner, receives and evaluates the bids of all
subcontractors, selects the subs and negotiates the contracts and
the extras, and seeks the best value for the price. The process
provides the Owner with an opinion independent from the Architect,
and the Owner makes the final decision. There is often little
discussion with the Architect without understanding the short- or
long-term effects of such decisions. This is tantamount to "throwing
out the baby with the bath water."

Health, fitness, and sport facilities are without question, hard-use
facilities that require "high performance" specifications for
systems, finishes, and general materials, and they therefore, cost
more to build. The best facilities in the world have been designed
by the most talented and experienced designers in the world;
developed by Owners who would not compromise on quality; and
constructed by experienced builders with quality control procedures
adequately in place to make all of the trades accountable for time,
quality, and money.

Quality always costs more money. But, the difference in cost can
be amortized over the long-term financing period of the project. The
financial weight of this is minimal on an everyday operating basis,
but the operational impact of this extra quality positively affects the
project’s financial performance.


Phase #4: The Operational Period

Having operational expertise involved with the project from the very
beginning is essential. "Having been there before," an
operationally knowledgeable individual can educate the entire
team on the requirements in various areas, and this will produce a
more effective overall center.

During the early development phase, an operational manager can
work with the development consultant and the architect to more
effectively size, arrange, and detail the spaces. During the second
half of the Construction Period, the manager can masterplan and
implement the pre-opening sales and marketing program, hiring
additional employees to help make this happen.

At the conclusion of construction, a "soft-opening" with a full
complement of employees aboard, will allow for the fine-tuning of
operations, and the marking of critical adjustments prior to the
Grand Opening.

The Grand Opening ushers in the full operational period, and the
project is "off and running!" The preventative maintenance program
monitoring begins, as does the monitoring of consumer opinions
regarding program delivery, and this drives the operational
adjustment required to keep the Business Plan on track.

Winning facilities don’t just happen! They are carefully planned by
experienced professionals, and cautiously implemented by
following proven methodologies that manage time, risk, money,
and quality. Good luck!
For more information about
Donald DeMars International, Inc.,
email us at
donald@donalddemars.com
All contents contained herein,
Copyright ©2003 by Donald DeMars International, Inc.