When New York’s largest residential developer, the Related Companies, announced in December that it was offering about $505 million to buy Equinox Holdings, some industry analysts wondered why Related wanted such a seemingly small, dissimilar business. With 14 luxury rental and six condominium buildings in prime New York neighborhoods and many mixed-use buildings – most famously the $2 billion Time Warner Center at Columbus Circle – Related has become one of the most formidable players in real estate. It develops and manages property all over the country, including Chicago, San Francisco, Los Angeles, and Miami, with a real estate portfolio worth more than $15 billion.

Yet the deal, which could close within days, seems to make sense. As the president of Related, Jeff Blau, pointed out, Related’s national map overlays Equinox’s map of 32 gyms almost identically, with both companies targeting upscale urban and suburban markets.The upscale residential market increasingly demands amenities such as gyms that require expertise to run successfully.Until now,Related has made do with workout areas equipped with some machines and stocked with a few weights. The potential of the relationship became clear in January 2004, when Equinox opened its new 40,000-square-foot flagship gym at Columbus Circle, where Related is its landlord. In May 2005 the chief executive of Related, Stephen Ross, joined the Equinox board of directors and said he “liked our business model,” the chief operating officer of Equinox, Scott Rosen, said. “He saw immediately that real estate is one of the real cores of our business.”

Over the years Equinox has acquired properties in key locations. From the opening of its first gym in 1991, located at 76th Street and Amsterdam Avenue on Manhattan’s West Side, to that of its 14th New York City location, scheduled to open in SoHo this spring, Equinox has tracked New York’s up-and-coming residential neighborhoods like William Waldorf Astor. Mr. Rosen said, “We’re in the best ZIP codes, serving the top demographics.You’d have to say that the company’s founders, the Erricos, had real estate foresight.”The Erricos did so well that they sold their company of 11 gyms in December 2000 for more than $100 million, or roughly $9 million a club. (Related will be paying roughly $15 million a club.)

Indeed, anyone who followed the two brothers, Danny and Vito, and sister, Lavinia, who founded Equinox in 1990, and simply invested in neighborhoods where they opened their gyms, would have made a real estate fortune. The second gym opened in 1993 at Broadway below 19th Street, then an area of wholesale antique stores and commercial businesses, a far cry from today’s neighborhood of renovated residences, new restaurants, and chic stores.

When the Erricos announced that the third gym would be back on the Upper West Side, at 92nd Street and Broadway, a patron warned Danny Errico that he would be cannibalizing his business.You can’t cannibalize this business,Mr. Errico replied, because New Yorkers don’t want to go more than 10 blocks to a gym. He added that he could open a gym every 10 blocks up and down the West and East Sides without eating into business at his existing gyms. Mr. Rosen, the gym’s COO, laughed at Mr. Errico’s bravado and pulled out a stack of charts that graphs the home address of every single member by gym location. The concentric circles show that the majority of the dots cluster within a few blocks of each gym, with a few outlying dots scattered between locations. “This is a convenience-based business, not a destination one,” Mr. Rosen said. When he let it be known last year that Equinox was scouting a site in Brooklyn Heights, he got a call from a developer close to the Brooklyn Bridge who understood Equinox’s strategy. He argued for a DUMBObased site, pointing out that it was one subway stop away and therefore in a different neighborhood.

In a way, though, the success of Equinox is based on the fact that it’s both convenient and a destination. Equinox pioneered the widespread use of superstar fitness instructors, a concept the Erricos learned at the celebrated Jeff Martin studio on 76th Street – the same block on which they opened their competing gym. Jeff Martin had two window-lined studios up a steep and very narrow stairway, as the “Chorus Line” song goes. Because of the instructors, the studio was a destination, and fitness gurus – including the Erricos – came from all over to learn from it. But 90% of Mr. Martin’s customers were women, even as the gym on the other side of the building attracted only men. The Erricos concluded they could get both genders in one place – and make far more money – if they gave the women star instructors and the men weight-lifting machines and other features such as a climbing wall. They further distinguished themselves by going more upscale than any gym in Manhattan – with sleek facilities, kept clean, and plenty of showers stocked with fresh large towels, shampoo, and lotion.

About three-fourths of the 50,000-plus New York members pay a premium of several hundred dollars on their roughly $2,000 annual membership for an all-access membership that lets them go to any gym in the country. Most use it locally to follow around the star instructors – Patricia Moreno, James Ervin, Calvin Wiley – who teach at different locations in Manhattan. “We looked at retention rates, who’s staying and why, and realized how important teachers are,” the National Director of Group Fitness, Carol Espel, said. “We want people to use our gym.” Equinox does not embrace the old gym model of selling memberships to customers who never show up. It adheres to something closer to the hot restaurant model, with lots of good-looking people packed into visible areas, like the dance studios and juice bars.

Yet while Equinox’s active member count rose 14% last year, its retention rate was only 66%. And even though this is double the industry average of 33%, it still means that 34% of members are walking out the door. Some object to the crowded classes, others to the crowded workout sections in the most popular clubs. But absconding members often return. The other New York chains – Crunch, New York Sports Club, New York Health & Racquet – charge less than Equinox does while maintaining lower standards.

A young arts professional, Sarah Stern, an Equinox member since 1997, is switching to New York Sports Club. She said, “It’s definitely not as clean, but they do have some of the amenities like shampoo and hair dryers, just not as good. But the big thing is that I feel I’ve been crowded out of the great classes at Equinox, like dance and IntenSati, which are meant to give a sense of release, to let your body move in ways it can’t during the day. Instead you have 6 inches of space and feel completely constricted.”

Mainly, the upscale competition comes from Reebok Sports Club/NY, a subsidiary of the Sports Club/LA, which has a gym on Columbus Avenue and 67th Street. Mr. Rosen called it an urban country club, and its atmosphere is decidedly more relaxed and spacious.

Meanwhile, a few blocks north, the original 76th Street Equinox gym is being prepared for closure and demolition within the year. In its first joint enterprise with Equinox, Related will develop a condominium tower complete with a 40,000-square-foot gym, which will become the new flagship – the “rebirth of our first location,” Mr. Rosen said.