John Simone remembers the first deal he made with his father. It was during the 1970s recession, and his commercial real estate firm represented a supermarket building in Hamilton. He went to his father and uncle, first generation Italian Americans, to say, “I can sell this building, but I think we ought to buy it.” The three of them bought, redeveloped, and remodeled the 2130 South Broad Street building that now houses Strauss Discount Auto.
John Simone’s son, in turn, remembers his first deal ever. He hadn’t joined his father right after college but instead worked elsewhere to get some seasoning. An early mentor, Jerry Fennelly of NAI Fennelly, gave him a draw against commissions and put him out on the street, literally, knocking on doors to find clients. His first client, a psychologist, signed a lease for 800 square feet, which yielded his first commission, about $2,000.
Father and son have been working together for nearly five years now. Simone Realty consists of the president, 65-year-old John Simone Jr. (he had changed his professional name from Mastrosimone), 33-year-old CFO John Mastrosimone III, and two non-family brokers, Greg Gross and Rob Loverro. Gross and Loverro handle third party brokerage and Simone and Mastrosimone focus exclusively on medical office buildings — developing, building, leasing, and site consulting in that niche.
Simone’s highest profile project involved helping Capital Health Systems, where he sits on the foundation board, to move from Trenton to Hopewell, first proposing a move to Princess Road in Lawrenceville, and then switching it to Merrill Lynch’s property, where the new campus is scheduled to open in 2011.
Simone Realty had two new medical properties (Capital Commons at 4056 Quakerbridge Road with 20,500 square feet, built from the ground up, and 4065 Quakerbridge Road with 12,000 feet in a rehabbed building) when they broke ground in November on a third medical building, this one on Federal City Road, called Lawrence Campus West. Located just 2.5 miles from the new Capital Health campus, it has two buildings now and one is under construction, for a total of 31,000 square feet. They are doing it “on spec,” meaning that no one has signed a lease, though at one point they had had a serious prospect.
The Simones started on this project five years ago, and to finish it this year may seem like bad timing for a spec building. A real estate survey that Fennelly conducts showed lots of activity several years ago, but more recently the medical absorption rates have dropped. “Privacy and ADA regulations required some practices to either retrofit the space or move,” says Fennelly of the reason for that burst of activity. “If you had been in practice for 20 years, you had to move.” He believes the current demand has been satisfied.
Still, the timing may be better than it looks for a medical market that is worth $173 billion nationally. Like bonds, as compared to high tech stocks, medical offices are less volatile than many other types of commercial space. Once in place, doctors don’t usually like to move, and they have steady incomes. Prices in the medical market are dropping less than prices in the retail and corporate markets. And with two area hospitals in transition this is a time of upheaval. In addition to the Capital Health System move, Princeton Hospital is in the early stages of going from downtown Princeton to Route 1 in Plainsboro.
National organizations have healthcare divisions, but the medical niche is not crowded. Still, the Princeton area shows some activity. Linden-based Gordon Construction just received its permit for a 30,000 square-foot building on Bunn Drive, and Larken Associates has some healthcare offices on Princess Road. Cranbury-based Sweetwater Construction has been general contractor 11 surgical centers in New Jersey and three animal hospitals.
Each of the new hospital campuses, of course, will include a medical arts building. Capital Health plans for a 320,000 square feet medical office building on its new campus. Princeton hospital says it is “in serious negotiation with a developer” for a 120,000 square foot MOB on its new campus, plus it has approvals for an additional 120,000 feet. It also built 88 Princeton Hightstown Road, where five medical practices and a dialysis clinic are leasing space. Van Nest Corporate Plaza has some healthcare tenants on Quakerbridge Road, near where Capital Health established its Hamilton facility. “But in our market, very few are developing spec medical buildings,” says Mastrosimone.
Capital Health System’s plans call for a large medical office building, the exact size of which has not yet been announced. Princeton is in serious negotiation with a developer for a 120,000 square foot medical office building on its new campus, and it has approvals for an additional 120,000 feet. “But in our market, very few are developing spec medical buildings,” says Mastrosimone.
The reason why so few brokers or developers focus only on doctors may be because they are notoriously difficult to work with. “But we had done medical development before, and very successfully,” says Simone, the father. “You can’t do everything, and we were at the right place and the right time when John came aboard.”
“You have to provide a different level of service to physicians — working Saturdays or at night,” says Mastrosimone, the son. “I came to enjoy learning how their business works, what drives them to make money. Healthcare practices are consolidating, getting larger, and doing whatever it takes to battle lower reimbursements and rising costs of overhead, and every physician is drastically different. I like spending the time to work it out, it’s like a puzzle. I retained a lot of those relationships. And those were the types of buildings that we started acquiring.”
In this tight credit market Simone and Mastrosimone turned for a construction loan to the Credit Union of New Jersey, a small organization without balance sheet problems. It was only the second commercial loan the credit union had made. In the past the developers had worked with Yardville National Bank (which they confide is less accessible now that it has been acquired by PNC), and they still have relationships with Hopewell Valley Community Bank and Sun National Bank.
“Believe it or not, we find most of our banking relationships at meetings of the Mercer or Princeton chambers,” says Mastrosimone. As a small development company, they can’t do everything. Their medical buildings do not showcase green technologies, and their excuse is that eco-friendly systems cost too much on a small scale. Each practice, for example, needs its own HVAC system.
The father/son team’s specialty rests on the premise that they think they know how to please docs in Mercer County, which offers little up-to-date space for doctors. The recipe: Provide new or redeveloped one-story buildings (patients don’t need to negotiate elevators), separate HVAC systems and entrances (no paying for shared space), and provide 24-hour access, high ceilings and natural light, earth tones, and lots of parking. Sign up an internal medicine practice, call it an anchor tenant, learn about its business, and help it create an onsite referral practice. Oh yes, and also offer an equity interest. With insurance reimbursements dwindling, some doctors are eager to own their space.
Their latest venture, in fact, is the formation of a new company, in addition to the construction and property management arms of Simone Realty. Tentatively called Lily Street, after Mastrosimone’s daughter, it will partner, often with physicians, on developing healthcare properties and also provide support services. Doctor-developed offices can increase the value of the practice, provide an alternative source of income, and offer long term investment value, says Mastrosimone. “The platform of services will be very specific to healthcare, whereas Simone Realty has a more varied portfolio.”
The father and son meet for an interview in their handsome conference room in one of two existing buildings at 100 Federal City Road, decorated to look like an old-fashioned dining room, with a buffet and a matching carved mahogany table. Family portraits — including an enlarged snapshot of Simone’s father — line the walls of his office, and in the adjacent hall are a row of framed photos of the properties they own.
Mastrosimone has two sisters who are not in the business, and he says he is not sure he would have gone into real estate if he had known what the first five years would be like. “Nobody pays a salary, and not many want to mentor you. Plus, my friends were getting signing bonuses at consulting firms, and I was going into debt every month.”
After going to the Hun School, he majored in accounting at St. Joseph’s University in Philadelphia, Class of 1999. He landed at Fennelly, where he learned “how to be disciplined in finding business. Jerry was not a guy to hand over business without you working for it, and I was out there knocking on doors. I started to get really hungry and aggressive. It gave me confidence when, finally, I was self-sustaining. I’m glad he didn’t make it easy for me. If he had, I would never have developed the medical niche.”
His next mentors were Joe and Alec Taylor of Matrix Development, who created a position for him. “They taught me about management in general. With 100 employees, it was like a big family. They let me be a fly on the wall in their construction department, learning how to schedule big projects, larger than I had ever worked on before, which is very useful for what I am doing today.”
While in his third job, for the Philadelphia office of Equus, doing site selections around the country, he married his Hun School sweetheart, Elaine Orphanides, and they have three children to contribute to Simone’s proud total of 8 grandchildren.
Mastrosimone found more mentors in the medical office building subcommittee of the trade group Building Owners & Managers Association (BOMA). What is his secret to acquiring mentors? Show interest and be a sponge. “Why recreate the wheel when they are successful? These guys who take me under their wing have their own kids — they don’t need to spend time with me. I try to help them in some way, introduce them to people they need to be introduced to.”
Mastrosimone also had the obvious advantage of seeing a future on the family farm. “That’s what was driving me,” he says. “The responsibility to take over was not a burden, but something I wholeheartedly signed on to. It was made clear to me that if I didn’t have the skills to take over, it wouldn’t happen.”
Simone was very insistent on his son having the right skill set because of his own painful experience. When he dropped out of college at age 19 to help in the business, his own father pretty much vacated the office, preferring to be up on the scaffold with the hammer. He left his wet-behind-the-ears third son to be at the mercy of the accountants and the lawyers. He learned by trial and error.
Simone grew up in the traditional Italian family and has an extended family of several hundred people who use different variations of the name. (The original name of Mastrosimone had been changed to Seamon on Ellis Island.) His two older brothers are allergists (one locally), and he has a sister who works in the Community Blood Council of NJ. His cousin Charles is also a doctor.
Simone remembers that his youngest brother, William, preferred arranging miniature soldier figures on a table to playing cowboys in the woods. He left pre-med at Tulane to pursue drama at Rutgers’ Mason Gross School, and the rest, as they say, is history. Now William Mastrosimone, author of “Extremities,” “The Stone Carver,” and other dramas, is famous as New Jersey’s indigenous playwright.
His energetic father worked on railroad crews in the 1930s. Seeing an opportunity (rural areas had no eateries), he and his wife fitted out a station wagon with a big wooden box. Every morning they made and wrapped sandwiches, then followed the crews to sell them. When he moved indoors to a rubber plant in Trenton, he set up a lunch counter on a board underneath a stairwell. That business blocked foot traffic, so the factory built him his own cafeteria.
During World War II he was drafted three times and three times was excused. That’s because he was running a 24-hour cafeteria at the aircraft factory on East State Street Extension, providing food for three shifts of 400 workers per shift, and the plant manager successfully testified before the draft board that he needed this Italian dynamo to keep his workers fed.
After the war Simone’s father opened an appliance store and began to buy real estate, starting with a landfill at what is now Brunswick Circle and soon owning all the land from Princeton Avenue to Route 1. Simone was four years old when the family moved into a second floor apartment over an office and retail building. He was 14 when his father built a bowling alley, complete with a big bar, liquor store, billiard hall, barbershop, and laundromat.
Simone had high energy like his father. After graduating from Trenton High in 1963, he left Trenton Junior College after one year and was put in charge of managing the bowling alley and the other real estate holdings, including a Parkway Avenue liquor store and Franklin Tavern, still standing on Franklin Corner Road. “He left me in the lurch,” says Simone now, remembering how it felt to be forced to learn on the job. His memories echo that of his son’s experience with Fennelly: “He left me hanging when it came to dealing with the details, but it led to my establishing my own contacts.”
“My frustration was that, as we grew the core business, the state took it from us,” says Simone. In 1970 the bowling alley was condemned to make way for Brunswick Circle, but it was the take in the bowling alley that provided money for the purchase of a 12,200-square-foot supermarket building in Hamilton. Simone used the bowling alley’s inventory of silver cups and plaques to open Creative Arts Trophies in Trenton.
In 1974 he entered the commercial real estate business and in 1976 he and Joe Martin opened Martin and Simone Realty. In 1978, the year he founded his own firm, he and his father bought a prize for a bargain price, the land on which Joe’s Crab Shack now sits on Route 1 south. Another prize development was on Alexander Road, but it was later condemned for the Alexander Road overpass.
Various family partnerships now own 17 properties (four retail, including the Crab Shack), 10 office buildings, the three medical buildings, and four townhouses in Bradley Beach. Their next projects will be a new 35,000 foot medical building at a location they won’t disclose, another medical building in Bucks County, and the development of 25 acres in East Amwell on a lot that Simone’s father bought in 1975. There are no concrete plans for the East Amwell property yet.
With family partnerships might come jealousies, but, Mastrosimone says, “We handle those pretty well.” The close family has a September ritual — wine making, which Simone learned from his father and grandfather and is passing it on to his grandchildren.
Simone was his son’s best man, and the two have been working together for 4 1/2 years, but they bring a lifetime of experience to the relationship. Mastrosimone admits to having been hard headed at times. “Just like any kid, I thought I knew it all,” he says. He admits he had to learn to keep his composure in front of a planning or zoning board, not showing anger or disappointment. “I have to tell myself not to get mad at these people, but try to understand what they want. Sometimes I probably haven’t done it as well as I could have.”
What helps? “We have a pretty good team of people,” says Mastrosimone. “We can talk frankly to each other. We talk at length about relationships, how we treat our tenants, and how we build our business.”
“And my father is a master of rapport,” says Mastrosimone. “It seems like he had a natural gift for it, which I didn’t think I had at the time. But spending more and more time with him, I either learned it, or he gifted me with some.”
Everyone in the family is entrepreneurial, everyone is a risk taker, says Mastrosimone. “I am aggressive like a bull. My father is at a different point in his life; he is a little more aware of risk. He is very good on instinct. He likes to do a gut check and move forward with his own analysis. But I am very detail oriented. I flip over every stone.”
One trait that the two men share, a love for real estate, is inherited. “My father liked real estate, especially rental properties,” says Simone. “He never understood the stock market and thought it was tantamount to gambling.”
Simone does not share that view of Wall Street, but recently he experienced some lucky timing. He needed seed money for a development project last September, so he called his broker and emptied his stock portfolio, just in time to cash out before the recession. If “location, location, and location” is the first slogan for real estate, timing is nearly as important.
Simone Realty Inc., 100 Federal City Road, Suite C 101, Lawrenceville 08648; 609-882-1105; fax, 609-530-1037. John Simone Jr., president. Home page: www.simonerealty.com.