John Gallucci Jr., pictured at JAG Physical Therapy’s Cedar Knolls location, has overseen the growth of the practice from a single location in West Orange in 2005 to a footprint that includes more than 15 in the region and 13 in New Jersey. — Courtesy: JAG Physical Therapy
By Joshua Burd
Among the many changes in health care over the past decade, there is no denying the push for providers to be more convenient and closer to the populations they serve.
That has played right into the model of JAG Physical Therapy during what has been a major expansion in recent years from its first office in West Orange to now more than 15 in the region.
“Health care should be done in the communities,” said John Gallucci Jr., the company’s CEO and president. “So what JAG has been able to do in our growth pattern is to truly bring us to the people, so it makes it easier and more accessible, it makes it efficient and it gives the patient the ability to get care — whether it be on the way to work, on the way home from work, during their day. Whatever it may be, it gives people accessibility to our brand.”
The practice is a case study and a success story in how the health care industry is creating new commercial real estate requirements, in a time when medical, service-oriented and experiential businesses are increasingly critical to landlords. JAG leases nearly 50,000 square feet of office and retail space across 13 locations in New Jersey alone, with a pipeline that’s slated to include an additional seven practices within the next two years.
Founded in 2005, the company’s footprint stretches from Bergen and Passaic counties to the Jersey Shore, including its newest locations in Wayne and Brick. Gallucci launched his practice after 20 years in the training and sports medicine field, working for organizations such as the New York Red Bulls, Columbia University and Barnabas Health.
Gallucci said he founded JAG in part to reverse what had become an impersonal, corporate-minded approach to physical therapy and outpatient services over the prior two decades. A more hands-on approach was needed, he said, one that focused on helping patients meet their goals of returning to work or resuming a healthier day-to-day lifestyle.
That focus on outcomes and on having patients continue their program with the same therapist has helped JAG grow over the past 12 years, he said. And it’s growing at a time when health care reform has pushed insurers and providers to approach medicine in a similar way.
“Now everyone catching up,” Gallucci said. “Ultimately, physical therapy has definitively swung back, in that it is a true health care profession of treating patients and it’s not something that can be siloed.”
As for when the company began to consider expansion, he said “we needed to get it right” when it came to culture and the business plan before considering other locations. That was JAG’s focus as Gallucci built his team over the first two years of the practice. He began to look at the idea of adding a new location as he was entering the third year of the business. He did so in Warren using a formula that has guided his other expansions: grooming a clinical director internally who can carry over the company’s philosophies and strategies.
JAG’s expansion would go on to take it into Hackensack — in order to be close to Gallucci’s associations in Manhattan — and then Union and additional sites in Essex County. The practice has continued to grow ever since, including sites in Old Bridge, Holmdel and Princeton, plus offices in Westchester County, New York, that resulted from a merger last fall with Sleepy Hollow Physical Therapy.
The average size of a JAG location typically starts with around 3,000 square feet of clinical space, Gallucci said. In its flagship West Orange office, which is located in a low-rise office building on Eagle Rock Avenue, the company has grown from 1,800 square feet to 9,000 square feet, including clinical and administrative space.
But its footprint spans a mix of both office suites and retail locations, he said. Both options can serve the objective of being in a convenient location, but with some caveats.
“We’ve found that being in a strip mall is as successful as who is around you,” Gallucci said. “You can’t have medical next to food, so you have to make sure that the strip mall understands that you’re a medical professional and that the space has to be deemed as a professional area.”
While tracking medical space can be an inexact science, insiders have noted growth in the market in recent years. A report by NAI James E. Hanson found that the average asking rent for medical office space in northern New Jersey was $20.13 per square foot at midyear, up $0.69 from the same point in 2016.
Vacancy has also inched downward, falling to 10.5 percent in the second quarter of this year from 15 percent in late 2014, according to the report. Gallucci said it has become a benefit that “the larger landlords are realizing … we’re not a fly-by-night (tenant). We’re coming in, we’re taking a space 10, 15 or 20 years — and every landlord wants somebody that’s going to pay their rent for 10 or 15 years.”
But he has also come to learn firsthand what has been a long-term source of angst for developers and professionals:
“Each town is trying to protect itself, but in New Jersey, every single municipality has different rules, so every time you’re going into a new area, you’ve got to learn their rules, you’ve got to make sure you substantiate their rules and give them what they need for you to operate in their area,” Gallucci said. “And ultimately, that holds back growth.”
He said JAG is staffed to add seven clinics in the next two years — including a hoped-for expansion into Hudson County — but it all depends on how the host municipalities respond. Local building departments can take anywhere from a week to 30 days to review each phase of a fit-out plan, he said, so amendments can result in extended periods.
“It’s the art of doing business now in New Jersey,” he said. “You just understand that the day you sign your lease, you hope to be open in six months.”
Gallucci added that “the landlords are getting very savvy in helping you because they understand that if you’re not in there making business, they’re not going to get rent.” The impact of federal health care reform could affect the growth plans of any medical operator. While the debate has been dominated in recent months by repealing and replacing the Affordable Care Act, Gallucci said he believes that ultimately, “what we’re going to see in the next year to 18 months is something that’s sustainable financially.
“And the American people need to have a health care plan that is a provision of service, but is also sustainable and isn’t going to bankrupt the country,” he said. As one caveat that directly impacts physical therapy, he pointed to the discussion over eliminating or changing the cap on outpatient services under Medicare.
But there’s no denying that JAG and like-minded practices have benefited from the shift toward outcome-based medicine. That has allowed it to continue to grow without reinventing the wheel, he said.
“A lot of insurance companies are becoming value-based and outcome-based, and for JAG, as health care is swinging in that direction, it can only be a positive thing,” Gallucci said. “So my landlords are going to be happy — I’m going to be here for a while.”
It seems that landlords know a worthwhile tenant when they see one, as evidenced by those that have tried to expand their relationship with JAG Physical Therapy beyond a single location.
For instance, JAG now leases space from the same owner in its Woodbridge and Old Bridge offices, CEO John Gallucci said. And he said its landlords in Belleville, Chatham and other locations have asked him to consider their properties in other towns as the practice expands.
“It has opened the door for us, where people realize we’re a good strong brand, we fit out a beautiful space, we make the lot or the building look good and you constantly have people coming in to feed your other places,” Gallucci said. “So the community has accepted what we’re doing as well and it helps the real estate.”