Healthcare executives today face an increasingly complex real estate landscape. With tight margins, shifting patient behaviors, and evolving financial constraints, the stakes for making the right real estate decisions have never been higher.
Many health systems are grappling with difficult choices: Should we own or lease? Is expansion worth the risk? Are joint ventures helping or hurting our bottom line?
These controversial realities can make or break a healthcare real estate strategy. Below, we explore six of the most pressing issues executives are thinking about—but not always talking about—and how forward-thinking health systems can navigate them strategically.
Owning vs. Leasing: The Hidden Cost Debate
Controversy: For decades, healthcare organizations have preferred ownership, believing it provides long-term control and financial stability. However, leasing can offer more flexibility, especially in a rapidly evolving market where patient migration patterns, regulatory policies, and technology advancements are constantly shifting.
Challenge: Healthcare executives must weigh financial constraints against long-term strategic flexibility. Ownership ties up capital that could otherwise be invested in clinical expansion, technology, and patient care improvements. But leasing means giving up control over future costs and property management decisions.
Solution: Instead of relying on outdated assumptions, data-driven financial modeling can help health systems evaluate the true costs of ownership versus leasing. Key factors to consider include:
- Long-term cost implications (including operating costs, depreciation, and financing structure)
- Flexibility needs (ability to expand, consolidate, or relocate based on patient demand)
- Balance sheet impact (debt burden vs. liquidity and capital allocation)
Health systems that adopt a holistic approach to real estate decisions—rather than defaulting to ownership—are better positioned for long-term success.
Ask yourself: Is your real estate strategy giving you the flexibility you need?
The Expansion Myth: ‘If We Build It, They Will Come’
Controversy: A new hospital, outpatient center, or specialty clinic does not automatically guarantee patient volume or financial sustainability. Many health systems assume that simply expanding their physical footprint will drive growth, profitability, and market share.
Challenge: Expansion is a major financial commitment, and poor site selection or inaccurate market demand analysis can result in underutilized facilities, higher operating costs, and strained resources.
Solution: To ensure expansion decisions are patient-driven—not ego-driven—health systems must conduct:
- Comprehensive market demand studies to assess patient demographics, competitor activity, and payer mix trends
- Site selection analytics that evaluate accessibility, referral patterns, and community needs
- Financial feasibility assessments that determine ROI potential based on volume projections and reimbursement rates
By relying on data rather than assumptions, health systems can make smarter expansion decisions that align with actual demand.
Ask yourself: Is your real estate investment truly driven by patient demand?
The JV Dilemma: Stop Settling for Subpar Returns
Controversy: Joint ventures (JVs) with developers can provide health systems with additional financing and development expertise. However, they often prioritize developer profits over the long-term goals of the health system, leading to misaligned priorities and underwhelming financial performance.
Challenge: Many health systems enter JV agreements expecting shared control, only to realize they have limited influence over property management, leasing terms, and financial structures. In some cases, JVs can lock health systems into unfavorable deals that prioritize the developer’s bottom line over the healthcare provider’s mission.
Solution: Instead of defaulting to a JV model, health systems should consider partnering with an acquirer who is aligned with their long-term strategic objectives. This approach allows health systems to:
- Retain decision-making power over critical real estate assets
- Maximize long-term value and ROI instead of settling for short-term developer-driven deals
- Ensure real estate strategy supports operational and financial goals rather than being dictated by external investors
Health systems that take control of their real estate strategy—rather than deferring to JV partners—are better positioned for financial sustainability and growth.
Ask yourself: Are your real estate partnerships maximizing value—or holding you back?
Aging Facilities: To Renovate or Relocate?
Controversy: Many health systems continue investing in aging infrastructure, believing renovation is the safest option. However, in some cases, relocating or building new, efficient facilities may be more cost-effective long term.
Challenge: Health systems must balance capital expenditures with operational disruptions when deciding whether to renovate or relocate. Key considerations include:
- Patient experience (Does the facility layout support modern care delivery?)
- Cost-effectiveness (Would a new facility reduce maintenance and energy costs?)
- Disruption impact (Would construction negatively affect staff and patient care?)
Solution: A cost-benefit analysis of renovation vs. relocation can help guide decision-making. Additionally, proactive project management can minimize disruption, ensuring continued operations during upgrades or transitions.
Ask yourself: What’s the real price of staying put?
Risk Reduction: Who’s Carrying the Load?
Controversy: Bonds and loans are common financing tools for healthcare real estate, but they place 100% of the financial burden on the health system, increasing risk, debt load, and financial strain—especially during periods of economic uncertainty.
Challenge: Health systems must ensure they have sufficient financial flexibility to support patient care, staffing, and technology investments, rather than being weighed down by long-term debt obligations.
Solution: Third-party capital allows health systems to:
- Remove real estate debt from the balance sheet, improving financial flexibility
- Reduce risk exposure, enabling a focus on core healthcare operations
- Preserve capital for mission-critical investments such as digital transformation and workforce development
By shifting financial risk away from the health system, third-party capital provides a more sustainable approach to funding real estate growth.
Ask yourself: Is your real estate financing strategy limiting your ability to grow?
Final Thoughts: Are You in Control of Your Real Estate Strategy?
Healthcare real estate is more than just buildings—it’s a strategic asset that impacts patient care, financial health, and long-term growth. The most successful health systems are those that challenge conventional thinking and make real estate decisions based on:
- Data-driven insights (not assumptions)
- Long-term strategic alignment (not short-term deals)
- Financial flexibility and sustainability (not rigid financing structures)
Health systems that take a proactive, strategic approach to real estate will be better equipped to navigate market challenges, reduce risk, and drive long-term success.
Is Your Real Estate Strategy Supporting Your Health System’s Future?
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