Health systems can free up significant capital by conducting a structured portfolio assessment that identifies underutilized, redundant, or misaligned real estate assets and then executing targeted strategies such as sale-leaseback transactions, lease renegotiations, or asset dispositions to convert those holdings into working capital.
Why It Matters
Real estate is typically the second-largest expense on a health system’s balance sheet, often representing 20 to 30 percent of total operating costs. Yet many organizations carry facilities that are underperforming clinically, outdated operationally, or no longer aligned with where patient volume is actually growing. That misalignment quietly erodes margin every quarter.
The pressure to optimize has intensified. With operating margins across U.S. health systems averaging between 1 and 3 percent in recent years — according to Kaufman Hall’s 2023 National Hospital Flash Report — capital efficiency is no longer a back-office concern. It sits directly on the CEO and CFO agenda. Real estate that doesn’t earn its place in the portfolio is a liability, not an asset.
How It Works
Portfolio optimization begins with a full inventory of owned and leased properties, typically ranging from 50,000 to 5 million square feet depending on system size. Each asset is evaluated across three dimensions: clinical utilization (how heavily the space is used for care delivery), financial performance (cost per square foot relative to revenue generated), and strategic alignment (whether the location supports future growth plans). This assessment phase generally takes 60 to 120 days for a mid-sized regional system.
Once underperforming assets are identified, the most common capital-release mechanism is a sale-leaseback transaction. In a sale-leaseback, the health system sells an owned facility — often a medical office building or administrative campus — to a real estate investor and simultaneously signs a long-term lease to continue occupying the space. This structure can generate $10 million to $100 million or more in one-time proceeds, depending on asset size and market conditions, while preserving operational continuity. Other tools include lease terminations on excess ambulatory space, strategic consolidation of administrative functions, and disposition of non-core parcels or surplus land. As outlined in our healthcare real estate services, each strategy is calibrated to the system’s clinical roadmap, not executed in isolation.
Key Considerations
Not every asset is a candidate for disposition or leaseback. Facilities tied to Certificate of Need (CON) requirements — state-level approvals required to add or reduce healthcare services in certain markets — may carry operational restrictions that complicate a sale. Similarly, buildings that house outpatient surgery centers, imaging suites, or emergency departments often have Authority Having Jurisdiction (AHJ) compliance requirements that affect how a transaction can be structured and at what cost.
Market timing matters as well. Cap rates — the ratio of net operating income to property value, used by investors to price real estate — on medical office buildings have fluctuated between 5 and 7 percent in recent years. In a market like Indianapolis, IN, where healthcare real estate investment activity has remained consistent, health systems that move with a clear strategy tend to capture better pricing than those reacting to financial pressure. Engaging an experienced healthcare real estate advisor 12 to 18 months before a planned transaction gives the system meaningful leverage in negotiations. You can explore what that engagement looks like through Bremner’s advisory approach to portfolio strategy.
Actionable Takeaway
The most practical first step is to build a single, consolidated real estate inventory — owned and leased — that maps every facility to current utilization data and lease expiration dates. Health systems that lack this baseline view often unknowingly renew leases on space that is 40 to 60 percent vacant or carry ownership costs on buildings generating minimal clinical throughput. That inventory, once built, becomes the foundation for every capital strategy decision that follows.
If your organization has not formally reviewed its real estate portfolio in the last three to five years, the analysis itself is overdue. A structured assessment rarely takes more than 90 days and frequently surfaces $5 million to $50 million in actionable capital opportunities that were not visible before. To start that conversation, reach out through our healthcare real estate consultation request. Bremner Real Estate partners with health systems to align real estate strategy with clinical performance and capital efficiency.
What is a sale-leaseback transaction in healthcare real estate?
A sale-leaseback is a financial transaction in which a health system sells an owned facility to a real estate investor and simultaneously enters into a long-term lease agreement to continue using the space for operations. This structure allows the organization to convert a fixed asset into liquid capital without disrupting patient care or administrative functions. Proceeds are typically used to fund capital projects, reduce debt, or invest in clinical technology. Transaction timelines generally range from 90 to 180 days from initial engagement to closing.
How do health systems identify which real estate assets to divest or optimize?
The process begins with a structured portfolio assessment that maps every owned and leased property against three factors: clinical utilization rates, cost per square foot relative to revenue contribution, and strategic alignment with the system’s long-term growth plan. Assets that score poorly across two or more dimensions are typically prioritized for further review. A qualified healthcare real estate advisor will cross-reference this analysis with local market conditions, lease expiration timelines, and any regulatory restrictions before recommending a disposition or restructuring strategy.
What is a cap rate and why does it matter for health systems selling real estate?
A capitalization rate, or cap rate, is the ratio of a property’s net operating income to its current market value and is the primary metric real estate investors use to price commercial assets, including medical office buildings. A lower cap rate indicates higher property value relative to income; a higher cap rate reflects lower pricing. For health systems, understanding cap rate trends in their local market — such as the Indianapolis, IN region — helps leadership evaluate whether current conditions favor a sale and what proceeds a transaction is likely to generate.
How long does a healthcare real estate portfolio optimization process typically take?
The timeline varies depending on portfolio size and transaction complexity, but a typical engagement moves through three phases. The assessment and inventory phase takes 60 to 120 days. Strategy development and advisor alignment generally requires an additional 30 to 60 days. Execution of individual transactions — whether a sale-leaseback, lease renegotiation, or asset disposition — can take 90 to 180 days per asset. Health systems that begin planning 12 to 18 months ahead of a capital need consistently achieve better outcomes than those operating under financial urgency.
What regulatory factors can affect healthcare real estate transactions?
Several regulatory frameworks can affect how a healthcare real estate transaction is structured. Certificate of Need laws, which exist in roughly 35 states, may govern whether a facility can change ownership or reduce service capacity. Authority Having Jurisdiction requirements dictate life-safety, zoning, and building code compliance that affects renovation costs post-transaction. Stark Law and Anti-Kickback Statute provisions under federal healthcare law also apply when real estate arrangements involve physician relationships, requiring that lease terms reflect fair market value. Engaging legal counsel and an experienced healthcare real estate advisor before structuring any transaction is essential.
