Healthcare real estate development is the strategic process of planning, financing, designing, and constructing facilities that support clinical operations — including hospitals, medical office buildings, ambulatory surgery centers, and specialty care clinics.

Why It Matters

For health systems, real estate is often the second-largest balance sheet item after labor. The physical footprint of a hospital system directly influences patient access, care delivery efficiency, and long-term capital position. Misaligned facilities — too large, too small, or in the wrong location — create drag on operating margins and limit growth capacity.

Development decisions made today carry 30- to 40-year consequences. A poorly located ambulatory surgery center (ASC) or an oversized medical office building (MOB) can consume capital that would otherwise fund clinical programs, staffing, or technology. Health system executives need to treat real estate as a strategic lever, not an administrative function.

How It Works

Healthcare real estate development typically moves through five phases: site selection and feasibility, programming and design, entitlement and regulatory approval, construction, and transition to operations. From initial concept to patient day one, a ground-up facility commonly requires 36 to 60 months, depending on project scale and local regulatory complexity. A 50,000 square foot ambulatory care center in a market like Indianapolis, IN can cost between $450 and $600 per square foot to develop, depending on site conditions, system specifications, and market labor rates.

Regulatory approval involves coordination with the Authority Having Jurisdiction (AHJ) — the local or state body responsible for building code and fire safety enforcement — as well as state health department licensure when applicable. For hospital-based facilities, Centers for Medicare and Medicaid Services (CMS) certification timelines must also be factored into the project schedule. Delays at any regulatory checkpoint can extend timelines by six to twelve months, which is why early engagement with advisors experienced in healthcare permitting is critical.

Financing structures vary significantly. Health systems may use tax-exempt bond financing, joint ventures with health-focused real estate investment trusts (REITs), or sale-leaseback arrangements to preserve capital flexibility. A Guaranteed Maximum Price (GMP) contract — a construction agreement that caps the owner’s financial exposure — is a standard risk management tool in this sector and should be negotiated before mobilization begins.

Key Considerations

Site selection is frequently underestimated. Proximity to target patient populations, competitor positioning, traffic access, and zoning classification all affect both clinical performance and long-term asset value. Health systems that rely exclusively on internal real estate teams without market-level data often select sites that underperform projections within three to five years of opening.

Program size and scope require discipline. Overbuildng is a persistent risk in healthcare development — systems often design for peak capacity rather than realistic utilization curves. A rigorous demand analysis, benchmarked against regional demographic trends and payer mix projections, should anchor all square footage decisions before schematic design begins. This analytical rigor is central to our healthcare real estate advisory services, which are built around data-driven portfolio optimization.

Stakeholder alignment is another critical factor. Physician preferences, service line leaders, and CFOs often have competing priorities during development planning. Without a structured governance process that reconciles clinical requirements with capital constraints, projects commonly experience scope creep — adding cost without adding proportional value. Establishing a cross-functional steering committee early in development reduces this risk materially.

Actionable Takeaway

Before committing capital to a new development, health system executives should conduct a portfolio-wide facility assessment to confirm that the proposed project addresses a genuine access or capacity gap — not simply a physician preference or legacy planning assumption. Understanding what you already own, what it costs to operate, and how it performs clinically is foundational to sound development strategy. Health systems looking to begin that assessment can request a consultation with our advisory team to evaluate their current portfolio position.

The most effective health systems treat each development decision as an extension of their clinical strategy, not a facilities management task. When real estate planning is integrated into the enterprise strategic plan — with clear ROI thresholds, defined lead times, and capital allocation frameworks — systems consistently outperform peers on both operational efficiency and patient access metrics. Learn more about how this approach works at our healthcare real estate advisory firm.

Bremner Healthcare Real Estate partners with health systems to align real estate strategy with clinical performance and capital efficiency.

What is the difference between a medical office building and an ambulatory surgery center?

A medical office building (MOB) is a commercial facility designed to house outpatient physician practices, diagnostic services, and administrative functions. An ambulatory surgery center (ASC) is a licensed clinical facility specifically designed and regulated for outpatient surgical procedures that do not require an overnight hospital stay. ASCs carry significantly higher regulatory, infrastructure, and licensing requirements than standard MOBs, and typically cost more per square foot to develop — often ranging from $450 to $700 per square foot depending on the number of operating rooms and procedural specialties served.

How long does healthcare real estate development typically take from concept to opening?

Ground-up healthcare development projects generally require 36 to 60 months from initial feasibility through first patient day. Smaller ambulatory facilities on prepared sites may complete in 30 to 36 months, while large hospital expansions or complex specialty facilities can extend beyond 60 months. Regulatory approvals, including state health department review, AHJ coordination, and CMS certification for Medicare-participating facilities, are often the longest and least predictable phases in the development timeline.

What is a sale-leaseback and when should a health system consider it?

A sale-leaseback is a transaction in which a health system sells a real estate asset — such as a medical office building or outpatient clinic — to an investor and simultaneously enters into a long-term lease to continue occupying the space. This structure converts an illiquid real estate asset into immediate capital without disrupting clinical operations. Health systems typically consider sale-leasebacks when they need to fund capital programs, reduce balance sheet real estate exposure, or reallocate resources toward core clinical priorities rather than property ownership.

What does Authority Having Jurisdiction mean in healthcare construction?

The Authority Having Jurisdiction (AHJ) is the governmental body — typically a local building department, state fire marshal, or state health agency — responsible for reviewing and approving construction plans and issuing permits and certificates of occupancy. In healthcare, multiple AHJs may have overlapping authority over a single project, including local building officials, state health departments, and accreditation bodies such as The Joint Commission. Engaging experienced healthcare construction counsel and regulatory consultants early in the design phase significantly reduces the risk of costly plan revisions or permitting delays.

How do health systems evaluate whether to build, lease, or acquire existing facilities?

The build-lease-acquire decision depends on several interdependent factors including the time horizon for the clinical program, availability of suitable existing inventory, capital budget constraints, and the strategic importance of the location. Building new offers maximum design flexibility but carries the longest lead time and highest upfront cost. Leasing provides speed and capital efficiency but limits long-term control and may create operational constraints. Acquiring existing facilities can balance speed with control, but requires careful due diligence on building condition, code compliance, and deferred maintenance liabilities that can range from $20 to $100 per square foot in older healthcare properties.