Health systems can improve their balance sheet by unlocking capital from underutilized or owned real estate assets through strategies such as sale-leaseback transactions, joint ventures, and portfolio right-sizing — converting fixed assets into working capital without disrupting clinical operations.
Why It Matters
For most health systems, real estate represents 20 to 40 percent of total assets on the balance sheet — yet it is rarely managed with the same rigor applied to clinical or operational performance. In an era of tightening operating margins, rising labor costs, and increasing capital demands, the facility portfolio has become one of the most underleveraged financial tools available to health system leadership.
Health systems across the country, including those operating in competitive markets like Indianapolis, IN, are discovering that real estate is not just an overhead line item — it is a strategic capital lever. When managed proactively, the portfolio can generate liquidity, reduce debt, improve credit ratings, and fund mission-critical investments in technology, staffing, and new service lines.
How It Works
The most common mechanism for balance sheet improvement is the sale-leaseback transaction. In this structure, a health system sells a property it owns — such as a medical office building, ambulatory surgery center (ASC), or administrative campus — to an institutional real estate investor, then leases it back under a long-term agreement, typically 10 to 20 years. The result is an immediate infusion of capital, often ranging from $10 million to $150 million or more depending on asset size and market conditions, while the health system retains operational control of the facility.
A second approach is portfolio right-sizing, which involves identifying and divesting properties that no longer align with the clinical network strategy — vacant land, legacy physician offices, or aging facilities that consume maintenance capital without generating sufficient patient volume. A third approach is joint venture development, where a health system contributes land or existing facilities as equity into a partnership with a real estate developer, retaining a meaningful ownership stake while offloading development risk and capital outlay. Each approach requires a detailed asset inventory, market valuation, and alignment with the system’s long-term facility master plan, as outlined in our healthcare real estate advisory services.
Key Considerations
Before pursuing any balance sheet real estate strategy, health system CFOs and strategy officers must assess several critical variables. First, the fair market value (FMV) of each asset must be established through an independent appraisal — this is both a financial requirement and, for tax-exempt health systems, a regulatory necessity to satisfy IRS guidelines on private benefit and inurement. Transactions that do not reflect FMV can jeopardize a system’s 501(c)(3) status.
Second, lease structure matters as much as sale price. A sale-leaseback that generates $50 million in proceeds but commits the system to above-market rent for 15 years can erode the financial benefit over time. Target lease rates should be benchmarked against comparable healthcare real estate in the relevant market, with annual escalations typically ranging from 2 to 3 percent. Third, health systems should evaluate the Authority Having Jurisdiction (AHJ) — the local regulatory body responsible for approving occupancy and use — before assuming that a divested or repositioned facility can be re-leased or repurposed without significant entitlement costs or timelines, which can range from 6 to 24 months depending on jurisdiction.
Actionable Takeaway
The most practical first step for health system leadership is to commission a comprehensive real estate portfolio audit — cataloging every owned and leased property, its current use, square footage (which for health systems often ranges from 500,000 SF to several million SF across a regional network), lease expiration dates, maintenance capital requirements, and alignment with the five-year clinical strategy. This audit creates the foundation for every subsequent capital decision and is the single highest-return planning investment a CFO can make in the real estate domain.
Health systems that approach real estate reactively — responding to lease expirations or facility failures as they arise — consistently leave capital on the table. Those that treat the portfolio as an active financial asset, reviewed on the same cadence as investment portfolios or debt instruments, are better positioned to fund growth, reduce borrowing costs, and sustain long-term financial health. To explore how a structured approach applies to your system’s portfolio, visit our advisory practice or schedule a consultation with our team.
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 transaction in which a health system sells an owned property to an institutional investor and simultaneously enters into a long-term lease agreement to continue occupying and operating the facility. This structure converts a fixed real estate asset into immediate liquidity — often tens to hundreds of millions of dollars — without requiring the health system to relocate or alter clinical operations. The lease terms, including rent, escalation rates, and renewal options, are negotiated at the time of sale and typically run 10 to 20 years.
How much capital can a health system realistically unlock through real estate?
The amount of capital available depends on the size, condition, location, and strategic value of the assets in the portfolio. A single medical office building in a high-demand suburban market might transact at $15 million to $60 million, while a large ambulatory campus could exceed $100 million. Health systems with diversified portfolios spanning multiple markets have unlocked $200 million or more through coordinated divestiture and leaseback programs. Independent appraisals and market comparables are essential to establishing realistic expectations before any transaction is initiated.
Does divesting real estate affect a nonprofit health system’s tax-exempt status?
Divesting real estate does not inherently threaten a health system’s 501(c)(3) tax-exempt status, but the transaction must be structured carefully to comply with IRS regulations governing private benefit and private inurement. All sale prices and lease terms must reflect fair market value (FMV) as determined by a qualified, independent appraiser. Transactions that appear to benefit private parties — such as below-market sales to related entities or investors with board relationships — can trigger IRS scrutiny. Health systems should engage legal counsel with nonprofit healthcare expertise before executing any significant real estate transaction.
What types of healthcare properties are most attractive to real estate investors?
Investors in healthcare real estate currently favor assets with stable, long-term tenancy and strong clinical demand drivers. Medical office buildings (MOBs) anchored by major health systems, ambulatory surgery centers (ASCs), and outpatient imaging or infusion centers are among the most actively sought assets in the market. Properties located in growing suburban corridors — including markets like Indianapolis, IN — tend to command premium valuations due to favorable demographics and lower operating costs relative to urban core locations. Properties with deferred maintenance, short lease terms, or limited parking are less competitive and may require repositioning before a sale process is launched.
How long does a healthcare real estate transaction typically take to close?
Most healthcare real estate transactions, from initial asset assessment through closing, require 6 to 18 months depending on asset complexity, regulatory requirements, and financing conditions. A straightforward sale-leaseback of a single medical office building may close in 90 to 120 days once a buyer is selected and due diligence is complete. More complex transactions involving multiple assets, joint venture structures, or new development components can extend to 18 to 24 months, particularly when entitlements or AHJ approvals are required. Health systems should plan transaction timelines into their annual capital planning cycles rather than treating them as reactive events.