Among the highlights of Connect Healthcare Real Estate 2025, scheduled for Oct. 14-15 at the Hyatt Regency Irvine, ERE Healthcare Real Estate Advisors CEO and managing partner Collin Hart will discuss industry trends with Revista’s Stephen Lindsey. Here, Hart sets the stage with a view from the standpoint of his firm’s specialty in advising physician groups on selling and, in many instances, leasing back their real estate.
Q: ERE is well known for advising physician groups on structuring sale-and-leaseback deals. In the current capital market climate, how attractive is a sale-leaseback for physicians or outpatient practices? What conditions (valuation, tenant strength, lease terms) make these deals compelling — and where do you see the biggest barriers today?
A: Sale and leaseback transactions are one of our firm’s specialties and they provide an exit strategy for physicians to create liquidity within their partnership.  This doesn’t mean that the practice/ASC is going away, but a change in leadership, control, or partnership dynamics often creates a scenario where it makes sense to transition ownership of the real estate to a third party. Â
In good market times and bad, there has been a strong demand for this type of transaction, spanning the last several decades. In recent years, although the capital markets have been tighter with higher interest rates, supply (physician groups interested in selling) remains steady. We find this to be supported by the transaction drivers noted above, along with continued consolidation in the healthcare (operator) marketplace. If a physician group bought or built their facility to control the destiny of their practice, but no longer have 100% control of the operation, it changes the risk profile of their investment, which often results in (or should at least spark discussion around) a sale.
Of course, everyone would prefer to sell their building for the highest valuation, but our typical guidance is that our clients should focus on factors within their control, meaning their career timelines, partnership structure, and leases, versus simply attempting to time the market. Â
As for typical deal terms, we find that investors seek long-term (10+ years) triple-net (NNN) leases with scheduled rental increases (2-3% annually) and reasonable credit or unit-level performance.  E.g., limited dependency on one or a small subset of providers, along with strong operational profitability.
On the topic of barriers to entry, we find that sale and leaseback transactions require creativity.  Of course, every investor would prefer to have a long-term lease with a credit-rated health system, but the physician practice transactions we work on are not that.  These are nuanced deals with bold personalities and preferences.  Come to the negotiating table with an open mind!
Q: From your vantage point, which subsectors within healthcare real estate (e.g. ASCs, ambulatory clinics, specialty care, imaging, behavioral health) are seeing the strongest investor interest nationally right now? What’s driving that appetite, and where might we see a rotation in capital in the next 12–18 months?
A: In our discussions with prospective investors, we see the most demand for facilities housing surgical specialties, with a preference towards an ambulatory surgery center (ASC) also being in the building.  This is driven by the shift of healthcare delivery to the outpatient setting, which tends to provide better outcomes at a lower cost.  Healthcare is going in this direction, so real estate investors follow suit.  At the same time, investing in facilities with an ASC creates more captive tenancy, given surgery centers are costly to build-out and/or replace, but are also often the profit center for a practice.
We anticipate demand for assets with this profile, benefiting from leases with the terms mentioned earlier, to remain steady, or even grow, particularly as debt costs come down over the next 12 to 18 months.
Q: One way to combat high land and construction costs is adaptive reuse of existing buildings. How are investor and operator expectations aligning (or not) when converting non-medical real estate into healthcare facilities? What deal structures or underwriting changes are you seeing in reuse projects that differ from ground-up medical builds?
A: Adaptive re-use projects, converting office to medical, is an attractive proposition, but the math has to work.  As a first line of defense, the initial acquisition of the building needs to be relatively low on a cost- per-square-foot basis, given tenant improvement costs are high.  Even if the building is fully built out as professional office, the acquisition cost should be more representative of a shell, given much, if not all, of the existing buildout will need to be gutted, then replaced with expensive medical improvements.  In our work on transactions of this nature, clinical buildouts can range from $175 to $250 per square foot.  An ASC buildout will exceed that, often by double or more.
Consideration must also be given to existing building infrastructure, including electrical and water capacity, structural load, and fire/life safety systems.  Often, shortfalls in these areas can make conversion to medical use more costly than a ground-up construction project, ruling out the benefit of adaptive re-use altogether. Point being, it’s critical to conduct thorough building and construction diligence on the front end of a project in order to eliminate major pitfalls in underwriting.
Q: Looking ahead, what signals are you tracking that could meaningfully shift the healthcare real estate landscape — for example, changes in reimbursement models, telehealth adoption, or regulatory reform? Conversely, what risks do you see that could slow investment or dampen valuations in this sector?
A: All of the indicators noted above are shifting the healthcare real estate landscape. Pressure continues to mount on reimbursements, which is pushing care to the outpatient setting, like ASCs. Telehealth is more prevalent, which can lead to smaller clinical footprints, emphasizing the importance of making investments in ASCs and other facilities with specialized buildouts that require in-person care. Regulatory changes continue to favor larger organizations, a result of corporate lobbying efforts and their ability to navigate bureaucratic processes as compared to smaller, more independent organizations.
Despite all of the nuances associated with investing in healthcare real estate, the thesis remains sound.  Everyone needs healthcare, which translates into continued demand for space in which to deliver care.  There are always risks to investing, but when navigating the healthcare landscape, focusing on the trends and fundamentals noted above will often result in sound investments.
This dynamic provider and investment environment keeps our team enthusiastic about working with and advising physicians, along with their corporate and hospital partners, on how best to optimize their real estate assets.
Capital, development, leasing, demographics—the trends driving healthcare real estate will all be on the agenda at Connect Healthcare Real Estate. Join the leaders shaping medical office, FSEDs, urgent care centers and hospital investment this October 14–15 in Irvine: www.ConnectHealthcareCRE2025.com   Â
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