The healthcare industry is facing unprecedented real estate challenges. With continuously rising costs, aging facilities, and changing care delivery models, healthcare systems must rethink their real estate strategies to remain competitive. With challenge comes opportunity. By taking a creative approach, healthcare real estate is transformed from a liability into a strategic asset. With over 30 years of experience developing and managing properties for leading health systems, Greg provides unique insights into navigating this complex sector. In working with diverse healthcare clients ranging from regional hospitals to large IDNs, Appelt has developed innovative solutions to pressing real estate issues.
Rising construction costs
A major challenge facing healthcare real estate is the rising cost of construction. As a result of inflation and supply chain issues, the costs associated with new development and facility expansions have skyrocketed. This is problematic for health systems looking to upgrade their aging infrastructure and expand capacity. Appelt notes that while rising costs present a challenge, they also create an opportunity to think more strategically about investments. “Healthcare systems need to take a portfolio approach when considering their real estate,” he explains. “By divesting underperforming assets and focusing capital on strategic projects, they optimize their real estate spend even in an inflationary environment.”
Adapting to new care delivery models
As more care moves outside the traditional hospital environment, healthcare systems must right-size their real estate. Older hospitals and medical office buildings designed for inpatient care become liabilities. “Repurposing and reconfiguring facilities to align with emerging care settings is essential,” says Appelt. It includes developing off-campus clinics, surgery centers, and micro-hospitals, as well as retrofitting existing facilities to enable telemedicine.
Rethinking the hospital’s role
The role of the traditional hospital is also evolving. In many markets, inpatient utilization has declined as care shifts to outpatient settings. This has created excess capacity and underutilized real estate assets for some health systems. Appelt Properties has worked with systems to undertake massive hospital transformations retaining only essential clinical services on-campus while moving other volumes off-site.
Many health systems hold real estate assets that are not reaching their full potential. Aging medical office buildings with high vacancy rates present one area of untapped value. The cost of maintaining these properties can outweigh revenue, draining resources. Health systems also unlock value through sale-leaseback transactions on owned facilities. It converts the real estate into capital that can be redeployed while the health system retains occupancy through a lease agreement. Appelt has structured many creative sale-leasebacks, allowing clients to unlock value from their owned real estate.
Embracing real estate as a strategic function
Appelt emphasizes that health systems must embrace real estate as a strategic function. Rather than being seen as just a cost center, savvy leaders are approaching real estate as a way to enhance care delivery, reduce expenses, and create financial flexibility, greg appelt says. This starts with consolidating real estate management under a single specialized team versus spreading it across departments. Centralizing real estate decisions enables portfolio-level thinking versus a fragmented approach. It also requires viewing real estate and facilities as assets that are leveraged versus liabilities to be maintained. With this mindset, healthcare real estate transitions from a challenge to an opportunity.
