Health Systems Underutilize $1 Trillion in Real Estate Assets
Hospital and health systems across the United States own roughly $1 trillion worth of real estate, yet these assets are often overlooked and underutilized, according to a new report from CBRE titled “Enhancing the Value of Hospital Real Estate.”
Core hospital real estate (inpatient facilities) accounts for over 42% of all healthcare real estate in the U.S., while outpatient facilities—many of which are hospital-affiliated—account for another 27%. The top 50 owners of healthcare real estate in the U.S. include 34 health systems that collectively own $227 billion of real estate.
Healthcare executives today are struggling to deal with a host of challenges, ranging from new regulations to shifting healthcare delivery. Across the board, they’re looking for ways to cut costs and improve operational efficiency, yet few of them look to their real estate.
“Our analysis underscores that health systems should recognize real estate as a distinct cost center that offers opportunities for savings on par with drugs, products, suppliers and even professional fees,” said Jim Hayden, executive managing director of CBRE Healthcare. “There are many creative ways to employ real estate to benefit those in need of care.”
The report outlines two distinct strategies health systems can utilize to control costs and secure capital: 1) switching from integrated management to outsourced management and 2) monetizing real estate through asset sales, typically structured as sale-leasebacks.
Real estate occupancy accounts for 8% to 12% of hospital costs, and outsourced management can typically reduce facilities costs by 10% to 12%, according to the report.
“Depending upon the cost of capital and the opportunities to reinvest proceeds from real estate into other areas offering a higher return on investment, both strategies can have significant impacts on a health system’s balance sheet and overall ability to deliver quality care while controlling costs,” says Chris Bodnar, vice chairman of capital markets for CBRE Healthcare.