As healthcare continues to shift towards chronic disease management and prevention, delivery of health services should be configured to enhance patient convenience and access. The shift from inpatient and hospital-based services to the ambulatory and virtual setting will continue, increasing the demand for local access to specialty, subspecialty, and higher acuity ambulatory services. The COVID-19 crisis has accelerated this shift; substantial increases in telehealth use, for example, have been seen nationwide. As health systems assess the likelihood and potential impact of these changes, they should also consider the viability of their current ambulatory real estate footprint in a new environment.


The Opportunity

Hospitals and health systems today have large portfolios of fixed assets, the product of legacy payment models and a focus on hospital-centric care. More recently, new competitive forces and a strategy of bringing lower acuity care closer to patients have pushed health systems to build more ambulatory sites in broader geographies. As a result, most health systems have unbalanced real estate portfolios, with capital “trapped” in real estate assets that could be deployed more productively elsewhere in the organization. For example, it is all too common for physicians to maintain multiple offices which are only used for some portion of the week.

To the extent less physical space will be needed for clinical care, a large opportunity exists for organizations to reduce costs and free up capital. Organizational leaders should consider both rightsizing owned real estate assets and taking a critical eye to leased real estate, identifying gaps in the portfolio that may impede the organization’s strategic objectives and development of new care delivery models.

This opportunity is best addressed in a context that considers strategic, operational, and financial vantage points to ensure that organizations are making decisions consistent with their plans for future growth and financial strength. There may, for example, be locations where the organization should increase its footprint. There may be opportunities to consolidate activities better within the existing footprint. And there may be opportunities to reduce the footprint, with careful consideration of the best candidates for downsizing and the right approach. This broader assessment is critical to determining the best financing options for the ambulatory real estate portfolio to meet current and long-term needs.


Assessing the Portfolio

The current ambulatory portfolio should be assessed against the organization’s strategic vision for healthcare services to determine the optimal configuration of services and facilities across the network. Considerations will include, among other things, market and consumer demand for services and the impact of telehealth and other technology on future models of ambulatory care. As noted above, assessment of portfolio opportunities must take place within a context that considers operational and financial impacts as well.

Key considerations with respect to strategy, operations, and finance are outlined in the table below.

Key Considerations for Portfolio Assessment




· Impact of telehealth and new care delivery models

· Current and evolving demand for ambulatory services

· Geographic distribution of facilities

· Configuration of facilities to support clinical, strategic, and financial goals

· Competitive considerations

· Prioritization of capital

· Need for investments or reconfiguration to support clinical and strategic goals

· Market demand for space

· Need to maintain control of facilities

· Desire for flexibility or repositioning

· Impact on joint ventures/partnerships

· Profitability/net operating income trends

· Current and terminal value of facilities

· Total cost of ownership or lease costs for facilities

· Costs and risks of available financing channels

Assessment of the existing portfolio should result in an objective framework for determining which sites should be retained and which should be exited (see Figure 1). The assessment should also identify gaps in the current portfolio that the organization should seek to close as opportunities in the market arise, with the same framework used to determine which opportunities are of greatest value to the organization.

Figure 1: Sample Framework for Evaluating Portfolio Options

Figure 1 - Sample Framework for evaluation


This assessment and framework should inform the organization’s perspective on the “now, near and far” of ambulatory portfolio management. In the “now,” the organization will have a view on what portions of its portfolio may be optimally restructured, monetized, or refinanced with external capital providers to support pursuit of new opportunities and other strategic capital needs of the organization. As organizations transition toward the “near” and “far,” they should be developing points of view on what portions of the portfolio must be repositioned to better align with strategic objectives and longer-term trends in care management.


Optimizing Capital Financing Options

In addition to determining the optimal components and structure of the organization’s portfolio, the organization must determine the optimal ownership and financing options for its real estate assets. For assets core to the organization’s strategic objectives, financing decisions will depend on factors such as the degree of control the organization needs to maintain over the asset, costs of capital, and accounting and cash flow impacts.

With respect to cost of capital and control, ownership options provide greater control and typically lower financing costs. Sale/leaseback transactions provide monetization of the asset value in return for unrestricted cash; these and other leasing options offer the flexibility of shorter terms and can be tailored to an organization’s needs. In return, the organization surrenders some degree of control over the asset, and the transaction may be of higher cost than a pure debt transaction. Regardless of financing choice, organizations should maintain a total cost of ownership/leasing perspective. Accounting and cash flow considerations include how the asset will be presented on the balance sheet and income statements, as outlined in the table below.

Comparison of Debt and Lease Financing Options

Financing Choice

Debt Finance

Lease Finance


Full control

Limited control (potential for ground lease or purchase options)


Up to 30 years


Renewal Risk

Potentially, on debt only

Yes, both access to space and financing source

Cost of Capital

Market interest rates

Market capitalization rates, plus escalators

Considered “On Credit”



Balance Sheet Asset

Real estate as PP&E

Right of use asset (PV of lease liability if operating lease)

Balance Sheet Liability

Long-term debt

PV of lease liability (if operating lease)

Period Expense

• Property depreciation

• Interest expense

• Rent expense (straight line)


Net income plus depreciation and interest

Net income



Decisions made with respect to an organization’s ambulatory real estate portfolio can have significant impacts on the organization’s future growth, financial position, and capital platform. These decisions should have a sound strategic rationale, balance flexibility with cost-effectiveness, and support the organization’s long-term growth and development. As organizations reposition themselves for what might be a significantly altered healthcare environment, now is the time to ensure that ambulatory real estate assets are best positioned to help the organization adapt and thrive.


For more information, please contact Matt Robbins by email or phone at (224) 724-3262.

Meet the Authors

Mark Grube

Managing Director
Mark Grube leads Kaufman Hall’s healthcare strategy services, where his signature engagements have included helping hospitals and health systems to achieve growth opportunities, assess partnership options, and establish consumer strategies.
Learn More About Mark

Robert Turner

Managing Director
Robert Turner is a Practice Leader in the Treasury and Capital Markets practice. He consults with healthcare clients nationwide, focusing on issues related to capital structure strategy, and the analysis and implementation of debt transactions.
Learn More About Robert

Matt Robbins

Senior Vice President
Matt Robbins provides partnership and financial advisory services for a broad range of healthcare clients engaged in various types of transactions, such as borrowings, debt restructurings, derivatives, mergers, acquisitions, and joint ventures.
Learn More About Matt
Lauren Clementi

Lauren Clementi

Vice President
Lauren Clementi is a Vice President of Kaufman Hall and a member of the firm’s Strategic and Financial Planning practice. She has more than 15 years of experience in strategic capital planning, with a focus on aligning strategy with achievable and sustainable long-term capital plans.
Learn More About Lauren