Beyond MOBs: Exploring Healthcare Real Estate Alts
Anchor Viewpoints: Q2, 2025
By Steen Watson, President, Anchor Health Capital
Anchor Health Capital (formerly known as Chestnut Funds) has long focused on medical outpatient buildings (MOBs), but the broader healthcare real estate sector includes a diverse range of property types that offer unique investment potential. Our interest in MOB investing emerged over a decade ago from our view that as a relatively new and niche property type it was at the beginning of a cycle where it would attract both individual and institutional capital. This attention came because of the stability and long-term growth potential of MOBs which derive their demand from the increasing demand for outpatient healthcare services. The demand for outpatient healthcare services that supports the demand for MOB space also supports several other types of healthcare real estate property types that we can group into something called “healthcare real estate alts”. In this edition of Viewpoints, we discuss a few of these. Future editions of Viewpoints will dig into a more robust analysis of each along with our view of the potential investment opportunity presented.
Providing Some Context with MOBs
MOBs serve as the primary location for medical practices and healthcare systems to provide outpatient care. The healthcare services delivered can range from primary or high acuity care to imaging and outpatient surgical procedures. They often house multiple tenants that provide different services, contribute to convenience for patients, and promote physician referrals. MOBs can be located on hospital campuses but increasingly are found in locations that are more convenient for patients such as those close to where patients live and to commercial services.
An attractive feature of MOBs from an investment standpoint is the tenants’ long lease terms. This happens because location is an important consideration, and tenants often invest significant capital in their space. MOB owners benefit from these long lease terms through rental escalations, but at the end of lease terms, there’s the potential for additional capital investment to ensure tenant renewal. Additionally, MOB owners must maintain the property and its systems to provide a suitable environment for care delivery. This capital investment reduces cash flow in the near term but supports long-term occupancy and income growth.
The Healthcare Real Estate Alts
A common feature of a few of the healthcare real estate alts is that they are often, even typically, occupied by a single tenant. And these facilities are often purpose-built for the tenants on a build-to-suit basis. Furthermore, the lease structure is often such that the tenant manages and is responsible for all management, repairs and maintenance. This structure provides for enhanced cash f low as owners aren’t obliged to invest capital to re-lease or update building systems during the lease term.
Ambulatory Surgery Centers (ASCs)
ASCs are outpatient facilities that are freestanding (i.e. not connected to a hospital though they may be in an MOB) specialized healthcare facilities that provide same-day surgical care, including diagnostic and preventive procedures, without requiring an overnight hospital stay. Common procedures in an ASC include orthopedic surgeries, ophthalmologic procedures, gastrointestinal procedures, ENT surgeries, hernia repairs, biopsies, and pain management injections. The primary advantages of ASCs are that procedures can typically be performed at a lower cost than in a hospital with enhanced convenience and efficiency for patients. Many ASCs are owned and operated by physicians or by joint ventures between physicians and health systems. The physicians and health systems may also own the facility but frequently will lease the property and operate the ASC. Increasingly, private equitybacked companies are involved in operating ASCs. ASCs are attractive to investors due to their cost efficiency, rising demand for outpatient procedures, and potential for stable, long-term leases with healthcare operators.
Behavioral Health Facilities
Behavioral health facilities are specialized centers that provide treatment for patients with mental health disorders, substance use disorders or both. These facilities can range from outpatient clinics to inpatient psychiatric hospitals, and they operate with a focus on stabilization, therapy, and long-term recovery.
Hospital systems, nonprofit organizations, private providers, and state or local governments operate behavioral health facilities. Demand for behavioral health care is growing significantly driven by various social and regulatory factors. Acceptance of behavioral health care has destigmatized seeking care, leading to increased awareness and demand. Additionally, and from a policy standpoint, CMS and Medicaid have begun looking at integrated care models that bundle behavioral and physical health services. Private insurers are following suit. Also, technological advances are playing a role in increased demand. Telemedicine and hybrid models (consisting of both in person and virtual care) have increased the accessibility for behavioral health care services, particularly in rural and underserved areas.
There are several types of behavioral health facilities, from outpatient clinics which don’t require overnight stays, to residential treatment centers for patients dealing with addiction or chronic mental illness, to inpatient facilities which provide round the clock care for patients with severe mental health conditions such as schizophrenia, bipolar disorder or major depression.
Because of the varied ways in which behavioral health care is delivered, some providers operate out of multi-tenant facilities, particularly so with outpatient clinics, while residential treatment and inpatient care are often provided in standalone facilities.
Inpatient Rehabilitation Facilities (IRFs)
IRFs provide intensive rehabilitation services to patients recovering from serious injuries, surgeries, or illnesses. IRFs are ideal for patients recovering from serious conditions like strokes, traumatic injuries, surgeries, or amputations.
Patient care in IRFs is delivered by a multidisciplinary team that includes physicians, therapists, rehabilitation nurses, psychologists, and social workers. This type of care team is well suited for complex recoveries. The typical stay for patients ranges from 10 to 20 days.
IRFs are typically operated by hospital systems, private companies, and governments. Much like with ASCs, the operator may lease the facility, and many of the newer facilities are purpose-built for the IRF.
Freestanding Emergency Departments (FSEDs)
Structurally separate from hospitals, these facilities provide emergency medical services like hospital-based ERs. They are staffed 24/7 with emergency-trained physicians and nurses, and offer advanced imaging, onsite laboratory, and pharmacy services. FSEDs are designed to improve access to emergency care, especially in suburban and rural areas.
FSEDs are broadly categorized as either Off-Campus Emergency Departments (OCEDs) or Independent Free-Standing Emergency Centers (IFECs). OCEDs are affiliated with and run by hospitals but are not physically connected. IFECs are operated by for-profit organizations.
A critique of FSEDs is that they may serve to increase costs if patients utilize the facilities and services for treatment that might be delivered in a clinical or urgent care setting. Nonetheless, FSEDs continue to grow in number, driven by strong patient satisfaction, profitability for providers is enhanced due to lower operational costs, and studies indicate that the quality of care in FSEDs is comparable to those provided by hospital-based ERs, even for serious and time-sensitive conditions.
In Conclusion
Anchor continues to evaluate opportunities presented by investments in healthcare real estate alts. The demand for healthcare services supports the demand for many types of healthcare real estate. And while Anchor has historically focused its investments on MOB properties, we feel there may be an increasing opportunity to invest in healthcare real estate alts. As patient care continues to shift away from traditional hospitals, demand is growing for healthcare real estate alts that align with evolving delivery models and demographic needs.
Sources
Healthgrades. The Difference Between Freestanding and Hospital ERs. (October 2020)
Lawrence, Evans & Co, LLC. Quarter 1 2025 Update: Behavioral Healthcare Market.
Functional Pathways. The State of the Inpatient Rehabilitation Market. (December 2024)
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