Welcome to the real estate investing Education Hub
Overview
The Healthcare Real Estate Investing Education Hub is your go-to resource for understanding how institutional capital, real estate strategy, and specialized leasing structures come together in the unique world of consumer-driven healthcare real estate.
Whether you're an investor or property owner, this hub is designed to help you navigate the complexities and opportunities within this niche sector. As you click through the tabs, we break down the most important concepts, from REIT structures to diversification strategies to the nuances of healthcare leases — all grounded in real-world experience and deep industry insight.
A Healthcare Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate within the healthcare sector. These REITs are designed to give investors access to real estate assets like surgical centers, behavioral health facilities, and other consumer-driven healthcare properties, without the complexities of direct ownership.
Healthcare REITs are structured to provide investors with steady income while benefiting from favorable tax treatment. By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends. In exchange, they are exempt from corporate income tax at the entity level, which helps maximize investor returns.
These REITs attract institutional capital and deploy it into specialized, high-demand healthcare facilities that serve long-term community needs.
An UPREIT (Umbrella Partnership Real Estate Investment Trust) structure allows property owners to contribute their real estate into the REIT in exchange for operating partnership (OP) units, rather than selling the property outright for cash. This can be a powerful tool for property owners looking to defer capital gains taxes and transition into a more passive investment structure.
Healthcare REITs generate returns through a combination of:
Rental income
These REITs typically lease properties to healthcare operators under long-term agreements, often exceeding 10 or even 20 years. Many of these leases are structured as triple net leases, where tenants are responsible for property expenses like taxes, insurance, and maintenance — increasing cash flow predictability.
Appreciation
Over time, well-managed properties can appreciate in value due to inflation, improved operations, or demographic demand.
Dividends
REITs distribute most of their net operating income back to shareholders, creating a consistent income stream. Healthcare REITs typically maintain conservative leverage, borrowing responsibly to acquire properties while preserving financial stability.
Tenant stability and long-term leases
Properties are often leased to essential healthcare providers under long-term contracts, contributing to predictable, recurring income. Healthcare tenants also tend to be “sticky,” due to the high cost and complexity of relocating medical infrastructure such as MRI suites, surgical equipment, or radiology labs.
Resilience and demographic tailwinds
Consumer-driven healthcare sectors benefit from less regulatory volatility than hospital systems, strong demographic trends like an aging population and recession resistance due to the non-discretionary nature of healthcare services.
Diversification
Healthcare REITs typically invest across multiple states and tenant types, which helps mitigate localized risks such as economic downturns or weather-related events. This multi-layered diversification strategy reduces exposure to single-property risks and enhances long-term portfolio performance.
Professional management
REIT investors benefit from experienced teams, like Terramed, who manage leasing, maintenance, and capital investment decisions. From knowing when to negotiate a renewal to planning major capital upgrades, this hands-on stewardship removes operational headaches while enhancing property value.
Diversification in real estate means spreading risk across multiple assets; for example, different tenants, property types, and geographic regions, to avoid overexposure to any single variable.
In healthcare, diversification can significantly enhance portfolio stability. By investing across regions, tenant types, and clinical specialties, owners and investors can protect themselves from:
- Local economic disruptions
- Natural disasters and climate-related events
- Regulatory or payer shifts in one sector of healthcare
Whether you're a seasoned investor or a healthcare operator with real estate holdings, thoughtful diversification can reduce risk while positioning your portfolio for sustained performance.
Consumer-driven and niche healthcare facilities, such as dental practices, outpatient surgical centers, behavioral health clinics, and urgent care, offer several distinct advantages:
Stability and recession resistance
These sectors tend to provide essential services that are less sensitive to economic cycles. People continue to seek care for dental, behavioral, or urgent medical needs regardless of broader financial conditions.
Demographic demand drivers
The aging population, increasing chronic care needs, and rising demand for convenience-based care models (like urgent care) create long-term tailwinds for these properties.
Stickiness of location
Many of these facilities are customized for their specific function, with surgical buildouts, diagnostic imaging rooms, or special plumbing and shielding for radiology equipment, making them costly to relocate and increasing tenant retention.
Here’s a side-by-side comparison of traditional medical office space vs. the types of consumer-driven healthcare facilities we invest in:
| Feature / Factor | General Medical Office | Consumer-Driven Healthcare Facility |
|---|---|---|
| Build-Out Complexity | Minimal (standard exam rooms, basic furniture) | High (surgical suites, radiology equipment, lead-lined walls) |
| Capital Investment | Low | Significant (custom HVAC, shielding, plumbing/electrical upgrades) |
| Tenant Relocation Cost | Low (easy to replicate setup elsewhere) | High (expensive and time-consuming to relocate specialized infrastructure) |
| Lease Stickiness / Tenure | Moderate | High — tenants are financially and operationally anchored |
| Recruitment & Retention Dependency | Less dependent on facility design | High — facility quality influences clinical talent attraction |
| Impact on Valuation | Less differentiation | More institutional appeal and value stability |
Healthcare operators often choose locations strategically based on patient access, zoning constraints, and market saturation, further reinforcing the long-term value of well-located assets.
Healthcare real estate outlines a broad spectrum of asset types, each with distinct risk profiles, regulatory considerations, and tenant characteristics. We focus on high-demand, consumer-driven segments that align with long-term demographic trends and operational stability. Here's an overview of key asset classes:
Ambulatory Surgery Centers (ASCs)
Specialized medical facilities where outpatient surgical procedures are performed. ASCs are highly regulated, typically physician-owned, and often located in convenient, accessible settings to serve community-based care models.
Ancillary Healthcare Centers
These facilities provide services that support or complement primary care and hospital systems. Many are consumer-facing, purpose-built spaces; often independently owned or part of growing healthcare platforms. Asset types in this category include veterinary clinics, ophthalmology centers, fertility clinics, dental offices, dermatology practices, and sports or physical therapy centers. These buildings tend to demonstrate high tenant retention and long lease terms due to specialized buildouts and location sensitivity.
Skilled Nursing Facilities (SNFs)
SNFs offer long-term residential and medical care, typically to elderly or chronically ill patients. Due to their intensive regulatory oversight, reimbursement model dependence, and operational complexity, we do not invest in SNFs.
Medical Office Buildings (MOBs)
Traditional medical office buildings often house general practitioners, specialists, and administrative functions. While they serve an important role in healthcare delivery, these facilities typically require less specialized infrastructure and exhibit lower lease “stickiness.” We generally do not invest in MOBs due to their more transient tenancy and reduced location sensitivity.
Investing in diversified healthcare real estate not only enhances risk-adjusted returns, it also opens up significant tax advantages for owners and investors.
1031 Exchanges
Allow owners to defer capital gains taxes by reinvesting proceeds from a sale into like-kind property. This can help preserve capital and grow portfolios more efficiently.
Cost Segregation Studies
Accelerate depreciation deductions by identifying building components that can be depreciated over shorter time periods, improving near-term cash flow and reducing taxable income.
Long-Term Capital Gains Treatment
With a longer holding period, real estate can benefit from favorable long-term capital gains rates.
Triple Net (NNN) vs Gross Leases
In healthcare real estate, triple net leases (NNN) are the most common (and most preferred) lease structure. Under a true NNN lease, the tenant is responsible for:
- Property taxes
- Insurance
- Maintenance (commonly including structural components)
This structure offers several advantages:
- Predictable, passive income for landlords
- Reduced risk exposure and operating responsibilities
- Increased property value due to institutional-grade lease termsBy contrast, gross leases or modified gross leases require landlords to cover some or all of these expenses, resulting in more operational complexity and financial variability.
However, not all “triple net” leases are truly NNN. In some cases, landlords remain responsible for major components like:
- HVAC replacements
- Roof and structural repairs
- Parking lot resurfacing
- Plumbing or wiring within walls
When lease responsibilities are unclear or overly landlord-heavy, the asset becomes less attractive to institutional buyers, potentially limiting future liquidity. That’s why we advocate for clarity and discipline in how lease terms are structured.
Similar in concept to a 1031 exchange, but instead of swapping one property for another, owners contribute their property into the REIT’s operating partnership and receive OP units. This transaction can defer capital gains taxes until a later sale or conversion of those units.
| 1. Corporate Guarantee is a must. The lease should be written so the tenant is the parent company that is guaranteeing the lease and not the sub company that the corporate consolidator buys the practice with. A Guarantor Letter as an attachment to the lease is adequate as well. |
| 2. Annual rent escalator set at the greater of 3% or CPI Index. |
| 3. Remove language that discusses tenant “Right of First Refusal” or “Right of First Offer”. Don’t let the tenant dictate the future of your real estate. |
| 4. The corp lease agreement will have a section titled “Assignment”. Make sure that the tenant cannot assign the lease to an entity that is of less value than the company that is providing the Guarantee. |
| 5. Absolute NNN lease terms. As landlord, you do not want the responsibility and related cost to repairing or replacing HVAC Units, parking lots, sidewalks, electrical and all other mechanical aspects of the building. If you must, it’s okay for the landlord to assume the responsibility of the replacement of a roof but not the repairs. |
| 6. Initial lease term should be at a minimum of 10 years, preferably 15 with multiple 5-year renewal options. The more years you get in the initial term, the more valuable your lease will be. |
| 7. Financial reporting: the lease should give the landlord, on an annual basis, a financial snapshot of the practice. You will want language in the lease that says, “at the start of each calendar year the tenant must provide an annual Profit & Loss Statement from the prior year.” |
Unlike general office or retail properties, consumer-driven healthcare facilities often require extensive, highly specialized buildouts. These tenant improvements (TIs) may include:
- Surgical suites or exam rooms
- Radiology/diagnostic equipment (requiring structural modifications)
- Lead-lined walls, additional plumbing, or specialized ventilation systems
- Backup generators or enhanced power systems
These improvements are not only capital-intensive, they’re also highly specific to the operator’s clinical needs.
Common Cost Considerations:
- Who pays for the buildout? (Landlord vs. tenant contributions)
- Is there a tenant improvement allowance (TIA)?
- Will any portion of the buildout become the landlord’s asset?
How are future capital upgrades handled, especially for evolving medical standards?
Negotiation Strategies and Value Add:
- Clearly define ownership of improvements post-lease
- Allocate risk for cost overruns or regulatory-driven changes
Factor in depreciation and tax treatment of landlord-funded improvements
Investing in tenant buildouts can be a strong value-add strategy if executed thoughtfully. These improvements “anchor” the tenant to the space, making them less likely to relocate due to the sunk investment. But they must be paired with strong lease structures and the right operators to protect the asset and ensure long-term returns.