Beyond the Hospital Campus: How Health Systems Can Unlock the Strategic Value of Underutilized Real Estate

Hospitals and health systems continue to navigate a convergence of financial, operational and workforce pressures. Rising labor, infrastructure and facility costs, reimbursement challenges, workforce shortages, growing behavioral health needs and increasing numbers of patients experiencing housing instability are forcing leadership teams to look for innovative ways to strengthen financial performance while advancing their mission. At the same time, many health systems are sitting on underappreciated strategic assets: their real estate portfolios.

As care delivery increasingly shifts from inpatient settings to outpatient, ambulatory and home-based care models, health systems may find that their land, real property and facilities are mismatched with their current delivery models and structure. Historically, real estate decisions often followed broader restructuring efforts. Today, however, forward-looking organizations are beginning to view real estate not simply as an operational necessity, but as a strategic tool that can help address workforce challenges, improve patient outcomes, unlock new revenue opportunities and strengthen community impact.

Why Real Estate Has Become a Strategic Issue for Health Systems

Many health systems are confronting two closely related challenges.

First, housing instability among patients is creating operational and financial burdens. Patients experiencing homelessness or unstable housing often experience longer inpatient stays, higher readmission rates and more frequent emergency department utilization because safe discharge options are limited. Second, housing affordability challenges in many markets are making it increasingly difficult to recruit and retain health care workers, particularly nurses, support staff and early-career professionals.

These pressures coincide with significant changes in health care real estate. Facility consolidations, hospital closures and shifts toward outpatient care are creating opportunities to rethink how health system assets can support both organizational priorities and community needs. Yet many health care systems lack internal capacity and a framework for evaluating which properties should be retained, redeveloped, leased, sold or repurposed.

The key question for many executives is no longer whether real estate should play a role in their strategy, but rather how to utilize and maximize the value of those assets while balancing financial, regulatory and mission-driven objectives.

Three Strategic Pathways for Health Systems

1. Medical Respite and Recuperative Care

One increasingly important opportunity involves the development of medical respite, or recuperative care, programs. Medical respite provides short-term housing and supportive services for individuals who are too sick to recover safely on the street or in a shelter but no longer require acute hospital care.

For hospitals serving large populations experiencing homelessness, medical respite programs can create meaningful operational benefits. Studies indicate that these programs can shorten hospital stays, reduce near-term readmissions, decrease subsequent acute care utilization and generate savings of approximately $2,000 to $3,000 per hospitalization for people experiencing homelessness.

Beyond reducing costs, medical respite programs can help address one of the most significant operational challenges facing hospitals: capacity constraints. By transitioning patients who no longer require acute inpatient care to appropriate recuperative care settings, health systems can reduce emergency department boarding, free up scarce inpatient beds and preserve capacity for higher-acuity services. In turn, this allows hospitals to use their most resource-intensive facilities more efficiently while improving patient flow across the continuum of care.

Health systems with suitable real estate assets may have opportunities to dedicate existing buildings or partner with community organizations to create recuperative care capacity that improves patient flow while supporting better health outcomes.

2. Workforce and Affordable Housing

Housing affordability has emerged as a growing workforce issue for hospitals nationwide. In high-cost markets, housing constraints can undermine recruitment efforts, increase turnover and contribute to staffing shortages.

As a result, some health systems are evaluating how surplus land or facilities might be converted into workforce, affordable or mixed-income housing developments. Depending on market conditions, these projects may serve employees directly, broader community needs or both.

However, leadership teams should carefully evaluate the financial and tax implications of different approaches. Housing developments designed exclusively for workforce populations may limit access to certain financing tools and property tax advantages. By contrast, mixed-tenancy developments that incorporate affordable housing units alongside workforce housing may unlock additional public financing sources while helping preserve nonprofit-related tax benefits.

3. Revenue-Generating Redevelopment

Not every real estate asset should become housing.

For some organizations, the highest and best use of a property may involve mixed-use redevelopment, long-term ground leases, strategic partnerships or outright disposition. These approaches can unlock capital, generate recurring revenue streams or reduce ongoing carrying costs.

In many cases, mixed-use developments that combine market uses with affordable or supportive housing components may provide the strongest economic foundation. Revenue generated from market-rate elements can help subsidize mission-oriented uses while improving overall project feasibility. Similar structures have been utilized successfully across a variety of health care and community development projects.

Development or Acquisition: Which Model Makes Sense?

Once a strategic objective has been identified, organizations must determine whether to develop new projects on existing assets or acquire properties that can be adapted more quickly.

Ground-up development or large-scale redevelopment projects offer greater long-term flexibility and can maximize the value of hospital-owned land. However, these approaches may involve lengthy entitlement processes, construction risk, significant capital requirements and extended implementation timelines.

By contrast, acquiring nearby existing properties for conversion into workforce housing or medical respite facilities may allow health systems to move more quickly and reduce development risk. While acquisition strategies may present governance, political or stakeholder-relation challenges, they can often deliver measurable impact on a shorter timeline.

For many systems, the optimal strategy may not be an either-or decision, but a portfolio approach that includes both immediate acquisition opportunities and longer-term redevelopment initiatives.

The Financing Question

Perhaps the most important consideration across all housing-related strategies is access to capital.

Potential financing sources include tax-exempt municipal bond financing, Low-Income Housing Tax Credits (LIHTC), and various public and private funding programs may expand affordable housing production and create additional opportunities for health care organizations and housing partners to collaborate on developments serving vulnerable populations.

In addition, Medicaid continues to play an expanding role in supporting housing-related services. Numerous states now use Section 1115 waivers and other authorities to cover services such as tenancy supports, home modifications and medical respite programs. These developments may help strengthen the economics of certain housing and care models.

Nevertheless, important challenges remain. Traditional workforce housing often does not qualify for LIHTC financing, and medical respite programs continue to face limited and evolving reimbursement pathways. As a result, successful projects require careful attention to ownership structures, financing strategies and regulatory considerations.

From Real Estate Inventory to Strategic Asset

Examples from organizations such as Denver Health and MetroHealth demonstrate how health systems can successfully integrate housing strategies into broader population health, workforce and community investment initiatives. These efforts include redevelopment of surplus facilities, medical respite partnerships, affordable housing developments and innovative collaborations with housing authorities and community organizations.

For health system executives and legal leaders, the opportunity is increasingly clear. Real estate portfolios should be evaluated not solely through the lens of facilities management, but as potential drivers of strategic value. Whether the goal is reducing avoidable utilization, improving workforce stability, generating new revenue, advancing community benefit objectives or all of the above, underutilized real estate may offer pathways that align financial performance with organizational mission.

As health care delivery continues to evolve, organizations that proactively assess the highest and best use of their real estate assets may be better positioned to meet changing market demands while creating meaningful value for patients, employees and the communities they serve.

Shetler, Dan and Shepard, Donald S. “Medical Respite for People Experiencing Homelessness: Financial Impacts with Alternative Levels of Medicaid Coverage.” Journal of Health Care for the Poor and Underserved, vol. 29 no. 2, 2018, p. 801-813. Project MUSE, .