As the stigma surrounding mental health and substance use disorders continues to erode, demand for behavioral health services is surging. This shift has caught the attention of institutional investors, who are increasingly eyeing the sector not just for its societal relevance but also for its financial potential. Among the newest and most promising areas of interest? Behavioral health real estate.
Once considered too niche or unpredictable, behavioral health properties are now gaining ground as viable, profitable investments. With early movers like Sabra Health Care REIT and Cawley Partners paving the way, the behavioral health real estate sector is beginning to attract serious institutional capital. And while it’s still in the early stages, the outlook is strong for investors willing to take a chance on a high-growth healthcare segment with increasing societal demand.
Sabra Health Care REIT: Leading the Charge
In a 2019 earnings call, Sabra Health Care REIT CEO Rick Matros made it clear: his company wasn’t waiting for the crowd. Sabra had its eyes on behavioral health real estate and intended to be one of the first to plant a flag.
“None of our peers are in the space at this point,” Matros said. “It’s a very fragmented space, [and it’s] not easy to find deals. But hopefully [with] Sabra being the first ones [in the space,] we’ll develop a reputation of being the capital partners to folks.”
Sabra’s strategy reflects the kind of first-mover advantage often associated with innovative and rapidly evolving sectors. As the behavioral health market matures, those early partnerships and investments could translate into long-term market dominance.
Behavioral Health M&A Activity on the Rise
Investor enthusiasm for behavioral health is not limited to real estate. M&A activity in the space has been steadily increasing, with 85 deals in 2019 and 97 in 2018, according to M&A advisory firm Mertz Taggart. These numbers underscore the growing interest from private equity firms, platform companies, and strategic buyers looking to tap into a resilient and expanding market.
While clinical and operational assets remain central to most deals, real estate is quickly emerging as a valuable extension of the behavioral health ecosystem—especially as providers seek long-term leases and purpose-built facilities tailored to therapeutic environments.
Cawley Partners and ERC: A Showcase Deal
Another early mover is Cawley Partners, a Dallas-based commercial real estate firm that has entered the behavioral health space with a significant project in West Plano, Texas. The company is selling a three-story, 100,000-square-foot healthcare facility anchored by Eating Recovery Center (ERC)—a leading national provider of eating disorder treatment.
ERC has signed an 18-year lease, committing to a long-term presence that includes inpatient, residential, partial hospitalization, and intensive outpatient services for both adults and youth.
From an investment perspective, ERC’s tenancy makes the property significantly more attractive. According to Gino Lollio, managing director at Cushman & Wakefield, the firm representing the sale:
“What makes it attractive is it goes one step beyond real estate… it comes down to the operations and the strength of the tenant, who’s backing the tenant and [so on].”
That operational strength—combined with long lease terms and essential healthcare services—turns behavioral health facilities into more stable, low-risk investments.
Why Behavioral Health Real Estate Is Gaining Traction
Historically, behavioral health facilities weren’t on the radar for most institutional investors. The sector was seen as too fragmented, too specialized, and lacking the long-term stability found in medical office buildings or senior living communities.
But that’s changing, and here’s why:
- Soaring Demand – Mental health and substance use treatment needs are at an all-time high, driven by cultural shifts, pandemic-era stressors, and increasing acceptance of treatment.
- Stable Tenancy – Behavioral health providers often sign long-term leases, particularly when investing in purpose-built or custom-renovated facilities.
- High Barriers to Entry – Zoning restrictions, licensing requirements, and facility-specific regulations create barriers that can protect existing investments.
- Strong Operational Backers – Many behavioral health providers are now part of private equity-backed platforms or large national networks, enhancing the financial strength and creditworthiness of tenants.
- Diversification Potential – Real estate portfolios that already include senior housing or traditional healthcare facilities can diversify by adding behavioral health to the mix.
Not All Behavioral Health Facilities Are the Same
Despite its growing appeal, behavioral health real estate isn’t a plug-and-play asset class. It spans a wide range of facility types depending on the services provided, including:
- Hospital-style inpatient centers
- Residential treatment campuses
- Outpatient clinics
- Detox and withdrawal management units
- Partial hospitalization program (PHP) centers
Some providers can adapt former skilled nursing facilities or hospitals, while others require serene, resort-style campuses. That variability makes due diligence and facility-specific expertise essential for investors and developers alike.
According to Lollio, behavioral health facilities fall somewhere between the more standardized medical office buildings and the high-touch, lifestyle-driven senior living environments. Understanding the clinical model—and the regulatory framework behind it—is key to identifying good investments.
What the Future Holds
As investor interest deepens, competition is expected to rise. For now, early movers like Sabra and Cawley are in a strong position to benefit from attractive cap rates and favorable terms. But as more firms enter the space, returns may begin to compress—a familiar pattern in emerging real estate sectors.
“When everyone starts to follow, the returns start to shrink,” Lollio noted. “They start to compress, and it gets really competitive. But it’s still in the first few innings of this game to invest in behavioral health from a real estate level.”
Looking ahead, industry experts anticipate that:
- More behavioral health providers will sign long-term leases to secure customized treatment environments.
- Institutional capital will continue flowing in, especially from REITs and private equity firms.
- New real estate products will emerge to meet the diverse needs of mental health and substance use providers.
Final Thoughts
The intersection of behavioral health and real estate represents a compelling investment opportunity that aligns financial returns with meaningful societal impact. With mental health and addiction services in higher demand than ever, the infrastructure supporting those services must evolve—and that includes where care is delivered.
For investors, developers, and healthcare providers alike, behavioral health real estate offers a rare chance to get in early on a growing market that promises both financial stability and positive public health outcomes.
The future is bright—and for those paying attention now, the rewards could be significant.
