Health care real estate investment trusts (REITs) have traditionally concentrated on senior housing, skilled nursing facilities, and medical office buildings. But a new opportunity is emerging that could reshape their portfolios and influence the broader care delivery system: behavioral health. After years of staying on the sidelines, major REIT players are beginning to invest in mental health and addiction treatment facilities, with the potential to transform the financing and ownership landscape for years to come. This growing trend is often referred to as Health care REIT behavioral health investment.
The timing couldn’t be more significant. Demand for behavioral health services has ballooned in recent years, fueled by the opioid crisis, rising rates of depression and anxiety, and increased awareness around mental health treatment. At the same time, behavioral health facilities tend to operate at higher margins than senior housing or skilled nursing. For REITs facing pressures from occupancy dips, wage inflation, and staffing shortages in their traditional portfolios, the behavioral health sector offers both a growth opportunity and a chance to repurpose struggling properties into more sustainable ventures. This makes Health care REIT behavioral health conversions especially appealing.
CareTrust REIT and the Landmark Recovery Partnership
One of the most visible examples of this trend comes from CareTrust REIT Inc. (Nasdaq: CTRE), based in San Clemente, California. The company owns 227 properties, primarily skilled nursing facilities, with additional holdings in independent living, assisted living, and multi-service campuses. But as 2022 approached, CareTrust found itself facing industry headwinds: lower occupancy rates, wage inflation, and persistent labor shortages.
To stress test its portfolio, the company began selling underperforming assets. But when Landmark Recovery — an addiction treatment provider headquartered in Franklin, Tennessee — placed a bid on one of CareTrust’s facilities, CEO David Sedgwick had a realization. Rather than divesting entirely, why not pivot into behavioral health?
“That’s when for me it clicked,” Sedgwick explained. “I said, ‘I’m not going to sell to Landmark. I’m going to take this as an opportunity to get into the space. And we’re going to look at our buildings that are chronic drags and we’re going to convert those into higher and better use into this new space.’”
This pivot highlights the growing alignment between operators and investors, with Health care REIT behavioral health strategies emerging as a sustainable alternative to traditional senior care.
Why Behavioral Health Appeals to REITs
For REITs, the appeal goes beyond just higher margins. According to Ben Firestone, CEO of Blueprint Healthcare Real Estate Advisors, behavioral health is where senior housing was a decade ago: highly fragmented, undercapitalized, and ripe for institutional involvement.
“I think that all the demand drivers are there,” Firestone said, pointing to the massive gap between Americans who need behavioral health services and those who actually receive them. With rising utilization rates and growing societal awareness, investors see a long runway for growth.
Fragmentation is also key. Behavioral health facilities are often owned and operated by small regional providers, which limits efficiency and access to capital. Consolidation — whether through private equity or REIT-backed transactions — could bring greater stability and scalability to the industry. Blueprint itself has already helped Landmark Recovery execute conversions of senior care facilities into addiction treatment centers, proving the model’s viability. As consolidation grows, Health care REIT behavioral health investments will likely play an even larger role.
The Role of Institutional Capital in Driving Growth
The influx of institutional capital has already transformed sectors like skilled nursing and senior housing. Behavioral health could be next. In 2021, the industry saw a record 251 mergers and acquisitions, a 33% increase from 2020, according to The Braff Group. High valuations may temper some activity, but the broader trend is clear: consolidation is accelerating, and REITs are positioned to be a major part of that story.
By purchasing facilities and leasing them back to operators, REITs free up capital for providers to invest in clinical care, staffing, and expansion. For investors, these lease agreements generate steady rental income tied to an essential service with high demand. For operators, they provide access to high-quality real estate without the burden of ownership. This model makes Health care REIT behavioral health deals a win-win for both sides.
Sabra, Ventas, and Medical Properties Trust Enter the Market
CareTrust isn’t the only REIT exploring behavioral health. Sabra Health Care REIT Inc. (Nasdaq: SBRA) has also taken a serious interest, dating back to its 2017 acquisition of Care Capital Properties. That portfolio included psychiatric hospitals and addiction treatment facilities, giving Sabra a foothold in the space. Since then, the company has focused particularly on addiction treatment, preferring institutional and accessible facilities over high-end luxury centers.
Today, Sabra owns six Landmark-operated facilities and recently executed a $325 million loan agreement with Recovery Centers of America, secured by eight inpatient addiction treatment properties. According to Chief Investment Officer Talya Nevo-Hacohen, the move reflects both strong demand and a belief in the long-term resilience of the sector.
Other big names are testing the waters as well. Chicago-based Ventas (NYSE: VTR) acquired an Eating Recovery Center building for $58 million, while Medical Properties Trust (NYSE: MPW) made headlines with a $950 million acquisition of 18 inpatient behavioral health hospitals and an ownership stake in Springstone. These deals showcase the rising visibility of Health care REIT behavioral health investments on a national scale.
Barriers to Scaling Behavioral Health Investments
Despite the momentum, behavioral health poses unique challenges for REITs. Unlike senior housing, which has a mix of large operators and smaller providers, behavioral health lacks a deep pool of national players willing to partner with REITs. Many operators prefer to own their real estate outright, as is the case with Acadia Healthcare (Nasdaq: ACHC) and Universal Health Services (NYSE: UHS), two of the largest behavioral health providers in the U.S.
Nevo-Hacohen emphasized the difficulty: “It’s not that easy to find operators, really simple. [Behavioral health has] not been highly institutionalized. It’s incredibly fragmented and I don’t think there’s been much access to capital.”
This lack of scale limits opportunities for large, platform-level deals. Still, smaller REITs may actually benefit by pursuing niche opportunities and building relationships with regional operators. These types of targeted Health care REIT behavioral health investments could help fill critical gaps.
Looking Forward: Opportunities and Risks
The potential rewards of behavioral health investment are substantial. With demand surging, facilities under strain, and operators seeking growth capital, REITs are well-positioned to play a pivotal role in shaping the industry’s next chapter. By bringing scale, capital, and expertise in health care real estate, they can help stabilize the sector and expand access to treatment.
But challenges remain. The lack of large operators open to sale-leaseback deals means opportunities may come in smaller, more fragmented transactions. High valuations could also temper enthusiasm, while the need for strong operator relationships will demand more time and resources than in other health care sectors.
Still, industry leaders remain optimistic. With companies like CareTrust, Sabra, Ventas, and Medical Properties Trust already moving into behavioral health, it’s clear that the sector is no longer off-limits for REITs. Instead, it’s becoming one of the most closely watched opportunities in health care real estate. Over time, Health care REIT behavioral health strategies may reshape how treatment facilities are financed, owned, and operated — influencing the future of care delivery for decades to come.
