CareTrust REIT (Nasdaq: CTRE) is deepening its investment strategy in the behavioral health space, viewing it as a high-growth, high-impact area of healthcare real estate. What began as a strategic pivot in late 2021 is now evolving into a long-term commitment to behavioral health real estate investment—a niche many REITs are only just beginning to explore. This move reflects both CareTrust’s need to reposition underperforming assets and its vision for addressing an urgent national need: more accessible, quality behavioral health facilities.
During the company’s Q1 earnings call, CEO Dave Sedgwick laid out the vision. “The behavioral health asset class not only provides us with a new tool for finding a higher and better use for our own underperforming assets,” Sedgwick said, “but it also opens up a high-demand, undersupplied investment opportunity for growth.” The comment underscores a growing trend in behavioral health real estate investment, where aging or unsustainable healthcare properties are reimagined to meet the surging demand for mental health and substance use care.
Repurposing Real Estate: A Strategic Repositioning
CareTrust is in the process of repositioning 32 assets that no longer fit the company’s forward-looking investment model. These facilities—once nursing homes or other types of long-term care centers—have either “hit a wall” financially or are no longer sustainable in their existing form. As part of this transformation, three of the properties are already being redeveloped into behavioral health facilities through a partnership with Landmark Recovery, a provider of addiction treatment and mental health services.
The remaining 27 properties are in the early stages of the sales process, though Sedgwick noted the company may retain and repurpose select ones as opportunities arise. This strategy not only enhances asset value but also aligns with CareTrust’s larger goal of tapping into behavioral health real estate investment as a scalable, sustainable model for future growth.
Growing Pains in an Emerging Sector
While the promise of behavioral health facilities is clear, Sedgwick was honest about the challenges. “This landscape is … very fragmented and immature, in terms of institutional quality, management, and credit,” he said. The comparison he draws is telling: he likens the current state of behavioral health to what the skilled nursing industry looked like 30–40 years ago.
Such fragmentation poses a challenge for REITs attempting to scale their behavioral health real estate investment strategy. Many potential operators are small, regional, or family-run businesses lacking the infrastructure or financing to take on sophisticated facility management. Still, Sedgwick believes the space will evolve over time, becoming more professionalized and regulated. “Looking five to ten years from now, behavioral health will continue to have a healthy range of mom-and-pops to more institutional operations,” he predicted.
Demand Driving Opportunity
The opportunity in behavioral health isn’t just speculative—it’s driven by a well-documented care shortage. Across the United States, millions of people continue to face barriers to accessing timely, evidence-based behavioral health treatment. This mismatch between supply and demand creates a powerful incentive for investors and real estate professionals to reimagine what healthcare spaces can offer.
Chief Investment Officer Mark Lamb pointed out that CareTrust is already seeing increased interest from brokers and operators in the behavioral health facilities space. He expects that broader headwinds—including modest CMS funding increases, ongoing workforce challenges, and the phasing out of pandemic-era support—will compel more undercapitalized operators to sell or partner.
These dynamics are creating a pipeline of opportunity for REITs like CareTrust that have the experience, capital, and willingness to take a leadership role in expanding the nation’s network of behavioral health facilities.
Financial Performance and Future Planning
CareTrust reported $46.48 million in Q1 revenue, missing estimates by $3.52 million and falling short on earnings per share by $0.68. While those numbers may raise eyebrows, company leadership remains focused on long-term positioning. The initial revenue dip reflects both the short-term transition costs and the long-term nature of behavioral health real estate investment.
Sedgwick and Lamb emphasized that CareTrust is playing a patient game. The company is not only building a behavioral health portfolio—it’s helping shape the future infrastructure of behavioral health facilities nationwide. This alignment of purpose and profitability is rare in the real estate sector and underscores the REIT’s commitment to delivering both shareholder value and social impact.
Parallel Strategy at Sabra Health Care REIT
CareTrust isn’t alone in its vision. Sabra Health Care REIT (Nasdaq: SBRA) has also prioritized behavioral health real estate investment, using a similar strategy to reposition underperforming assets and secure long-term operator partnerships. Sabra, too, has entered a deal with Landmark Recovery, signaling growing institutional interest in scalable behavioral health facilities.
Executives at both firms acknowledge that the operator landscape is still maturing. The shortage of sophisticated, financially sound behavioral health providers remains one of the most significant bottlenecks to rapid growth. However, early partnerships like those with Landmark Recovery are paving the way for future collaborations that could bring greater stability and innovation to the field.
The Long-Term Vision for Behavioral Health Real Estate
Looking ahead, CareTrust expects that its portfolio of behavioral health facilities will expand gradually over the next five to ten years. As more providers seek real estate solutions, and as federal and state policies continue to support mental health infrastructure, the opportunity for sustained behavioral health real estate investment grows more compelling.
For communities, the benefit is clear: more local access to mental health services, addiction treatment, and crisis care. For investors, it offers a chance to enter a growing market early, helping shape the standards and systems that will define behavioral health for the next generation.
As Sedgwick put it, “Behavioral health will continue to be a mixed landscape, but one filled with meaningful opportunities—for growth, for purpose, and for long-term value.”
Conclusion: Turning Challenge into Opportunity
The behavioral health sector remains a complex, evolving space—but it’s also one of the most urgent areas for transformation in American healthcare. Companies like CareTrust are proving that real estate investment can be both profitable and impactful when paired with the right vision and partnerships.
By converting underperforming properties into behavioral health facilities, building strong operator relationships, and staying patient through early-phase market challenges, CareTrust is helping define what the future of behavioral health real estate investment looks like. In doing so, they’re not just building facilities—they’re building infrastructure for healing, recovery, and hope.
