In the Know: Urban Land Institute’s 2023 Spring Meeting

Last month, Meridian CFO and Managing Director John Pollock attended the Urban Land Institute’s 2023 Spring Meeting in Toronto. The group had an extremely engaging discussion regarding behavioral health. This topic was especially thought provoking for John, as Meridian owns two facilities that house behavioral health clinics: an inpatient behavioral health center in Tucson, AZ, and an outpatient behavioral health center in Irvine, CA. The discussion was led by Chris Bodnar, Vice Chairman and Managing Director at CBRE. Chris was joined by Andrew Hardin, former Senior VP and COO of Voyages Behavior Health, Steve Hewett, EVP and CIO of The Sanders Trust, and Jake Rohe, President & Managing Partner of PMB. John provides his takeaways from the discussion below.

What is Behavioral Health?

Behavioral health is a segment of healthcare that covers a wide array of conditions; mood, anxiety, depression, addiction, OCD, PTSD, Tourette’s, schizophrenia, eating disorders, and more. Within the segment itself there are various types of treatment including inpatient, outpatient, geriatrics, and adolescent. The COVID-19 pandemic helped to de-stigmatize behavioral health, emphasizing “it is okay to not be okay”. There has been a tectonic shift as employers and employees have begun to demand coverage from their employers and payors respectively.

Behavioral health is 7 to 10 years behind traditional healthcare, so there is a long way to go to ensure everyone has access to the treatment they require. The method of treatment is still a fragmented system of care, ranging from converted houses to bright and cheery inpatient facilities. Newer facilities are able to be developed according to the needs of its specific patients and the demand for these facilities is high.

What does coverage and payment look like?

The insurance reimbursement model for behavioral health is evolving. Over the past 36 months the Blues (Blue Cross & Blue Shield) are covering nearly all types of behavioral health treatment. Medicare and Medicaid are beginning to provide more and better coverage. Inpatient care is typically reimbursing on a daily rate of $1,000. Hospital Outpatient Departments (HOD) get higher reimbursement, which can then subsidize the inpatient behavioral health units that are not as profitable.

What should the physical space look like and what does it cost?

What makes for a good behavioral health tenant or business is the right payors mix and the right number of beds. 60 to 72 beds seem be the magic number to achieve efficiency. Larger facilities, like 120 beds, makes sense in certain larger markets rather than smaller facilities. Successful inpatient designs include open nurses stations and patient pods that are right sized.

Inpatient behavior health centers are typically single purpose assets and are not easily re-used as another healthcare facility. Vince Cozzi of NexCore asked about the behavioral health operator’s ability to pay rent. He recalled his time at Ventas when they tried to get out of post-acute care space since the operators were less than financially viable. EBITR to rent coverage is a good metric to evaluate viability. Shane Seitz of Ventas pointed out that leases are often NNN and there isn’t a ton of operational data available. Good margins are +20%, like nursing homes.  PMB prefers the operator that partner with the health system / community resource to ensure good referral patterns. PMB is also working with Lifepoint, and they provide credit that burns off over time. Investors are getting more savvy and want to understand the operating performance metrics as this is an operating business as much as it is a real estate play.


Private equity firms are backing and consolidating a lot of behavioral health operators. Operators need multiple facilities and a balance sheet to be deemed a safe investment. Often, older buildings that are functionally obsolete are not set up to succeed so landlords really need to understand the tenants’ operations. Other things to look out for when considering an investment is management turnover and physician’s operators.

PMB was awarded a project for Riverside County on a ground lease after a competitive RFP process. The 440,000 SF, $570 million project was financed by a bond issuance from Morgan Stanley. Services will include crisis care, children and youth services, transitional housing, and community wellness – the full continuum of behavior services. A patient could live at this facility for up to two years.

Behavioral health facilities are an integral part of any community. It was interesting to hear what providers, payors, developers and investors are all doing to continue to push for more resources for patients, and Meridian will continue to pursue opportunities in this sector. If you’re interested in learning more about Urban Land Institute, visit Urban Land Institute (

 Author: John Pollock