Pennsylvania just moved a step closer to banning healthcare sale leasebacks by private equity firms. House Bill 1460 passed with bipartisan support and is now with the state Senate. If it becomes law, it would give the Attorney General sweeping authority to block certain healthcare transactions involving private equity, including deals where a hospital or care facility sells its real estate and leases it back.
The timing isn’t accidental. Last month, Crozer Health shut its doors in Delaware County. On paper, it was a collapse years in the making. But lawmakers weren’t convinced it was just market forces. They pointed to private equity ownership and the decision to sell off Crozer’s real estate, leaving the system with rent obligations it couldn’t realistically support. The facility didn’t just lose money. It lost flexibility. And eventually, it lost the ability to operate.
Now Pennsylvania is drawing a line. The proposed law would block private equity firms from using sale leasebacks in healthcare transactions altogether. It would require detailed financial and operational disclosures before any major deal. It would empower the Attorney General to review transactions over $10 million, hold public hearings, and reject deals that don’t serve the public interest. It would also allow the state to monitor approved deals for up to a decade. The only real exception is if a deal prevents an otherwise imminent closure.
Pennsylvania isn’t an outlier. Massachusetts has already banned healthcare sale leasebacks. New York has increased scrutiny and disclosure requirements. Connecticut is evaluating legislation to restrict private equity participation in both hospital acquisitions and leaseback transactions. Illinois and Indiana are adding transparency measures of their own. Other states including California, Washington, Vermont, and New Mexico are exploring similar steps. The trend is unmistakable. And it is moving fast.
The attention on sale leasebacks didn’t come out of nowhere. For the past decade, they’ve been a popular way to unlock capital. In 2024, there were roughly 669 sale leaseback deals nationwide. In theory, that capital can be reinvested into operations, technology, or growth. But in practice, the structure of the deal matters more than the headline sale price. And that is where the current criticism is well deserved.
Too many brokers and investors chase the biggest sale price possible. That often means inflating the starting rent, compressing lease terms, or adding steep annual escalators. It might help the seller hit a big number on Day One and the broker cash in on their fees. But those inflated lease terms don’t disappear after closing. They become fixed costs on the income statement. And if the underlying business was already running on thin margins, as most healthcare systems are, those lease payments can quickly become unmanageable.
That is when the cracks start to show. Deferred maintenance. Staff cuts. Shrinking service lines. Declining patient experience. In worst cases, full closures.
You don’t have to look far for proof. Just ask Red Lobster, where a sale leaseback drained the business of flexibility and ultimately helped push it into bankruptcy. Or Toys “R” Us, where financial engineering and debt servicing took precedence over customer experience and long-term health. These are not just stories of bad luck. They are the result of aggressive short-term thinking that treats real estate as a cash-out opportunity instead of a strategic asset.
This isn’t a failure of the sale leaseback model. It is a failure of how some players are structuring and selling it. A well-structured leaseback should provide liquidity without compromising viability. That means underwriting rent based on what the business can actually support. It means prioritizing stability over short-term upside. And it means aligning the incentives of the investor, operator, and community instead of squeezing value at the expense of one party.
When considering a sale leaseback transaction, it is important to understand the differing priorities of the two parties involved: the seller and the investor. Sellers are primarily focused on maximizing the proceeds they receive from the sale of their real estate asset. This influx of capital can be used to fuel growth, pay down existing debt, or improve liquidity. However, from the perspective of sale leaseback investors, the key concern is the long-term financial stability and creditworthiness of the company entering into the lease.
Typically, a sale leaseback investor commits to a lease term of 15 to 20 years, effectively partnering with the current owner for the long haul. Because of this extended timeframe, investors carefully evaluate the company’s financial health to ensure it can sustain lease payments over the life of the agreement. A critical metric under scrutiny is the company’s rent burden, the proportion of rent expenses relative to the business’s overall income and cash flow. Investors want to be confident that the rent obligations will not place undue stress on the company’s finances, which could risk default or lease termination.
One challenge for investors, however, is that while they have a vested interest in the company’s financial success, they generally have no control over how the seller uses the proceeds from the sale. Ideally, investors prefer that sellers reinvest these funds back into the business or use them to reduce existing liabilities, thereby strengthening the company’s financial position. Many companies do follow this prudent approach, but ultimately, the decision on capital allocation remains with the seller. This lack of direct oversight requires investors to conduct thorough due diligence upfront and factor this uncertainty into their risk assessment and valuation.
There is still a future for sale leasebacks in healthcare. But it is a future that demands more discipline. Investors who want to operate in this space will need to adapt to new levels of transparency and regulation. They will need to partner with operators instead of just extracting from them. And they will need to treat these deals not as financial engineering exercises but as long-term commitments.
The best deals are built on aligned incentives. When a buyer and a seller treat each other as long-term partners instead of transaction opponents, the result is often stronger performance, lower risk, and better outcomes for everyone involved. A rising tide lifts all boats, but only when no one is drilling holes in the hull.
For firms that take that approach, this moment is not a threat. It is a chance to lead. The stakes are high. The scrutiny is rising. And the standard is changing.
Sale leasebacks are not dead. But the way forward requires doing them right.
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