Landlord Considerations in Lease Workouts with Troubled Healthcare Operators (Including Bankruptcy Considerations)

The past few years have seen an unprecedented number of bankruptcies in the healthcare space, primarily from hospitals and senior living operators.  The pressure placed on healthcare operating companies will only increase as they deal with the effects of the COVID-19 pandemic and continued downward pressure on reimbursements.  As the owner of the real estate leased to these operators, the landlord has a large stake in the success of the healthcare business being conducted on its premises, and needs to understand the drivers of the underlying business model in order to assess the risk profile of the tenant operator.  This understanding should allow the landlord to detect the early warning signs of distress and take proactive steps toward nursing the operator back to health.  While a failing tenant is not the landlord’s fault or responsibility, it often does become the landlord’s problem, and a landlord with healthcare tenants has many factors to consider that landlords of other asset classes do not.  This article will address the unique nature of the healthcare tenant/operator, as well as some strategies and tactics for landlords to consider when working with a troubled healthcare tenant.

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