The Role of REITs in Healthcare Facilities
Real estate investment trusts (REITs) have purchased thousands of buildings housing nursing homes, hospitals, assisted living facilities, and medical offices over the past decade. REITs are typically structured as property owners that lease facilities to separate operating companies, maintaining tax advantages by avoiding direct operation of healthcare facilities. Court filings and corporate records indicate REITs often influence facility management selection and monitor financial performance, occupancy rates, and regulatory compliance.
REITs own approximately 20% of senior housing and have investments in 1 in 6 nursing homes. Publicly traded healthcare REITs are valued at nearly $250 billion.
Legal Cases Involving REIT-Owned Facilities
The Case of Pearlene Darby
Pearlene Darby, an 81-year-old retired teacher, died in 2020 from infections and bedsores after being hospitalized from City Creek Post-Acute and Assisted Living in Sacramento, California. Her daughter filed a lawsuit alleging neglect, which was settled on confidential terms in 2023.
The lawsuit named both the facility's management company (Kalesta Healthcare Group) and the building's owner (CareTrust REIT). Court records show City Creek paid CareTrust over $1 million in rent in 2020 while operating at a deficit. Internal records indicated CareTrust selected the management company, required 80% occupancy, tracked financial performance including nursing and food costs, and monitored safety inspection findings.
CareTrust stated in court documents that it is not involved in day-to-day decisions or patient care and monitors facilities to protect rent payments. The case settled before trial after a judge ruled a jury should decide whether CareTrust exercised control over the facility.
CareTrust Corporate Counsel Joseph Layne stated: "We are the property owners, not the operators."
The Case of Mildred Hernandez
Mildred Hernandez, a 100-year-old resident with Alzheimer's, died of hypothermia in February 2019 after wandering out of Greenhaven Estates, an assisted living facility in Sacramento. The facility had no exit door alarms despite housing residents with dementia.
Greenhaven was owned through shell corporations by Colony Capital (now DigitalBridge), a REIT that owned both the building and operations. In 2018, Greenhaven paid Colony $1.4 million in rent, nearly one-third of its $4.5 million revenue. California regulators had filed a license revocation notice in November 2018 citing multiple violations including untrained workers administering medications and insufficient staffing.
In March 2024, a jury awarded Hernandez's family $110 million: $10 million compensatory and $100 million punitive damages against DigitalBridge and Formation Capital. DigitalBridge has asked to delay finalizing the judgment while pursuing legal challenges.
The Case of Shirley Adams
Shirley Adams died in 2023 after developing infected bedsores at Lakeview Rehabilitation and Nursing Center in Chicago. The nursing home is owned by Strawberry Fields REIT and operated by Infinity Healthcare Management. Strawberry Fields' CEO Moishe Gubin and director Michael Blisko jointly own Infinity and the nursing home operations.
A jury awarded $12 million in 2023, now totaling $17 million with interest and fees. Medicare gives Lakeview its lowest quality rating (one star). Infinity-affiliated nursing homes provide approximately 1.25 hours less nursing care per resident daily than the national average of four hours.
Regulatory and Industry Context
REITs distribute most income to shareholders and avoid the 21% federal corporate income tax, provided they don't directly operate healthcare facilities. Healthcare REITs distributed over $7 billion in dividends in 2024.
Facilities are not required to disclose rent payments or landlord identities in Medicare reports. The Centers for Medicare & Medicaid Services indefinitely suspended a requirement for nursing homes to disclose REIT involvement.
Research Findings on Outcomes
Studies show mixed outcomes: one found REIT investments associated with higher nursing wages, while another found facilities replacing registered nurses with less skilled staff after REIT acquisition. A third analysis concluded health inspection results worsened after REIT investment.
Thomas Tsai of Harvard stated: "There were no improvements in clinical outcomes" after such transactions.
Research found investor-owned hospital chains that sold buildings to REITs were more likely to close or go bankrupt, as occurred with Steward Health Care in 2024.
Financial Performance Comparisons
- CareTrust reported 2023 net income of $320 million from $476 million in revenue (67% profit margin).
- Strawberry Fields earned 2023 net income of $33 million from $155 million in rent (21% profit margin).
- By comparison, HCA Healthcare reported a 10% profit margin for 2023.
Industry and Legal Perspectives
John Kane of the American Health Care Association stated: "Given government funding often falls short, REITs have been valuable partners in helping to invest in long term care without influencing daily operations." Michael Stroyeck of Green Street research firm said REITs and operators have "a symbiotic relationship" with shared goals.
Ryan Williams of Kalesta Healthcare Group said Darby's death occurred during COVID-19 staffing challenges and called lawsuits during that period "unconscionable." Moishe Gubin of Strawberry Fields said nursing homes get sued frequently and the Lakeview verdict would likely force closure.
"REIT money is very detached from knowing about or caring about patient or resident outcomes, because it's not in their business model," stated Ed Dudensing, attorney for Hernandez's family.
Laraclay Parker, attorney for Darby's daughter, stated: "The REITs are in charge." Lesley Ann Clement, another attorney for Darby's family, stated: "There's plenty of money. They're just not spending it on patient care."