The move was prompted by the bankruptcy of Steward Health Care.
He Steward Health Care Bankruptcy has shaken the healthcare industry. The largest private, for-profit health system in the United States announced after filing for bankruptcy last month that it would sell its 31 hospitals at auction.
Eight of those hospitals are in Massachusetts. The situation has led the state government to look for ways to prevent REITs from entering into future sales leases, in which they buy a hospital campus and then rent the property back to them.
Steward’s situation prompted a scathing response from Gov. Maura Healey. “I don’t want to lose sight of the fact that the situation arises from and is rooted in greed, mismanagement and lack of transparency on the part of Steward’s leadership in Dallas, Texas,” she said. “I have been clear about this and I will continue to be clear. “This is a situation that should never have happened and we will work together to ensure action is taken to ensure this does not happen again.”
TO Massachusetts House of Representatives bill includes a provision that would exclude REITs from future ownership of hospitals. REITs could hold onto existing properties and other types of owners could own those properties and lease them to hospitals.
“The moves are a response to Steward’s bankruptcy filing in May, which cast doubt on the future of its eight hospitals in Massachusetts and generated widespread political outrage over the hospital chain’s various financial maneuvers,” Bloomberg wrote. “This includes the 2016 sale of Steward’s hospital properties to a REIT called Medical Properties Trust Inc. Private equity firm Cerberus Capital Management owned a majority stake in Steward at the time; “He left his position in 2020.”
Lawmakers say they are trying to end agreements that can result in excessively high rents that can put hospitals in financial jeopardy. But as Michael Lewis, an analyst at Truist Securities, told Bloomberg, solely banning REITs from the sale-leaseback practice is unlikely to do much good.
“If a hospital has a poor operating model, that’s a much riskier problem than the fact that it owes rent to a REIT every year,” Jacques Gordon, a professor at the Massachusetts Institute of Technology’s Center for Real Estate, told Bloomberg.
And if REITs can’t make such deals, other types of investors could.
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