The Real Cost of Underwriting Behavioral Health Deals Without a Specialized Appraisal

Behavioral health real estate is getting more attention than ever in 2025. Whether it’s a standalone detox center, a residential treatment facility, or a larger inpatient psych hospital—investors are circling, and deals are moving. But there’s a catch: these assets are not like other medical real estate.

General appraisers who apply standard office or MOB methodologies can miss the mark completely. Why? Because behavioral health comes with its own set of underwriting risks—licensing nuances, reimbursement volatility, staff-to-patient ratios, and even zoning restrictions that can make or break a deal.

Take for example a property that looks solid on paper—good rent roll, strong occupancy, updated infrastructure. But if the operator is relying on a volatile payer mix (e.g. Medicaid-heavy), or there’s uncertainty around the facility’s license transferability, that NOI is sitting on shaky ground.

From a valuation perspective, this means your cap rate might be too aggressive. Or worse, you’re underwriting a cash flow that’s not sustainable long-term. We’ve seen this happen. Investors get in, and then a year later the operator folds or loses their license, and suddenly that “safe bet” turns into a high-risk reposition.

Specialized appraisal isn’t just about the value number—it’s about surfacing risks and protecting upside. When it comes to behavioral health, the devil’s in the operational details.

If you’re underwriting one of these deals—or advising a client who is—let’s talk before something gets missed.

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