Capital Constraints are Delaying Critical Healthcare Projects
Healthcare systems today face growing pressures that make it difficult to invest in facilities and services that matter most. According to the American Society for Health Care Engineering’s (ASHE’s) 2024 Hospital Construction Survey nearly half of healthcare executives and suppliers have experienced unexpected project delays on 76% to 100% of their recent projects, highlighting how financial constraints and market uncertainty are slowing the pace and scope of essential projects.
These pressures include:
- Limited capital for new facilities and expansion
- Competing priorities forcing difficult trade-offs between urgent needs and strategic growth
- Debt capacity concerns that limit strategic initiatives
These constraints can delay or even cancel projects that expand patient access, improve care delivery, and drive sustainable revenue ultimately affecting the communities your organization serves.
Alternate Financing Solution: Conduit Lease Model
The Lower Risk, Lower Cost Path to Strategic Health System Growth
Mortenson offers an alternative financing solution—commonly known as the Conduit Lease, Charitable Lease, or Hybrid Lease Model—that helps not-for-profit healthcare systems fund critical projects without the upfront investment.
Key Benefits:
- Expand access to care by leveraging third party capital
- Protect your credit ratings, debt capacity and existing assets with a non-recourse structure that requires no collateral beyond the lease obligations
- Lower operating costs through flat, below-market rent and exemptions from property and sales taxes via tax-exempt debt
- Maintain asset control and capture long-term value with a declining balance purchase option, allowing you to purchase the facility at a lower cost while keeping the building and accrued equity
- Reduce delivery risk through Mortenson's single-source accountability and meaningful guarantees
This solution combines tax-exempt capital, a lease-to-own structure, and Mortenson's integrated development and construction expertise, giving your system the ability to grow strategically, protect financial integrity, and maintain operational flexibility—all without the burden of traditional debt.
What's the catch?
None—aside from adopting a structure that may be new to your team. The model is established, compliant, and designed to reduce, not add, financial or operational risk.
Alternative Financing Protects Financial Health
Healthcare leaders are using this solution to:
- Keep strategic growth projects moving forward
- Free up capital for technology, workforce, and service expansion
- Deliver on their mission without financial tradeoffs
This model lets non-profit organizations fund key projects while avoiding rent increases or annual property taxes, preserving financial and operational stability.
Traditional Financing
- Equity Cost of Capital
- Annual Property Taxes
- Fair Market Value Purchase Price
Mortenson Solution
- Non-Profit Missions Aligned
- No Rent Increase
- No Annual Property Taxes
- Declining Balance Purchase Price
Real-World Examples
Expanding Access with No Upfront Costs
Challenge
Astera Health needed to expand cancer services in central Minnesota to meet critical needs for rural communities. However, traditional financing options were too costly and posed significant risk to the organization’s balance sheet, capital capacity, and existing financing commitments. Without an alternative approach, the state-of-the-art cancer center was at risk of stalling—delaying critical access to care.
Solution
Through the conduit lease model, in partnership with Mortenson and CentraCare, Astera Health was able to:
- Move the project forward while lowering occupancy costs by 39% over time and avoiding direct debt issuance or third-party capital
- Preserve capital and future debt capacity
- Protect the balance sheet and credit rating (Astera Health’s& liability is limited to the lease itself, with no additional assets pledged)
- Avoid more than $25M in property taxes and rent escalation
- Secure flexible ownership through a declining-balance purchase option, generating an estimated $18–$43M in long-term savings
- Implemented a proactive procurement strategy that ensured timely delivery of critical equipment and building components.
Outcome
- Delivered a comprehensive cancer center one month ahead of schedule, providing early patient access to a full spectrum of services from radiation to infusion therapy despite heavy inflation and supply chain challenges.
- Achieved substantial long-term savings and increased ownership flexibility while completing the project under budget.
- Accelerated approximately $1M in revenue capture through early delivery.
- Leveraged integrated development-design-build processes for a seamless project and strong alignment with the customer.
Advancing Growth Despite Competing Priorities
Challenge
Two non-profit healthcare systems entered a Joint Operating Agreement (JOA) to develop a new Medical Office Building (MOB) aimed at expanding patient services and increasing research and clinical capacity. When the larger $2.5 billion system withdrew funding due to competing capital priorities, the smaller $300 million system could not secure financing independently. The project stalled, leaving the community without critical healthcare infrastructure.
Solution
Through the Conduit Lease model in partnership with Mortenson, the systems were able to:
- Advance the project to meet the community’s growing healthcare needs
- Retain full operational and strategic control via a declining balance purchase option
- Avoid upfront costs, rent increases, and additional property taxes
- Secure guaranteed project delivery along with a reduced interest rate
Outcome
- The facility was completed six months ahead of schedule on an active campus with zero disruption to operations
- Since opening, the facility has earned national recognition for clinical excellence
- It has become a leader in clinical research, participating in over 400 clinical trials
Ready to Unlock Capital and Expand Your Access Without Upfront Costs?
CONTACT:
Chantily Malibago
Healthcare Market Director
Chantily.Malibago@mortenson.com
763.287.3746
Mortenson’s experts can help you evaluate whether this alternative financing approach fits your project and mission.