Building Your 2027 Real Estate Budget
Build your 2027 real estate budget by month. Put every dollar in one of three buckets: committed (you signed for it), necessary (you have not signed, but you will pay it), and growth. Then find the month where a construction draw, an equipment deposit, and a capital repair overlap. Fund that month. The annual total will not show it to you.
You are building the 2027 plan this fall. Real estate will come to you as a rent line and a project total, and you should reject both as the finished product. The obligations behind them were created at different times by different people: you signed a new LOI in March, the lease at Site 1 steps up in July, and your operations lead will find out in January that the HVAC unit at Site B is at the end of its life, and you're responsible for replacing it. Pull all of it into one document, organized by month, before the growth line gets sized.
Here is how I build that document with founders and their CFOs, and the specific places I have watched the number go wrong.
What goes in a healthcare operator's real estate budget?
Three buckets. Define them tightly enough that you and your CFO put the same line item in the same bucket without discussion.
Bucket 1: Committed
List every dollar you are contractually obligated to pay in 2027. Base rent on every signed lease, with escalations placed in the month they step (a 3 percent bump on $28,000 of monthly rent is roughly $10,000 across the year, and it starts on the lease anniversary). CAM and NNN reconciliations, which the landlord bills as a true-up for the prior year in the first or second quarter; budget the invoice, not the estimate you accrued. Remaining draws on signed construction contracts. Retention you are holding, typically 5 to 10 percent, which you release 30 to 60 days or more after sign-off. Holdover at any site whose lease expires in 2027 without a signed extension, which in the leases I have negotiated runs 125 to 200 percent of base rent.
Put renewal option notice deadlines in this bucket too, even though you write no check that day. If Site A's notice is due June 30, 2027, write the rent consequence next to the date and set the decision meeting for January. Miss the notice window and the landlord is under no obligation to give you the option rent or let you stay in the space at the end of your term.
Bucket 2: Necessary
List what you will pay in 2027 whether or not you have signed for it yet. The HVAC unit at end of life where the lease assigns replacement to you. Work an inspector or a jurisdiction has required. A refresh at a site that opened seven years ago. ADA corrections. A licensing-driven change, which in California can mean a room reconfiguration or an egress and signage change with a non-negotiable compliance date.
Price these in October. If don't plan for them and keep them out of your budget, you will end up buying them in March at whatever price is available on four weeks' notice, with no time to bid the work. Get a contractor's number for each one now and carry it.
Bucket 3: Growth
New sites, expansions, relocations. Fund growth with what remains after buckets 1 and 2 are covered in the months they hit. Do not fund it with what remains after the annual totals net out. The numbers are different, and you don't want to end up in a situation where you can't fund operations because growth efforts have drained your capital.
Keep your project budgets for scoping the work and managing the GC. Send the board and the lender a monthly cash view. A project budget reconciles on its own total and hides the month where three projects overlap. Your constraint in 2027 is rarely the annual number. It is the eight to ten weeks where a construction draw, an equipment deposit, and a capital repair clear the account together.
When do you actually pay?
Almost every real estate line item has a gap between the date you commit and the date you pay, and the gaps run in both directions. Place each item in the month the cash clears.
Float the full build cost. The TI comes back later.
On a $2M build with a $500K tenant improvement allowance, you fund the full $2M at peak. The landlord reimburses you on documentation after milestones or after completion, and in the leases I have worked under that reimbursement arrives 30 to 90 days after you have paid the general contractor. Many landlords require lien releases from every subcontractor first. If your budget shows the TI as a January inflow because you signed the lease in January, you are wrong by a full construction cycle. I walked through the mechanics in the TI allowance fine print.
Budget rent from commencement. Budget revenue from the first clean claim.
Rent commencement is tied to a date or to the certificate of occupancy. Revenue is tied to credentialing, payer enrollment, and collections. On the projects I have watched, the gap between opening the doors and billing at real volume runs three to six months, and you carry rent, staff, and debt service through it. If Site C opens in October, that carry is a 2027 line and it runs into 2028. The sequence is in the gap between the certificate of occupancy and first revenue.
Put deposits in the month you sign the order.
Security deposit at lease signing, often three to six months of rent for an early-stage operator, or a letter of credit. Utility deposits before service. Equipment and casework deposits, commonly 50 percent at order, and you place the order four to six months before delivery because that is the lead time. On a clinic with $400,000 of equipment and casework, you send $200,000 roughly two quarters before a patient sits in the chair.
Front-load design and permit fees.
Architecture and engineering on a 10,000 square foot clinic runs $150,000 to $275,000 in the California markets I work in, and you pay most of it before a permit exists. You also pay the permit fee at submittal, and in some jurisdictions a utility connection or capacity fee that is a five-figure check on the same day. Budget several months of real spending on a project that has produced nothing you can walk through.
Lay those four out and a new site's cash curve looks nothing like its cost summary. The summary says $3.5M all in. The curve shows a six-figure bleed for design and fees, a steep climb through construction, and a partial refund arriving months after the steepest part.
What does this look like across three sites?
A composite, but the shape repeats.
Site A is open and stable. The lease runs into early 2028, so the renewal notice is due June 30, 2027. The rooftop HVAC unit is at the end of its life and the lease assigns replacement to you. Budget $35,000 to $60,000 installed for a single unit on a California project, more if the curb does not match and you need structural, electrical, or Title 24 work with it.
Site B opened in 2025. You are owed $180,000 of TI reimbursement and roughly $95,000 of retention is still pending release. Both are inflows, and inflows get booked early. Put each in the month you have written evidence it will arrive, not January, and treat the gap between those two assumptions as a financing question you answer now.
Site C is the growth project. LOI signed, $3.5M all in, $600K TI allowance, target opening in the fourth quarter. Design and permitting run through the first half, construction through the middle of the year, equipment ordered in spring for late-summer delivery.
Now lay all three on one calendar. In late summer, Site C's heaviest construction draw (call it $550,000 in a single month), Site C's 50 percent equipment deposits, and Site A's HVAC replacement clear the account inside the same 30 days, while Site B's reimbursement has not arrived. The annual total is about $4.6M, which reconciles against the plan. The August number is close to $800,000, against operating cash flow that does not change because it is August.
Budget organized by project
- Site C: $3.5M. Site A: $60K. Site B: net inflow. Totals reconcile and the year looks funded.
- Each project is internally consistent, so nobody sees the overlap between them.
- Reimbursements and retention releases get assumed early, which flatters every month.
- You start the financing conversation when the peak arrives.
Budget organized by month
- Twelve columns. Every line item sits in the month cash clears, not the quarter you made the decision.
- You see the peak month in October, ten months before you have to fund it.
- Every inflow carries an evidence date and a lag assumption you can stress.
- You price a line of credit against a known gap instead of an emergency.
How do you build it?
Anyone can build the spreadsheet. The work is the inventory that feeds it, and it takes about three weeks of someone's real time.
- Pull every lease and contract. Every executed lease, amendment, construction contract, LOI, and equipment order. The documents, not the abstracts.
- Extract every date with money attached. Escalation dates, expirations, renewal notice deadlines, CAM reconciliation timing, retention release triggers, milestone draws. One row per date, with a month.
- Classify each row. Committed, necessary, or growth. Do it with the CFO in the room so the classification is agreed, not inherited.
- Lay it out by month. Twelve columns. Cash out in the month it clears. Cash in on the date you can defend with a document, not the date you hope for.
- Stress the peak month. Run construction 45 days long, slip the TI reimbursement a quarter, and put the CAM true-up 15 percent over accrual. Two of those often happen together.
- Decide contingency policy. Line item or reserve, and who releases it. Write it down.
- Review against actuals every quarter. A budget you build in October and reopen the next October is a forecast nobody owns.
How much contingency, and who controls it?
On renovations of existing buildings I carry 10 to 15 percent, at the top of that range on older buildings or anywhere the as-builts are missing and we are opening walls to find out. On clean second-generation space in a newer building you can defend less. On California healthcare work I hold the higher number, because the surprises (existing conditions, structural work triggered by rooftop equipment, an inspector's read on an exiting condition) arrive as change orders, not negotiations.
Then decide where the contingency sits, because the two options behave differently. As a line item inside the project budget, the project team sees it, treats it as available, and consumes it. As a reserve the CFO releases, it lasts longer, and you trade transparency for control: the GC and your project manager are now working a budget they know is short, and they price and sequence accordingly. Both work. Pick one in writing. Left undecided, the contingency is a line item when the project team looks at it and a reserve when finance does, and you spend it twice.
What are you giving up?
Three tradeoffs, each with a real cost.
Precision against speed. A monthly cash view costs weeks of document work. A quarterly view costs an afternoon, gets the annual total right, and averages away the month that breaks you. If you run one site with no construction planned, quarterly is fine. Once a build is in the plan, go monthly.
Reserve against line item. Covered above. Control or transparency. Choose it rather than inherit it.
Locking growth capital against keeping optionality. A site you fund in the plan is a site you will feel pressure to sign, because the capital is allocated and the year has a shape, and that pressure degrades deal discipline. Leave the growth capital unallocated and it gets spent elsewhere. What I do with founders is fund the growth line in the plan and tie its release to deal criteria written before the search starts: minimum room count, maximum all-in cost, latest opening date. The money is reserved without the deal being pre-approved. How you finance that reserve changes the answer, which I covered in financing the footprint.
What do you do with the peak month?
Say the peak is $800,000 and your cushion is $600,000. You have three moves, and all three are available in October at effectively no cost. Start Site C's construction a quarter later or earlier so its heaviest draw clears in a different month. Finance the gap deliberately, at a price you negotiate now, against a schedule you can show the lender. Or move the Site A HVAC replacement to a month where it is not competing with an equipment deposit; a unit with one more winter in it can usually wait until spring if you decide that in the fall.
Make one of those moves in October. By August the same $200,000 gap costs you a rushed credit facility or a stalled project, and you will make the decision under a contractor's deadline instead of your own.
One more thing this exercise will surface. Once you know what the portfolio costs and when, you still have to decide what each existing clinic is supposed to be doing next year, because the necessary bucket at a five-year-old site you intend to keep and the necessary bucket at a site you intend to leave are not the same list. Do that review before you size Site 4.
Key takeaways
- Put every real estate dollar in one of three buckets: committed (you signed for it), necessary (you have not signed, but you will pay it in 2027), or growth. Fund growth with what remains after the first two are covered in the months they hit.
- Build the budget by month. A project-organized budget reconciles on the annual total and hides the month where a construction draw, an equipment deposit, and a capital repair overlap.
- Float the full build cost. On a $2M build with a $500K TI allowance, you fund $2M at peak and the landlord reimburses you 30 to 90 days after you have paid the contractor.
- Put renewal notice deadlines on the budget calendar with the rent consequence written next to them. Miss the window and you are in holdover at 125 to 200 percent of base rent.
- Carry 10 to 15 percent contingency on renovations of existing buildings, and decide in writing whether it is a project line item or a reserve the CFO releases.
Frequently asked questions
How do you budget for a clinic build-out when the TI allowance is reimbursed?
Budget the full construction cost as cash out, then budget the allowance as a separate inflow 30 to 90 days after the milestone that triggers it. On a $2M build with a $500K allowance, you need $2M of available capital at peak, not $1.5M. Most landlords require lien releases before funding, which adds time.
How much contingency should a healthcare real estate budget carry?
On renovations of existing buildings I carry 10 to 15 percent, at the top of that range when as-builts are missing or the building is older. Clean second-generation space justifies less. Then decide whether contingency is a visible project line item or a reserve finance releases, because that determines how fast the team consumes it.
What real estate costs do clinic operators most often leave out of an annual budget?
CAM and NNN reconciliation true-ups, retention release timing, utility connection fees, equipment deposits paid four to six months before delivery, and the rent carried between the certificate of occupancy and meaningful billing. In Retained CRE's projects, the items that get missed are the ones created in one document and paid under another, months apart.
Should real estate be its own line in a healthcare operator's annual budget?
Yes, as a monthly cash schedule rather than a single annual figure. Different people create real estate obligations at different times, so you have to consolidate them to see where they overlap. The approach I use at Retained CRE is twelve columns showing the month cash clears, with the peak month stress-tested.
Building Your 2027 Plan?
I build the real estate line of the budget with founders and their CFOs: every lease, contract, and open project laid out by month, with the peak stress-tested before it arrives.
Schedule a ConversationRent commencement, renewal notice windows, and holdover are all clauses with dollars attached. What You're Actually Signing grades those and 23 others.
