Health systems fast-track infrastructure as opex, not capex

When Vincent Grippo arrived at Northwell Health, the system was spending $40 million to $60 million a year on infrastructure; by last year the figure had reached $170 million, and the larger change was in the ledger, where Northwell stopped calling the work an investment.

Grippo, senior vice president of real estate and facilities services at Northwell, laid out the shift at Commercial Observer's National Healthcare Forum on Sept. 10 in the Proshansky Auditorium at the City University of New York Graduate Center, in conversation with Mitch Green, a senior vice president at AECOM Tishman; the room — capital planning executives, legal experts, construction managers and project leaders — was organized around rethinking how funds get allocated and aging facilities get brought back.

Grippo described a system that had fallen behind on its own plants — "We were really running to fail on many systems," he said, citing inadequate emergency power across many Northwell hospitals and inadequate cooling on emergency power, which in turn created operating problems for the buildings. The constraints he named were physical as much as financial: plants and facilities only get so large, and there is a limit to how much a system can invest in any given year.

So Northwell built a separate process to move faster, one that routes infrastructure work through the maintenance expense line rather than treating it as a true investment. That reclassification is the mechanism worth understanding. A maintenance item answers to an operating budget and a facilities team; a capital project answers to a capital plan, a board and a queue. Shifting spend between those columns is how a health system buys speed without buying a larger balance sheet. Grippo also described the discipline attached to the shortcut: to get operators to agree, Northwell had to demonstrate that it was assessing the risks in the infrastructure it wanted to fund, so the wrong projects did not jump ahead. A fast track with no ranking would simply move the wrong work faster.

The point is not that these systems cannot raise money; it is that their approval and sequencing machinery cannot absorb the maintenance backlog they are carrying, even as they navigate regulatory pressure, compressed project timelines and the rest of the real estate issues that come with running a hospital. Reclassifying the spend as opex is a workaround, and a revealing one: the plant limits and the emergency-power gaps do not close because the line item changed. They get handled on a different clock, paid out of a different pocket and tracked by a different set of people — which suggests that, for a system carrying deferred maintenance across a large portfolio, the maintenance line can end up functioning as the capital budget without the capital budget's approval gates.

Grippo's own history ran underneath the discussion: he told the room he is seven years cancer-free, having developed the disease from toxic air exposure in the aftermath of the Sept. 11 attacks, and asked for a moment of silence for those the attacks touched. The forum fell on Sept. 10; the anniversary, 25 years on, was the next morning, and that biography matters as the counterweight to the accounting — the people making these capital calls are talking about buildings they know patients sit inside.

The broader real estate cycle is not waiting on that sentiment: Morgan Stanley's read, which this publication covered in August, is that four years of repricing are done and a base is forming. CMBS issuance is running near $140 billion for the year on Trepp's count, though the single-asset mix cuts against reading it as a broad credit recovery. And the refinancing wall is being resolved through structured extensions and preferred equity rather than distress sales — the risk is postponed, not erased. Health system infrastructure sits inside that pattern from the operating side rather than the debt side: the buildings do not trade, cannot be vacated, and the money to fix them is increasingly steered around the capital plan instead of through it.

The closest cousin in our recent coverage is senior housing, where occupancy is heading toward 90 percent and transaction volume is up more than 40 percent, but the pipeline was underwritten against one generation's balance sheet. Health system real estate is the mirror image of that trade — demand that does not go away, assets that do not move, and capital that has to find a side door.

Booking deferred maintenance as operating expense is the right call for a system whose hospitals are short on emergency power: it is faster, answers to the people closest to the problem, and gets the work done. But it is also an admission that the capital planning process could not carry the backlog, and it leaves the harder structural facts untouched — the plant at a given hospital is still the size it is, the emergency power is still what it is, and what changed is which budget absorbs the correction.

Which is why the number to watch is not the next $170 million but the share of a hospital system's operating expense that behaves like capital — and how many other systems decide, under the same cost and regulatory pressure Grippo described, that the maintenance line is the only door their infrastructure spending can get through.