CandleFocus

Opco

Candlefocus Editor
Operating companies (Opco) are businesses organized to provide non-institutional investors access to owning and operating commercial real estate. They often include individuals and small groups of people, such as family offices and other private investors. Opcos typically manage the day-to-day activities of the properties, from management and leasing to financing, maintenance, and other operational services.

Opcos are set up to take advantage of the tax and financial benefits associated with owning and developing real estate. The flexibility of this type of ownership structure also allows investors to closely customize their strategies as they grow and develop their real estate portfolios. In an opco/propco deal, a group of investors contributes to capitalize a separate Opco entity, which provides the institutional buyer a controlling equity interest.

The ability to control an entity that is set up to own, manage and operate the real estate assets offers multiple advantages such as control over the quality of the deal, leverage to make improvements on the existing assets and the ability to develop additional assets. It also facilitates the better execution of certain financial strategies, such as the value-added strategy, where opportunities are identified within existing assets and maximize value through renovation or repositioning.

In summary, an operating company (Opco) is an entity set up for non-institutional investors to own and manage commercial real estate. The goal is to take advantage of certain tax and financial benefits associated with real estate ownership, as well as allow for more flexibility of ownership strategies. An Opco/Propco deal is a structure that separates an operating company from a property company, allowing investors to benefit from the increased control, leverage and ultimately value-add strategies.

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