Real Estate Operating Company (REOC)
Candlefocus EditorUnlike a Real Estate Investment Trust (REIT), an REOC does not own and operate a portfolio of real estate properties. Instead, an REOC focuses on actively managing and investing in real estate on behalf of its investors. They do this by forming relationships with property owners and other investors to purchase, trade, and manage real estate assets. Similarly to REITs, their goal is to maximize returns through the appreciation of their investments.
REOCs may purchase and manage real estate assets from diverse markets, such as residential, office, retail, hospitality, multifamily, and industrial properties. In addition to investing in properties, they may also invest in securities and risk derivative strategies to generate income. These strategies can range from debt and equity investments to options, derivatives and foreign exchange investments.
A major advantage of REOCs is that they have the potential for greater growth prospects than REITs because they have greater flexibility in their investments. REOCs can also reinvest their earnings back into the business rather than distributing them to unitholders the same way REITs are compelled to do, which allows them to enhance their growth potential. However, this advantage comes with its own set of limitations: REOCs may not generate as much immediate income as REITs, and they may take on more risk in the process.
In conclusion, REOCs are a viable investment vehicle for those looking for higher potential returns. They have the potential for greater growth prospects and more flexibility in investments, but do not generate as much immediate income as REITs and involve more risk.