The Future of Real Estate is Built with OpCo/PropCos

A lot of the value created in the last real estate cycle came from low interest rates and cap rate compression. Those are related phenomena that we’ll unpack another time.

The next wave of value will come from better operations.

Many of the best operators of this cycle will be built tech-first. And many are inherently scalable too. Because of our work on the venture side, those operators tend to find their way into our office.

These companies need two kinds of capital:

• Operating capital – to build tech, product, brand, and run sales and marketing. That’s what venture dollars are good for.

• Real estate capital – to…buy real estate. That’s not a great use of venture capital.

Note: buying deals right on the real estate are tablestakes.  Even great operators can’t outrun a bad purchase.

Enter OpCo/PropCo.

Last time, we talked about why real estate innovation needs more than just venture capital.

Now we want to break down a structure you’ve probably heard thrown around: OpCo/PropCo.

OpCo = Operating Company

This is the actual company. In our world, these are often venture-backed operators that are building “brand-driven” “tech-enabled” “property managers.” These can (and should) exist across many property types.

Whether they’re always a good fit for venture capital is a separate (and spicy!) newsletter.

PropCo = Property Company

This is where the real estate lives. Duh. More often than not, the above OpCo is managing this real estate. There are a few ways for OpCo/Propco to play together. That too, dear reader, is for a later post.

In the OpCo/PropCo structure, the assets sit separately from the company so each can be funded with capital that matches its risk/return profile.

• The OpCo is where most of the risk belongs: Will the concept work? Can it scale? Is the team any good? Those are venture underwriting questions.

  • Downside: investment goes to zero.
    

  • Upside: investment increases by many many multiples (5-500x) and you have carte blanche to humbly post about it on Twitter.
    

• The PropCo owns the real estate. This should be much less risky than the OpCo. Relatedly, it’s also much more easily underwritten.
  

  • Downside: it better NOT be a zero!
    

  • Upside: 1.5–3x, depending on hold period and asset class.

The point is: most next-gen platforms need real estate to prove their model and venture capital isn’t the right source of capital to buy that real estate. 

This structure is critical to the future of real estate innovation because it separates the types of risks incumbent in building these platforms and appropriately places them with investors who want and understand each type.

At Unwritten, this is exactly what we do:

We support the next generation of OpCo/PropCo models providing both capital and counsel to great founders building great platforms.

We’re excited to be on this journey and grateful to have you with us.

Operators - ready to grow your platform with smarter capital? 

Investors - interested in co-investing in opportunistic and high-growth real estate platforms?

Let’s talk: [email protected]