Real Estate Operating Company (REOC) Characteristics

Article of the week

True Tamplin (Finance Strategists): Real Estate Operating Company (REOC)

Core Ideas

1) Diversification: REOCs usually operate across the entire real estate value chain: land and property acquisition (identification, purchase), development (new construction, renovations, expansions, redevelopments), management (leasing of owned properties, operational services for third-party property owners) and property sales. This diversification reduces business risk and volatility.

2) Management: Many REOCs are publicly traded and have the traditional corporate governance structure, i.e. a board of directors overseeing the company management (CEO, CFO, COO, CIO, etc.).

3) Benefits: Their business diversification gives REOCs flexibility in where to reinvest their profits to maximize compounding. This enables potentially higher returns than companies that distribute profits to shareholders.