Introduction
A Real Estate Operating Company (REOC) is a corporation that functions in the direct acquisition, ownership, management, and development of real estate assets. Unlike Real Estate Investment Trusts (REITs), REOCs have more operational flexibility and are not obligated to distribute 90% of their taxable income as dividends. This allows for reinvestment of earnings into the business and often leads to long-term growth strategies involving development and modernization projects.
Examples
- Trammell Crow Company: One of the largest commercial real estate developers and investors in the United States.
- Hines Interests Limited Partnership: A globally recognized real estate firm that focuses on property management, leasing, and development.
- Brookfield Properties: Manages and develops one of the largest portfolios of office, residential, and retail properties globally.
Frequently Asked Questions
Q1: How do REOCs differ from REITs? REOCs are different from REITs primarily in the regulatory requirements concerning income distribution. While REITs must distribute at least 90% of their taxable income as dividends to shareholders, REOCs have no such obligation, providing them with greater flexibility for reinvestment.
Q2: Why might an investor choose a REOC over a REIT? An investor might choose a REOC over a REIT for growth-focused investment strategies. Since REOCs can reinvest earnings into new and ongoing projects, they might offer more substantial long-term capital appreciation opportunities.
Q3: What types of properties do REOCs typically manage? REOCs typically manage a diverse range of properties, including commercial office buildings, retail spaces, industrial facilities, and residential properties.
Q4: Are REOCs publicly traded? Some REOCs are publicly traded, enabling them to raise capital from public markets; others remain private entities, often funded through private equity and institutional investors.
Q5: What are the main risks associated with investing in REOCs? The primary risks include market fluctuations, liquidity risks, and project execution risks. Since REOCs often engage in property development, they are exposed to higher execution risks compared to REITs.
Related Terms
- Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate and is required by law to distribute the majority of their taxable income as dividends.
- Property Management: The operation, control, and oversight of real estate as used in its most broad terms.
- Real Estate Development: A business process that encompasses activities ranging from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others.
Online Resources
- Nareit: The National Association of Real Estate Investment Trusts provides comprehensive information on REITs and REOCs.
- Investopedia - REITs vs. REOCs: A detailed comparison between REITs and REOCs.
- Securities and Exchange Commission (SEC): Regulatory information and filing details for publicly traded REOCs.
References
- “The Intelligent REIT Investor Guide: How to Sleep Well at Night with Safe and Reliable Dividend Income” by Brad Thomas
- “Real Estate Finance and Investments” by William Brueggeman and Jeffrey Fisher
- “Commercial Real Estate Analysis and Investments” by David M. Geltner
Suggested Books for Further Studies
- “The Real Estate Game: The Intelligent Guide To Decision Making And Investment” by William J. Poorvu
- “Investing in REITs” by Ralph L. Block
- “Principles of Real Estate Practice” by Stephen Mettling and David Cusic
