Structuring Great OpCo-PropCo Partnerships

An overview of the major legal and structuring points in the real estate investing partnership

Today’s Thesis Driven, a guest letter by Jesse Strauss, examines the conflicts inherent in any OpCo-PropCo structure and discusses how the operating company and the real estate investor can structure their relationship to navigate these conflicts. Jesse Strauss is the former Vice President and General Counsel at Common Living, Inc. He now runs his own private practice, Strauss Law PLLC, focusing on real estate, dispute resolution, and corporate transactions. Jesse also offers fractional legal services through Your Fractional General Counsel. 

Thesis Driven has covered several aspects of the OpCo/PropCo model for funding property development and growing operating companies, including the types of partnerships these models use and the firms actively funding OpCo/PropCo structures. When structured effectively, the OpCo/PropCo model can provide real estate investors with a pipeline of great deals while significantly boosting the growth of an operating company. However, structuring an OpCo/PropCo relationship is complex, as it involves navigating numerous conflicts and avoiding pitfalls.

I served as the General Counsel at Common for seven years, where we employed the OpCo/PropCo model. I have witnessed this structure both succeed and fail, at times quite dramatically. At Common, we used to say, "Happy OpCo/PropCos are all alike, but every unhappy OpCo/PropCo is unhappy in its own way." However, with experience, I've realized that there are specific key conflicts that can make the OpCo/PropCo relationship challenging, and there are strategies to foster a successful partnership.

Today’s letter will explore those challenges and strategies, including:

• When OpCo/PropCo structures make sense;

• How OpCo/PropCos get financed;

• Analysis of major conflicts including control, termination rights, exclusivity, and operations.