How to Fix OpCo-PropCo

Innovative real estate is getting frozen out.

At last week’s Thesis Driven subscriber panel discussion on real estate tech, OpCo-PropCo models were at the top of the “cold” categories list. And our own VC polling corroborates this, with brick-and-mortar businesses near the bottom of the interest list.

This isn’t exactly surprising. OpCo-PropCo startups—particularly high-profile, VC-backed ones—have been a dumpster fire of disappointment, cash burn, and venture write-offs.

But it didn’t have to be this way.

I write a lot about innovative real estate structuring and funding concepts like OpCo-PropCo here on Thesis Driven. I believe in the model. But the skepticism with how it’s been employed today is warranted: there have been numerous failures, and those failures have been caused by how the OpCo-PropCo model has been used to date.

So today’s letter is about where investors and entrepreneurs get structuring so wrong and how we—as an industry—fix it going forward. Specifically, we’ll tackle:

• The OpCo-PropCo model;
• How it went astray;
• How we fix it by building an entirely new type of “startup”