Real Estate Operating Company (REOC)

A real estate operating company (REOC) is a publicly traded company that actively invests in, manages, and operates real property—typically commercial assets such as office buildings, retail centers, hotels, malls, and multifamily housing. Unlike real estate investment trusts (REITs), REOCs are free to reinvest earnings into the business rather than distribute most of their income to shareholders, and they pay regular corporate taxes.

Key takeaways

REOCs are publicly traded companies that invest in and operate real estate.
They typically reinvest profits for growth instead of distributing most earnings to shareholders.
Common holdings include commercial properties: offices, retail, hotels, malls, and multifamily.
Investors gain exposure by buying shares through brokers—providing diversified real estate exposure without owning physical property.
REOCs face market risks such as interest-rate, housing, liquidity, and credit risk, and they pay corporate taxes (unlike qualifying REITs).

How REOCs enhance investment portfolios

Diversification: Provide exposure to real estate without the capital outlay and management burden of direct ownership.
Professional management: Properties are acquired, operated, leased, and maintained by experienced teams.
Liquidity and accessibility: Shares trade on public markets, so investors can buy and sell without handling physical asset transactions.
Flexible strategy: REOCs can buy, develop, renovate, hold, or sell properties to pursue growth or cash generation.

REOCs vs. REITs — key differences

Earnings distribution:
REITs are required to distribute at least 90% of taxable income to shareholders to maintain special tax status.
REOCs may retain and reinvest earnings to fund expansion, acquisitions, or improvements.
Tax treatment:
Qualified REITs receive favorable tax treatment and are generally exempt from corporate federal income tax.
REOCs pay standard corporate taxes.
Investment focus and strategy:
REITs typically emphasize income-producing properties and long-term hold strategies.
REOCs have more flexibility to buy properties to renovate and resale or pursue growth through reinvestment.
Structural requirements:
REITs must meet regulatory thresholds (for example, minimum percentages of assets in real estate and income from property).
REOCs are not bound by the same distribution or asset percentage rules.

Risks to consider

Interest-rate risk: Rising rates can increase borrowing costs and pressure property valuations.
Market and housing risk: Demand shifts in commercial and residential markets affect occupancy and rents.
Liquidity risk: Some REOCs may hold assets that are hard to sell quickly; share liquidity varies by company.
Credit risk: Tenant defaults or weaker credit profiles can reduce cash flow.
Tax considerations: Because REOCs pay corporate taxes, net returns can be lower than similar investments held in REITs.

How to invest

Purchase shares through a broker or financial advisor like other publicly traded equities.
Evaluate company strategy (development vs. long-term holding), asset mix, management track record, balance sheet strength, and dividend policy.
Match the choice between REOC and REIT investments to your objectives—growth-oriented investors may prefer REOCs’ reinvestment potential, while income-focused investors may favor REITs’ distributions.

Bottom line

REOCs offer a way to invest in actively managed real estate portfolios with the potential for growth through reinvestment and operational improvements. They provide diversification and professional management without direct property ownership but carry tax and market risks distinct from REITs. Choose between REOC and REIT exposure based on your goals, preferred tax treatment, income needs, and tolerance for volatility.