"OpCo-PropCo structures provide more diversified returns and richer operational data on occupancy, turnover and customer behaviour. That data, when consistent and transparent, increasingly informs valuations, giving investors a better picture of the health of the income stream and sometimes supporting sharper pricing on the PropCo side."
- Kimberley Gates - Karis Capital
The OpCo-PropCo model, structuring the operating business (OpCo) and the real estate-holding company (PropCo) as separate legal entities, has been increasingly common across the UK market for some time now. It is particularly prevalent in sectors where trading businesses need premises such as healthcare hubs & logistics centres. As well as in residential markets including PBSA, co-living, apart-hotels, serviced accommodation and care homes.
By separating the operating company from the property company, investors can achieve more than just flexibility in capitalising and managing risk. It enables them to build distinct value streams. The PropCo captures the real-estate element, such as rental yield, appreciation and capital stability, while the OpCo captures the trading upside, such as cashflow, brand value and scaling potential.
For long-term investors, it can also keep funding and exit strategies more open and can, in some cases, help optimise tax and accounting treatment: capital allowances on fit-outs, VAT recovery and even future stamp-duty planning can be considered in ways that are harder to achieve in a single-entity structure.
At Karis, we are seeing growing interest in this approach from SME developers, regional housebuilders and portfolio investors diversifying into alternative markets. These are clients aiming to build platforms rather than simply acquire assets and create value within both the business and the underlying real estate. While not immune to external market pressures, the model can help keep capital sources and exit routes broader.
Investor appetite is also being driven by pressure on traditional yields, particularly in the residential market. Higher financing costs, coupled with legislative uncertainty from measures such as the Renters’ Rights Bill, are making conventional buy-to-let and straightforward residential rental investment less appealing.
In contrast, OpCo-PropCo structures provide more diversified returns and richer operational data on occupancy, turnover and customer behaviour. That data, when consistent and transparent, increasingly informs valuations, giving investors a better picture of the health of the income stream and sometimes supporting sharper pricing on the PropCo side.
The rise of alternative residential asset classes underlines the trend. According to Knight Frank, more than £1.1 billion was invested in the UK Build-to-Rent (BTR) market in the first three months of 2025, marking the seventh consecutive year that Q1 investment has exceeded this figure. Annual PBSA investment reached £3.87 billion in 2024, representing 14% year-on-year growth.
These sectors, along with care homes and social housing, benefit from strong supply-demand fundamentals that align well with the OpCo-PropCo model and often reward operators who can demonstrate brand strength and consistent service delivery.
Another attraction lies in the access to different pools of capital. Institutions, REITs and debt funds are typically more comfortable backing the PropCo assets with long-term income characteristics, while private-equity and growth-focused investors often prefer the OpCo. The model also lends itself to specialist structures such as sale-and-leasebacks or forward-funding, where the operating covenant is as important as the building itself.
From a lending perspective, there is liquidity in the market for well-structured opportunities, but lenders are applying more due diligence. They are scrutinising Gross GDVs, lease covenants and exit strategies to ensure Loan-to-Value (LTV) ratios sit within their risk appetite. They also tend to ascribe a higher leverage capacity to the PropCo’s contracted income than to the more volatile trading cashflow of the OpCo.
For borrowers, understanding these distinctions and preparing the structure accordingly can significantly improve pricing and deliverability.
There are, however, as with all strategies and structures, pitfalls to avoid. We still see examples where the OpCo is under-capitalised, leaving it unable to build the brand, invest in systems or absorb early-stage volatility.
Equally, we have seen scenarios where the PropCo is over-leveraged, which reduces flexibility for future refinancing or expansion. Misalignment between lease terms agreed by the two entities can also erode value, for example, if the rent set in the OpCo lease constrains the PropCo’s ability to demonstrate secure income for the required debt or vice-versa.
The most successful investors in this space are those who actively manage both sides of the structure, continuously reviewing performance to adapt strategy and make sure the lease and capital structures evolve alongside the operating business.
Current planning rules and new ESG standards add yet another layer, not just affecting what you can build but also changing the costs and the income profile of the operating business at the back end. For example, energy-efficiency upgrades and limits on bed numbers in PBSA or care homes can reduce margins for the operator or alter the rent the PropCo can charge.
If those factors aren’t allowed for in the way the debt and equity are structured at the outset, especially in forward-funded deals, a scheme that looks profitable on paper can end up underperforming once it’s built and running.
