By Tommaso Fonti – Head of Luxury Real Estate
Many companies hold both their business and their real estate assets within the same operating company, whether such assets are used for business activities, remain unused or are intended for other purposes.
This structure concentrates two very different components within the same entity:
- the industrial or commercial business;
- the real estate assets.
The combination of these components exposes the real estate assets to the operational risks of the business, limiting the protection and long-term enhancement of both components.
Why separate them
A corporate reorganisation can create two autonomous business structures. The operating company continues to conduct and develop the business, whether industrial or commercial. The real estate company holds, manages and enhances the real estate assets according to a dedicated strategy.
The separation reduces the exposure of the real estate assets to the operational risks of the business and allows both the real estate portfolio and the business to be better enhanced. In fact, this separation also facilitates and supports the entry of investors into the operating company for the development and growth of the business.
Solution 1
Spin-off of the real estate assets
The operating company transfers the real estate assets to a NewCo, which assumes the role of real estate company. The industrial business remains with the operating company. The shareholders directly hold both companies.
After the reorganisation:
- the operating company continues to manage the industrial business;
- the real estate company holds, manages and enhances the assets;
- the two asset pools follow distinct strategies and risk profiles.
Solution 2
Spin-off of the industrial business
The original operating company transfers the business to a NewCo while retaining ownership of the real estate assets and, in exchange, receives a 100% interest in the NewCo. The NewCo becomes the new operating company and continues to carry out the original industrial business. The original company assumes the role of holding company and real estate company. The structure keeps the ownership of the operating company and the real estate assets under common control, while separating the latter from the operational risks of the business.
Solution 3
One holding company, two subsidiaries
The original operating company separately transfers:
- the business to a NewCo, which becomes the new operating company;
- the real estate assets to another NewCo, which assumes the role of real estate company.
The original operating company becomes a holding company, holding and managing the interests in both companies. The structure creates three distinct levels: governance at holding company level, industrial activities at operating company level and real estate management at real estate company level.
Relationship between the operating and real estate companies
The corporate separation does not necessarily prevent the operating company from continuing to use the properties for its business activities. The real estate company may lease the properties to the operating company.
The lease agreement must clearly regulate:
- rent and term;
- maintenance and investments;
- guarantees and liabilities;
- renewal or release conditions.
The structure works only if the relationships between the companies are consistent and economically sustainable.
Which structure should you choose?
The choice of corporate structure depends on the business plan. Several aspects must be assessed, including the shareholders’ business objectives, the potential economic return arising from a business reorganisation and the potential entry of new investors. The tax implications and impact of the reorganisation, the legal aspects and the economic sustainability of the new structure must also be assessed.
There is no standard solution. There is a structure that is functional and consistent with the objectives.
Contact us to identify the structure best suited to your business project.