You own a commercial property or an income-generating building within the same company as your business. The day you wish to sell the business, the buyer also inherits the real estate risk. What if you could separate the two? This is precisely what Holdco and Propco structures allow in real estate investment.
Sale-leaseback and SMEs: the concrete mechanism behind the Holdco-Propco separation
Let’s take a simple case. A family SME owns its business premises. Its balance sheet shows a heavy real estate asset, which ties up equity and weighs on its borrowing capacity for other projects.
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The operation involves creating two distinct entities. The Propco holds only the property. The operating company (often called OpCo) continues to manage the business but becomes a tenant of its own premises through a commercial lease. Above it, a Holdco – the holding company – holds the shares of the Propco and, often, those of the OpCo.
In recent years, more and more French SMEs have been using this scheme in the form of sale-leaseback operations. The company sells its property to the Propco, strengthens its equity, and retains the use of the premises through a lease. Sector studies conducted by CMS France in 2023 document this trend, confirmed by analyses from the Banque de France on the increased use of sale-leasebacks to consolidate balance sheets.
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To better understand the advantages of Holdco and Propco for investment, one must first grasp why this separation changes the game financially and fiscally.
Bank financing: why banks prefer an isolated Propco
You might think that separating real estate from operations complicates things for lenders. It’s the opposite.
The new prudential requirements stemming from Basel III, gradually transposed in Europe starting in 2025, change how banks weigh the risk of loans backed by real estate assets. When real estate is housed in a distinct structure, the risk becomes clearer. The ECB, in its financial stability reports published in 2023 and 2024, notes a growing preference among banks for separate holding structures.
Two conditions make the Propco particularly attractive to financial institutions:
- Rental flows are secured by long-term leases, ensuring visibility on the future income of the Propco.
- The financial leverage of the Propco remains moderate, meaning that debt relative to asset value does not exceed a reasonable threshold.
- The Propco bears no operational risk related to the tenant’s business, simplifying credit analysis.
In practice, a well-structured Propco often obtains more favorable financing conditions than a traditional real estate loan granted to a mixed company that combines operations and assets.
Holdco and real estate taxation: what really changes for the investor
The holding company (Holdco) is not just a legal shell. It plays a specific fiscal role.
When the Holdco holds the shares of the Propco, the dividends paid up by the latter benefit, under certain conditions, from the parent-subsidiary regime. This regime allows for the exemption of nearly all received dividends, except for a portion of expenses and charges. The effective taxation on the real estate income received is then very low.
Reselling a property: the advantage of selling shares rather than the property
An investor who sells a property directly incurs high transfer duties for the buyer and a taxable capital gain. By selling the shares of the Propco through the Holdco, the taxation on capital gains from the sale of shares can be significantly lighter, depending on the holding period and the applicable regime.
This mechanism explains why many corporate real estate transactions are conducted through the transfer of Propco shares rather than direct asset sales. The structure does not eliminate tax, but it allows one to choose the timing and method of taxation that best fits the wealth management strategy.
Risks and limits of a Holdco-Propco setup in real estate
Separating real estate from operations protects each entity from the debts of the other. If the OpCo goes bankrupt, creditors do not have access to the property held by the Propco. Conversely, a problem with the real estate asset does not directly contaminate the business.
This protection has a trade-off. Maintaining two companies (or even three with the Holdco) generates recurring management costs: separate accounting, distinct general meetings, cash management agreements, drafting and monitoring of the internal lease.
When the setup becomes disproportionate
For a single property of modest value, the layering of structures can cost more in legal and accounting fees than it saves in optimization. The setup makes sense when managing a real estate portfolio with multiple assets, or when the value of the property justifies independent financial management.
The tax administration also monitors setups whose motivation is exclusively fiscal, without real economic substance. A lease between the OpCo and the Propco must reflect market conditions. An artificially inflated rent to transfer results to the Propco exposes the setup to reclassification.
The Holdco-Propco structure remains a wealth management tool, not a magic formula. Its effectiveness depends on the size of the portfolio, the medium-term holding strategy, and the rigor with which each entity is managed. A well-calibrated setup protects, finances, and optimizes. A poorly sized setup burdens management without real benefit.