When setting up a real estate project with multiple partners, the first concrete question is not “which property to buy” but “in which structure to house it.” A building for offices to be renovated, for example, is financed differently depending on whether it is held in a single company or if the ownership of the property and the management of the investment are separated. This is precisely where the concepts of holdco and propco come into play.
The holdco (holding company) oversees everything: it holds the shares of the subsidiaries, centralizes governance, manages cash flow, and often carries the mezzanine debt or the equity contribution from investors. The propco (property company), on the other hand, does just one thing: own the real estate asset. Its balance sheet consists of a building, a lease, and a mortgage debt. This separation, which may seem administrative, radically changes the risk profile and the ability to raise financing.
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Bank financing: why banks require a dedicated propco
For heavy renovation or change of use operations, lending institutions increasingly demand an isolated propco. The reason is simple: the bank takes a mortgage directly on the company that holds the property, without being exposed to the other activities or debts of the group.
Pledging the shares of the propco offers additional security. If the project goes off track, the lender can seize the entire company, not just the building. It becomes clearer why, to properly understand the differences between holdco and propco, one must start from the financier’s perspective before that of the investor.
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Without this separation, a bank hesitates to lend on an asset housed in a structure that also holds stakes in other companies, cross-current accounts, or off-balance-sheet commitments that are difficult to isolate. The propco eliminates this noise.
Segmenting real estate risks between holdco and propco
The rise in interest rates since 2022 has brought risk management to the forefront of decision-making. Institutional investors (insurers, debt funds) use the propco as an asset-holding vehicle to isolate two types of risks: rental risk (vacancy, unpaid rents, obsolescence of the building) and the risk of depreciation of market value.
The holdco, for its part, concentrates the risk related to mezzanine financing and equity sponsors. If the propco experiences a decrease in valuation, the losses remain contained. The holdco’s own balance sheet is only affected by the depreciation of its equity stakes, not by the entirety of the real estate debt.
Multiple propcos under a single holdco
For a portfolio of several buildings, a propco is often created for each asset. An office building undergoing restructuring in Lyon and a stabilized commercial space in Bordeaux have neither the same risk profile nor the same exit timeline. Isolating each asset in its own company allows for the sale of one without affecting the other.
The holdco remains the single entry point for investors. It redistributes dividends, pools certain management fees, and maintains a consolidated view of the assets. Returns vary on the optimal number of propcos per portfolio: beyond a dozen, the costs of legal and accounting management can weigh on net profitability.
Tax oversight of holdco-propco structures in France
The holdco-propco structuring is not just an organizational tool. The French tax administration examines these schemes from the perspective of economic substance and abuse of rights. A propco without real activity (no personnel, no management decisions made in France) can be requalified, with severe consequences on the tax treatment of rental flows and capital gains.
In practical terms, here are the points of vigilance to keep in mind:
- The propco must have operational reality: address, active bank accounts, documented decisions in council or assembly
- Financial flows between holdco and propco (management fees, intra-group rents, dividend distributions) must comply with market conditions, under penalty of adjustment for transfer pricing
- The location of the holdco in a low-tax country without economic justification almost systematically triggers a control
AMF and EIOPA have highlighted, in several recent reports, the trend towards increased compartmentalization of legal and financial risks within these structures. But compartmentalization does not mean opacity: authorities expect total transparency regarding the chain of ownership.
Choosing between a single structure and a holdco-propco pair based on the project
A holdco-propco scheme is not set up for a rental studio. The complexity and associated costs (formation fees, double accounting, statutory audit if thresholds are crossed) are only justified from a certain volume or level of risk.
Situations where separation brings real value:
- Value-add operations (heavy renovation, conversion of offices into housing) where financing requires dedicated securities
- Multi-asset portfolios held by multiple investors with different exit horizons
- Projects involving mezzanine debt or institutional financing, where the clarity of the propco balance sheet facilitates the negotiation of the covenant package
- Gradual divestment strategies, asset by asset, without restructuring the investment vehicle
For a private investor who holds one or two properties directly through an SCI, the question generally does not arise. The holdco-propco pair becomes relevant when the asset base or the complexity of financing justifies compartmentalization. Beyond theory, it is the discussion with the banker and the tax advisor that determines the outcome: if the lender requests a dedicated company, the answer is already given.