Question

Real Investments Co. is a pension fund management company seeking to diversify into the ownership of real estate. They have identified a portfolio of twenty properties located across the state of California. They are considering the form of the entity in which they will hold the properties as well as whether to create their own property management company. What are their options and what facts must they consider in making their decisions?

Answer 1

Solution

Given that Real Investments Co. is a pension fund management company looking to diversify itself into the ownership of real estate.

They are considering 2 kinds of options:

Option 1:Forming an entity that will hold the portfolio of properties

Option 2:Forming an entity that will hold the portfolio of properties and also to create their own property management company

If Real Investments Co.opts for option 1 they will have to outsource the property management function of all its property to some other vendor since they are not a property management company and so do not have any expertise in the area.They will choose this option if they only want to diversify into ownership of assets only apart from the present function of Pension fund management which they perform.

If they opt for option 2 ,they get the benefit of doing the property management function by themselves and also take up this function of managing it for other companies.

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