Commercial real estate is commonly associated with properties purchased to generate income through tenant leases. Another investment model involves properties purchased by a business for occupancy, rather than leased to third-party tenants. This is referred to as owner-occupied commercial real estate (OOCRE), or owner-user. Common examples of businesses that follow this investment model include medical and dental practices, industrial or manufacturing operations, and professional services (i.e., accounting or law firms). Even when it appears to be a single business, multiple legal entities are often involved, with different stakes and responsibilities.
This article helps inspectors adopt their clients’ perspective by explaining common entity structures for owner-occupied properties. By understanding how clients are legally structured, inspectors can better anticipate their concerns, ask clarifying questions, and customize inspection services with actual business objectives.
Owner-Occupied Entity Structures
Owner-occupant entity structures often use an operating company–property company (OpCo/PropCo) setup, with some adding a holding company (HoldCo) above both.
OpCo/PropCo
The OpCo/PropCo model is the most common for small businesses and family-owned operations. This structure looks like:
- Entity A (OpCo): Operates a business within the building
- Entity B (PropCo): Owns the building and leases it to the OpCo
This structure keeps the on-site business operations and real estate separate, often for liability protection, tax benefits, cleaner bookkeeping, and lender requirements.
OpCo/PropCo/HoldCo
A third entity may also be introduced for larger or more complex organizations. This structure looks like:
- Entity A (OpCo): Operates a business within the building
- Entity B (PropCo): Owns the building and leases it to the OpCo
- Entity C (HoldCo): Owns or controls both entities
The holding company provides strategic control across multiple properties or business lines. This structure is useful when owners scale beyond a single location or need to isolate liability across separate investments. Examples include private equity and franchise groups.
Why This Matters for Inspectors
Understanding owner-occupied entity structures helps inspectors recognize that a single client may have the roles and inspection objectives of both a buyer and tenant. In practice, leases often exist between the OpCo and PropCo, with one entity acting as the tenant and the other as the landlord. The landlord entity may also lease space to third-party tenants.
In these structures, the OpCo and PropCo operate as separate profit centers, each with its own budget. When a HoldCo sits above both, the owner can manage cash flow and reinvestment across the entire structure. This perspective clarifies potential report uses and inspection objectives, allowing inspectors to better tailor their services.
Tailoring Inspections to Owner-Occupied Properties
With the understanding that an inspection commissioned by an owner-occupant typically involves a single client wearing multiple hats, inspectors can approach client conversations with greater context and clarity. True customization depends on the client’s situation. For example, inspectors may not necessarily change what they inspect, but the client may have more than one objective and report use, or a preference in how findings are organized.
Inspection objectives in owner-occupied scenarios often fall along a spectrum. One objective may focus on purchase risk and condition at acquisition, while another relates to operational impact and fitness for on-site business use.
Start by asking targeted questions about ownership structure. If a client mentions terms like “holding company,” “separate entities,” or “lease between related parties,” dig deeper to understand who is responsible for what. The client may appreciate separate inspection reports for each entity, or one comprehensive report that clearly delineates which items fall under each entity’s responsibility. This is driven by their accounting and tax requirements, as each entity needs to track and report its own assets and expenses separately.
Often, the building owner entity focuses on structural systems, building envelope, and capital improvements, while the business operator entity focuses on operational systems, equipment, and tenant improvements related to their specific use. Aligning reports with how clients manage their property means the information is already organized the way they need it
Consider asking:
- Which entity is responsible for building maintenance and replacements?
- Which entity is responsible for operational equipment and business-specific improvements?
- Are the real estate and business operations managed under one budget or independently?
- If a holding company exists, does it manage both the real estate and business under one budget?
These questions can help inspectors determine whether a comprehensive report or separate reports for each entity will best serve a client. The client may describe this structure using either entity names or landlord-tenant terminology, but the concept of separate responsibilities remains the same. Similar preferences for report structure also apply to cost-to-remedy and other capital reserve inspection services. Some clients may prefer cost tables that separate or clearly label report items and associated costs.
Takeaways
Owner-occupied inspection clients often use inspection reports for business, capital, and financial decisions beyond traditional purchase due diligence. When inspectors understand the commercial real estate process and their clients’ varying stakes and interests in it, they significantly improve client relationships and report value. Owner-occupied properties requiring inspections for due diligence at acquisition or throughout ownership are best served by Certified Commercial Property Inspectors. See CCPIA’s public directory to find a certified inspector.
Inspectors can deepen their expertise with the Understanding Commercial Clients online, self-paced course or Commercial Assets Explained: Tenant Mix and Shared Systems article.