Going Direct

Are discretionary REOC-sponsored funds the answer?

As the institutional real estate landscape evolves, many real estate operating companies (REOCs) are reevaluating how they access and deploy capital. The traditional model of nondiscretionary or programmatic joint ventures, where investors retain deal-level control, is increasingly being weighed against discretionary, REOC-sponsored fund structures that offer speed, scale and strategic flexibility. This shift reflects both a maturation of REOC platforms and a changing investor appetite for efficiency, transparency and alignment in an environment defined by tighter liquidity, heightened competition and growing operational demands.

Direct vs. indirect: Reviewing benefits and trade-offs of models

As REOCs mature, many are weighing the transition from nondiscretionary, deal-by-deal or programmatic joint venture models to launching discretionary, REOC sponsored funds. The shift represents a move from investor-controlled capital toward a structure that grants managers greater autonomy over deployment decisions. Discretionary funds enable REOCs to act more nimbly in competitive markets, execute strategies at scale and establish a recurring revenue base through management fees and portfolio-level promotes. They also diversify the investor base and strengthen institutional credibility, which can help position the REOC as a fully integrated investment manager rather than solely an operator or developer.

“There are numerous benefits in direct investing versus indirect,” says Andrew Janko, managing director at RCLCO Fund Advisors. “Direct investors often enjoy more discretion, transparency and control over their portfolios, in terms of investment strategy, composition and pacing, than indirect investors and can achieve better fee effectiveness as well through compensation structures that are more investor friendly.”

“Each model offers unique benefits to investors depending on their risk appetite, capital availability and targeted exit horizon,” says Antonio Marquez, principal and managing partner at Comunidad Partners. “The key differentiators between direct and indirect investments are how much time and control investors want to have overall. Direct models typically have higher barriers to entry and require heavier time management on the side of the investor to oversee negotiations,
legalities and input on property decisions. Additionally, direct investments can be slower moving, given the nondiscretionary nature, which may limit investment opportunities due to the speed of execution, given the layers of decision making and potential bureaucracy that can result in a higher opportunity cost.”

Source: Institute for Real Estate Operating Companies: https://irei.com/wp-content/uploads/2025/10/iREOC-Connect-Q4-2025.pdf