What is vertical integration?
Vertical integration describes a company that controls more than one stage of production of a good or service, and sometimes the entire production. For example, an agricultural corporation that grows food, processes that food, and then sells it at the corporation’s own retail grocery stores, would be an example of a vertically integrated company.
A vertically integrated real estate management company is an organization set up to handle many or even all the aspects of commercial real estate management, from acquisition to full-service management and leasing, to disposition. A vertically integrated real estate company is typically comprised of several business units. These units operate as distinct entities, developing expertise in their respective domains, but they also work closely together to serve the interests of the broader business and its investors. There are many advantages of vertical integration when it comes to real estate investing. A vertically integrated real estate firm can generate an unmatched level of domain expertise and understanding of both real estate best practices and the market in general.
A vertically integrated company would have its business units operating under the same corporate family. The property management team and the firm’s other divisions are aligned to generate the greatest returns possible for the company’s investors. Finally, a major advantage of vertical integration in real estate is that is can create economies of scale; the proportionate cost advantages a business enjoys when it increases its level of output.
Consider a vertically integrated real estate company specializing in grocery anchored retail properties. Such a company will develop deep expertise across all aspects of such properties – their market values, the most cost-effective ways to build or upgrade such properties, as well as the best ways to manage them, find and screen new tenants, and add overall value to the properties. When a vertically integrated company focuses on a specific category, that company will develop a set of processes that allow it to manage more skillfully and efficiently than its competitors. In other words, investors benefit from using a vertically integrated real estate services company with a narrowed focus to help expand and grow their portfolio.