The PropCo/OpCo divide in skilled nursing and assisted living: Why owners are turning to ESOPs

Skilled nursing facilities and assisted living communities are typically structured under a Property Company/Operating Company model, commonly known as PropCo/OpCo, which separates the real estate from day-to-day healthcare operations. While this structure offers clear advantages during the life of the business, it creates a fundamental problem at exit for the OpCo: the PropCo, backed by tangible real estate, can command a strong price on the open market. However, the OpCo, without owning any real property, often has little or no saleable value to a third-party buyer. With limited buyers and constrained lending markets for standalone operating companies, owners are increasingly turning to the Employee Stock Ownership Plan, or ESOP, as the most practical vehicle for monetizing the OpCo — a strategy that also addresses one of the industry's most persistent challenges: employee retention.

The value divide: Why the PropCo is worth more than the OpCo

PropCos attract investors because they offer steady rental income backed by real property. A buyer might acquire a 120-bed nursing home building and lock in a 25-year lease with annual rent increases, collecting reliable checks regardless of how well the operator runs the business. Even if the operator fails, the building still has value — it can be re-leased to a new operator or sold.

The OpCo is a very different story. A buyer of the operating company inherits staffing headaches, razor-thin margins, and revenue that can depend on Medicaid and Medicare reimbursement rates set by the government. Without the building or land on the balance sheet, there is nothing of lasting value to recover if the business fails or if the landlord terminates the OpCo’s operating lease.

The result is a stark imbalance at exit. An owner can sell the PropCo to a real estate investment trust or private equity fund and walk away with a strong price. But finding a buyer for the standalone OpCo, especially when interest rates are high and margins are tight, is far harder, and lenders are reluctant to finance OpCo-only deals.

The ESOP solution: Selling operations to employees

Because so few outside buyers want a standalone OpCo, the ESOP has become a popular exit for the operating side of the business. An ESOP is a federally regulated retirement plan that gives employees an ownership stake in the company — at no cost to them. In a typical deal, the owner sells the operating company to the ESOP.  If the owners maintain ownership of the PropCo, the PropCo can enter into a lease with the now ESOP-owned OpCo as a tenant, which would generate passive income for the owners of the PropCo.

In an ESOP transaction, the company sets up a trust that buys some or all of the owner’s shares either with a loan from a third-party lender or a note from the seller shareholder(s). The leveraged shares are held in a suspense account within the ESOP as collateral for the loan. The company repays the loan over time from its own revenue, and as the debt shrinks, shares are released from the suspense account and allocated participant ESOP accounts, thereby gradually transferring ownership to the employees. A CNA earning $18 an hour never writes a check, they accumulate shares just by doing their job, and when they retire, the company pays their value. Owners can sell all at once or in stages, and they can stay on and keep running the day-to-day business operations — flexibility that a sale to an outside buyer rarely offers.  If the owners sell in stages and maintain 51% of the controlling interest in the OpCo, the owner will maintain control of the OpCo.

Addressing the staffing crisis through employee ownership

Turnover in long-term care remains stubbornly high, according to Hospital & Healthcare Compensation Service, CNAs have annual turnover rates of 42%. ESOPs help because an aide or nurse who is building an ownership stake has a direct financial reason to stay.

The data backs this up. ESOP participants earn 33% more in median income, hold 92% more household wealth, and stay in their jobs 53% longer than comparable workers at non-ESOP companies. A 2025 study found their median tenure was three years longer. They also retire with about 2.2 times the savings of employees in typical 401(k) plans — a meaningful benefit in an industry where many frontline workers have had little access to employer-sponsored retirement.

Tax benefits

The owners can sell on a tax-advantaged basis if the transaction is appropriately structured.  Capital gains may be deferred if the employer is a C corporation, the ESOP purchases at least 30% of the employer’s issued and outstanding stock, and certain other requirements are satisfied.  Comparatively, the owners would immediately incur capital gains tax upon the sale of the company to a third-party purchaser.

If an ESOP-owned company is set up as an S corporation, the company can achieve a near-zero or zero effective federal income tax rate because the portion of earnings attributable to the ESOP’s share of ownership is not subject to tax at the corporate level. The company’s income flows through to the ESOP, which, as a qualified tax-exempt entity, does not pay current taxes on its share of the company’s income. This unique structure allows the business to retain significantly more cash flow to fund operations, pay down acquisition debt, or reinvest in future growth.

Looking ahead

The PropCo/OpCo model is unlikely to change — skilled nursing and assisted living facilities will continue to separate real estate from operations and there will continue to be stand-alone operators — and the OpCo's limited saleable value will remain a persistent exit problem. For owners who cannot find a willing buyer for their OpCo at a fair price, owners that desire to transfer their business to employees, incentivize their employees and desire a tax-advantaged sale, the ESOP is an attractive strategy. Turning an otherwise unsaleable operating company into real money in the owner's pocket while preserving the owner's legacy and rewarding the workforce that sustains the business. In an industry where quality of care depends entirely on the stability of the workforce, that alignment of interests may be the most consequential benefit of all.