A Real Estate Investment Trust (REIT) is any trust, association, or corporation specializing in real estate and mortgage investment. They generally act as agents on behalf of people interested in real estate shares. These shares are based on a wide range of income-generating properties, including commercial offices, retail centers, apartment complexes, warehouses, hotels, hospitals, and other types of properties.
A real estate investment trust (REIT) is a business that owns, and in most circumstances operates, income-producing real estate. REITs own many kinds of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping centers, hotels, and commercial forests. Some REITs immerse in financing real estate.
Most countries’ REIT regulations permit a real estate business to pay less in corporation tax and capital gains tax. REITs have been criticized as encouraging speculation on housing and decreasing housing affordability without increasing finance for building.
REITs can be publicly traded on major exchanges, publicly registered but non-listed, or private. The two main kinds of REITs are Equity REITs and mortgage REITs (mREITs). In November 2014, equity REITs were identified as a special asset class in the Global Industry Classification Standard by S&P Dow Jones Indices and MSCI. The fundamental statistics to analyze the financial position and operation of a REIT include net asset value (NAV), funds from operations (FFO), and adjusted funds from operations (AFFO)
REITs operate in a very similar manner to stocks and other securities; they can be traded and sold in major exchange markets. Advantages of real estate investment trusts include high yields for investors and a highly mobile and liquid form of real estate investment. Some REITs may obtain special tax benefits and considerations.
Creation
REITs were assembled in the United States after President Dwight D. Eisenhower signed Public Law 86-779, sometimes dubbed the Cigar Excise Tax Extension of 1960. The law was legislated to allow all investors to invest in large-scale, diversified portfolios of income-producing real estate in the same way they normally invest in other asset classes – through the acquisition and sale of liquid securities. The first REIT was American Realty Trust, founded by Thomas J. Broyhill, cousin of Virginia U.S. Congressman Joel Broyhill, who, in 1961 pushed for the creation under Eisenhower.
As of 2022, at least 39 countries worldwide have founded REITs. A comprehensive index for the REIT and the global listed property market is the FTSE EPRA/Nareit Global Real Estate Index Series, created jointly in October 2001 by the index provider FTSE Group, Nareit the European Public Real Estate Association (EPRA). The global index includes over 490 stock exchange-listed real estate companies from 39 countries representing an equity market capitalization of about $1.7 trillion.
Evolution
Around 1960, the first REITs mainly consisted of mortgage companies around their creation. The industry underwent a considerable expansion in the late 1960s and early 1970s. The growth mainly resulted from the increased use of mREITs in land development and construction contracts. The Tax Reform Act of 1976 permitted REITs to be designated as corporations in addition to business trusts.
The Tax Reform Act of 1986 also affected REITs. The legislation included new regulations designed to stop taxpayers from using partnerships to harbor their earnings from other sources. Three years later, REITs saw substantial losses in the stock market.
Retail REIT Taubman Centers Inc. launched the modern era of REITs in 1992 by creating the UPREIT. In a UPREIT, the parties of an existing partnership and a REIT become partners in a new “operating partnership.” The REIT normally is the general partner and the majority owner of the operating partnership units. The partners who contributed properties have the right to exchange their operating partnership units for REIT shares or cash.
The industry struggled to begin in 2007 as the global financial crisis kicked in. In response to the worldwide credit crisis, listed REITs responded by deleveraging (paying off debt) and re-equitizing (selling stock to get cash) their balance sheets. Listed REITs and REOCs raised $37.5 billion in 91 secondary equity offerings, nine IPOs, and 37 unsecured debt offerings. Investors continued to act favorably to strengthen their balance sheets following the credit crisis.
REIT dividends have a 100 percent payout ratio for all income at lower rates. This inhibits the internal growth of the REIT and causes investors not to tolerate low or non-existent yields as the interest rates are more susceptible. Economic climates denoted by rising interest rates can cause a net unfavorable effect on REIT shares. The dividends paid by REITs look less appealing when compared to bonds with increasing coupon rates. Also, when investors shy away from REITs, it is difficult for management to raise additional funds to attain more property.
What Assets Do REITs Own?
In total, REITs of all kinds collectively own more than $3.5 trillion in gross assets across the U.S., with public REITs holding around $2.5 trillion in assets, representing more than 500,000 properties. The U.S. listed REITs have more than $1.35 trillion equity market capitalization.
What Are Some Different Kinds of Real Estate Investment Trusts?
A person can invest in a real estate investment trust by buying shares in an open exchange or investing in a fund that concentrates on public real estate. These types of REIT options typically come in three forms:
- Equity-based REITs: These are trusts where people invest in property, with revenue generated primarily from a rental property. The investor will be accountable for the equity of the REIT asset.
- Mortgage-based REITs: These are founded on ownership of mortgages and mortgage interests. These involve lending funds for mortgage purposes or buying mortgages and mortgage-based securities. Revenue is based mainly on appeal from mortgage products.
- Hybrid REITs: These incorporate both equity and mortgage-based interests
The type of REIT that a person invests in will depend on many factors, including the person’s goals and financial capabilities and local markets and state finance laws.
How Are Real Estate Investment Trust Disputes Resolved?
Like any security interest, real estate investment trusts can be subject to several different kinds of legal disputes and securities violations. First and foremost among these is REIT fraud. Investors should steer clear of any REIT businesses or agencies that don’t seem fair or make suspicious claims. Investors should also reject any offer instructing them to make a false or dishonest claim on an application.
REIT fraud may be considered a white-collar crime and punished according to corresponding laws.
Other REIT disputes may include:
- Breaches of contract
- Failure to maintain equity or mortgage requirements
- Property appraisal disputes. These are often remedied in civil court through a monetary damages award.
Do I Need a Lawyer for Help with a Real Estate Investment Trust?
REITs can sometimes involve complex calculations and considerations of many factors. They can also involve several different local and state laws. You may need to hire a real estate lawyer in your area if you need help with a REIT or any related issue.
Your lawyer can help research the regulations in your area to determine which options might be best suited for you. Also, if you need to file a lawsuit, your lawyer can help you file a claim with the court and represent you during hearings.
