The return of the real estate investment trust

THE 1990'S HAVE SEEN the return of an old investment vehicle with a new more creative thrust: the Real Estate Investment Trust ("REIT"). Created more than 30 years ago, the REIT tax provisions were enacted by Congress in 1960 to allow small investors an opportunity to invest in real estate ventures at an affordable price. STEPHEN P. JARCHOW, REAL ESTATE INVESTMENT TRUSTS: TAX SECURITIES AND BUSINESS ASPECTS 3 (1988). In its simplicity, a REIT is a corporation, association, or trust that owns real estate assets and that has investors who own shares in the REIT. It primarily serves as a financial device that permits investors to purchase shares in a trust. The proceeds are then used to invest in real estate ventures.

THE ADVANTAGES OF REITS REITs have several features which make them attractive investment vehicles.

No Minimum Investment

One advantage of REITs is that unlike limited partnerships which often require an initial investment of at least $5,000, REITs do not require a minimum investment. REIT shares, like shares of stock, generally cost $10 to $25 per share and permit investors to purchase one share of an investment trust or numerous shares. Mike Sheridan, The Reit Stuff, SKY 116-117 (June 1994).

Diversification

In addition, since a REIT can own a sizeable real estate portfolio, small investors have potential for great diversification. Martin M. Shenkman, Real Estate Investment Trusts are Now a More Attractive Investment Vehicle for Savings, 16 Tax'n for Law 334, 334-338 (1988).

Both Stock and Real Estate

REITs are also unique in that they have characteristics of both real estate and stock. As stock, REITs permit investors to read a newspaper and map the progress of their investments. As real estate, REITs allow investors the flexibility of "owning" several pieces of property without the burdens associated with ownership. Shenkman, supra, 334-338 (1988). For example, investors are not responsible for maintaining property in which the REIT invests.

Liquidity

Another important aspect of a REIT is that since its shares are generally traded on a major stock exchange, it provides liquidity as a traded security. Jarchow, supra, at 234. Investors may dispose of their shares in the REIT whenever desirable, providing immediate "exitability." Larry Witner, The Revolution in Real Estate Financing, 11 Real Estate...