REIT specializes in the acquisitions, development, and management of commercial real estate. REIT's are always ready to leverage opportunities, grow and diversify their portfolio.
They are known for acquiring properties with below market rate leases, maintaining a strong balance sheet to always have access to capital to allow for continued growth, and perfecting and eye for leveraging opportunities.
A REIT can also have a diversified real estate portfolio consisting of consists of apartments, office buildings, shopping centers and industrial properties. A typical REIT makes its makes its real estate investment decisions by keeping in view the following strategies.
• Diversification
• Expanding all across the nation
• Small tenant focus
• Value-added focus
• Strong management and value added support and services
• Disciplined acquisition approach
• Conservative financial structure approach
There are two types of REIT's available to invest in: Equity REIT, or a Mortgage REIT. An Equity REIT's would invest in and own properties. The revenues for an equity REIT are primarily generated through their properties' rents.
Mortgage REIT's on the other hand, deal primarily in investments and ownership of property mortgages. These real estate investment trusts loan money for mortgages to owners of real estate, or they purchase existing mortgages or mortgage backed securities. Their revenues are principally coming from the interest accrued on the mortgage loans.
REIT's receive special tax considerations depending on the type of REIT. They are exempt from corporate income taxes as long as they distribute at least 90 percent of their income as dividends. REIT's are very attractive to potential investors because they typically return high yields as well as providing a highly liquid method of investing in real estate.
Further more there is a unique combination of the two REIT's; it is known as a Hybrid REIT. A hybrid REIT combines the investment strategies of an Equity REIT and a Mortgage REIT by investing in both properties and mortgages. This process of investing helps diversify risk making it a very lucrative investment.
An individual that may want to invest into a REIT can do so by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate.
In addition to having great yields on REIT's, another benefit to investing in REIT's is that many are accompanied by dividend reinvestment plans, also known as DRIP's. REIT's invest in many different forms of real estate including shopping malls, office buildings, apartments, warehouses, and hotels. Some REIT's will invest specifically in one area of real estate or a specific region, while others will invest in a wide array of REIT's.
A REIT basically is an investment which provides a liquid and dividend paying means of partaking in the real estate market. The biggest risk to a REIT is a rise in interest rates which tends to dampen the real estate market in general, by making it more expensive to finance or purchase real estate. Even though a rise in interest would hurt REIT share prices, it would be nearly impossible for the trusts to fall out of favor. To understand this further take into consideration that any cyberspace company would have to have a server sitting on some piece of land, which implies that there will be rent associated with the server sitting on someone else's property.
In conclusion, land will never go away and thus its value will always increase as long as there is a finite amount of land, along with more and more people to occupy it. The REIT market might have short periods of downturn, but in the long run it will always go up.
Robin C. Trehan is an industry consultant in the field of mergers and acquisitions. He can be reached at robin@tafunds.com
Jerry Cedicci is a renowned real estate developer in Chicago. He is associated with Beaux Arts Creations. www.bac.cc
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