Money & Finance › Asset types & alternatives › Real estate as an investment
Real estate investment trusts (REITs)
Since 1960· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
A REIT is a company that owns or finances income-producing real estate and must pay out most of its taxable income as dividends.
See it on the Money & Finance map →How it works
Congress created REITs in 1960 so ordinary investors could own large commercial property the way mutual funds own stocks. To skip corporate income tax, a REIT must keep at least 75% of assets in real estate, earn at least 75% of income from it, and distribute at least 90% of taxable income. Most trade on stock exchanges, so prices move daily; non-traded REITs are illiquid. Holdings range from apartments and warehouses to data centers and cell towers; mortgage REITs hold loans.
Why it matters
They put institutional-grade property in any brokerage account, and their daily prices often signal shifts in private property values months ahead.
Think of it like
Like a syndication with stock-exchange liquidity: the limited partners become shareholders who can sell any trading day.
Facts, rules and data
The REIT Act of 1960 (Internal Revenue Code sections 856–860), Nareit data and studies comparing listed REIT returns with private appraisal indexes.
Debates and risks
Whether REITs belong with real estate or with stocks in a portfolio: they track property over long periods but stocks in the short run.
Connections (5)
▸Real estate investment trusts (REITs) give stock-market access to Real estate as an investmentFact, law or data
The connection
REITs turn buildings into shares: one purchase buys a stake in a professionally managed property portfolio, with daily pricing and small minimums. Their prices react fast. In 2022 listed REITs fell about 25% while appraisal-based private fund indexes still showed gains; private values fell in 2023–24.
When and why
Created by Congress in 1960; the modern era began with a wave of REIT stock offerings in the early 1990s.
How we know
Nareit data and CEM Benchmarking studies of pension funds comparing listed REIT returns with private real estate over decades.
Debates and risks
Whether REIT price swings reveal true property values sooner, or just reflect stock-market mood, is argued.
▸Real estate investment trusts (REITs) mostly trade on Stock exchanges: NYSE and NasdaqFact, law or data
The connection
Most REIT value is in listed companies such as Prologis, American Tower and Equinix, so investors can buy commercial property shares like any stock, with daily prices. Listed prices move ahead of private appraisals: in 2022 listed REITs fell about 25% while private property values lagged. Non-traded REITs, like Blackstone's BREIT, avoid exchanges but limit withdrawals.
When and why
REITs were created by Congress in 1960; listings boomed after the early-1990s real estate bust. About 200 trade on US exchanges.
How we know
Nareit and exchange data on listings and returns; BREIT began enforcing its withdrawal limits in December 2022.
Debates and risks
When listed REIT prices and private appraisals diverge, which is right? Studies suggest listed prices lead private values by months.
▸CRE debt funds and mortgage REITs: the non-bank lenders are partly organized as Real estate investment trusts (REITs)Fact, law or data
The connection
A mortgage REIT is a listed company that holds property loans instead of buildings. It avoids most corporate tax by paying out at least 90% of taxable income, so dividends run high. It borrows through repo lines and CRE CLOs, so its share price swings when loans sour.
When and why
US mortgage REITs such as Blackstone Mortgage Trust, Starwood Property Trust, Apollo Commercial Real Estate Finance and Ladder Capital, mostly NYSE-listed.
How we know
REIT rules in Internal Revenue Code Sections 856–860 and the companies' SEC filings. Investors can buy their shares or REIT funds; this is information, not advice.
Debates and risks
Analysts differ on whether mortgage REITs' loan values fully reflect office losses; several cut dividends in 2024.
▸Sale-leasebacks: selling the building and renting it back are a favorite deal for net-lease Real estate investment trusts (REITs)Fact, law or data
The connection
Net-lease REITs such as Realty Income, W. P. Carey and Agree Realty buy buildings from companies and lease them back on 15–25-year absolute-net leases. The REIT gets steady rent with bumps and no operating costs; the company gets cash. REITs fund purchases with stock and bonds, so their cost of capital decides what cap rates they can pay.
When and why
In the US since the 1970s, accelerating in the 2010s; W. P. Carey has done sale-leasebacks since its founding in 1973.
How we know
REIT 10-K filings list tenants, lease terms and acquisition cap rates; deal announcements disclose sale-leaseback volumes.
Debates and risks
Whether net-lease REITs can keep buying when their own borrowing costs exceed the cap rates on offer, as in 2023, is debated.
▸Real estate investment trusts (REITs) let small investors own pieces of Commercial real estate markets: office, industrial, retail, apartmentsFact, law or data
The connection
REITs pool investor money to own or finance commercial property, and their shares trade daily. That lets an individual own a slice of offices, warehouses or apartments for the price of one share. Because they reprice daily, REITs often signal changes in private property values months before appraisals do.
When and why
Created by Congress in 1960; Nareit estimates REITs of all kinds hold over $4 trillion of gross real estate assets.
How we know
Nareit data and research showing listed REIT returns lead private, appraisal-based property indexes.
Debates and risks
When REITs trade far below their asset values, as office REITs did in 2023, it is debated which price is right.