The Intelligent REIT Investor Guide

CHAPTER 3REITs over the Decades

“Investing isn't about beating others at their game. It's about controlling yourself at your own game.”

—Benjamin Graham

As we discussed briefly in Chapter 2, few assets are more illiquid than commercial real estate such as office buildings, shopping centers, apartments, and the like. They're also very expensive to own and operate, which made them a “boom and bust” business in the past. Fueled by unreliable information (or at least a serious lack of good information), fortunes could be lost on these purchases.

Then again, fortunes could also be made – provided one already had a small fortune to begin with. Commercial real estate was the quintessential “you've got to have money to make money” example before the mid‐twentieth century. It was a wealthy man's game until REITs came along.

The concept was really spawned by a real estate management company in Boston, Massachusetts, that used a business trust vehicle to avoid paying double taxes on its holdings. It was ultimately taken to court over this, with the court's decision basically boiling down to “if it walks like a duck and acts like a duck, it's probably a duck.” And so ended the earliest REIT ancestor.

Yet that defeat prompted a new battle as the same company hired a law firm – Goodwin Proctor – to design a vehicle that would be legally acceptable. This time, it met with success. Congress accepted the accurate argument that small investors were unable to benefit from commercial real estate ...