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What’s in a Name?
N
icknames have always been interesting to me. They are sometimes very obvious, like calling a ginger-haired person “Red” or the son with the same name as their father “Junior.” But other times, they are less apparent. I recently was introduced to someone who was named Don but during the conversation, the people I was with kept calling him “Pancho.” After a few minutes, the curiosity got the best of me and I had to ask him how his nickname originated. ALEC J. PACELLA
You’ll have to wait for the rest of that story for a few minutes, but it reminded me of another nickname that baffled me for the first few years in the real estate business – a REIT. And while many know that is an acronym for real estate investment trust, there is a lot more to the story than just a nickname. This month, we are going to take a deeper dive into the world of REITs, as there is a lot more to this than just a fancy name. A REIT is a corporation, trust or association that would otherwise be taxable as a C Corp but has made an election to be taxed as a REIT. They typically own and manage high quality commercial real estate, usually in a specific sector, such as regional malls, apartment complexes or industrial warehouses. They often take an equity position but there
are a few REITs still around that focus on mortgage positions. A REIT can be publicly traded or privately held. There are many advantages to this type of structure and at the top of the list is the ability to avoid federal taxation at the corporate level on the income that is distributed to shareholders. There are several other advantages that I’ll discuss in a short while but that “no federal tax” statement probably caught your attention. And while this is true, in order to achieve and maintain REIT status, there are a several organizational and operational requirements that must be maintained. The first one is significant; at least 90% of income that would be taxable must be distributed to the shareholders in the form of dividends. But wait, there’s more. At least 75% of
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Properties | May 2025