The Development and Maturing of the US REIT Sector

Abstract

The US Real Estate Investment Trust (REIT) market is the oldest and most established REIT market in the world. While REITs were formally created by Congress in 1960 their history actually goes back to the nineteenth century and Massachusetts. Massachusetts State law in the mid nineteenth century effectively precluded the use of a corporate structure in real estate investment. This was because corporations were prohibited from owning real estate if it was not an integral component of the business of the firm. In response to these state laws what became known as the Massachusetts Trust was created to provide an effective vehicle through which real estate investment activity could be carried out. These trusts, as would REITs a century later, provided a tax transparent investment vehicle. The tax status of these structures was however removed in 1935 by the US Supreme Court. Ironically, only 5 years later the 1940 Investment Company Act introduced similar tax transparency vehicles for equity investment in the form of mutual funds. However, it took a further 20 years of lobbying on the part of the real estate industry before a similar vehicle was introduced in the context of the real estate market.