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REIT Industry Trends
REITs were created in 1960 with the introduction of favorable tax rules aimed at increasing access to investment in commercial real estate, and they have remained an attractive investment vehicle for the public and private sectors ever since. With attributes that help mitigate tax and reporting obligations for individual, tax-exempt and foreign investors, REITs serve as an attractive alternative for public and private investors.
With the passage of the Tax Cuts and Jobs Act (TCJA), REITs have become an even more attractive investment vehicle for real estate. Starting in 2018, the TCJA allows for ordinary REIT dividends to qualify for the new 20 percent federal pass-through deduction regardless of the general exclusion of corporate entities and the wage and qualified basis limitation rules otherwise applicable to pass-through entities. This benefit has captured the attention of many public and private investors looking to reduce the overall tax burden on their real estate holdings.
The formation and operation of a REIT, however, involves a variety of complex tax, accounting, valuation and legal requirements. From organizational and operational matters to distributions and compliance, REITs require special consideration.
We provide clients with valuable insight on REIT-specific accounting and tax rules, as well as objective guidance to address an ever-changing marketplace and regulatory environment. Our experience with both public and private REITs across various property types, combined with our commitment to provide proactive advice and pragmatic solutions, can help you stay ahead of industry challenges and capitalize on market opportunities.
- Tax: Obtaining and maintaining REIT status―and the unique structuring and tax reporting needs of a REIT―can be complex and time consuming. REIT tax advisory resources are often not available in-house.
- Assurance: The unique characteristics of a REIT require specific reporting and disclosure in public and private financial reports.
- Due diligence and transactions: From acquisitions to dispositions, loan transactions to ongoing property ownership and management, identifying value, pitfalls and deal breakers is essential to making informed investment decisions.
- Internal controls and risks: Since the Sarbanes-Oxley Act of 2002 was enacted, publicly traded companies—including REITs—have had to adjust to tougher reporting requirements, including the evaluation of controls, processes and compliance. Proper risk management and internal control are important aspects of a REIT’s governance and operations.
- Property and portfolio valuation: An increased focus on independence and governance—along with a number of regulatory changes—has forced many REITs to seek third-party valuation advice on the fundamentals of a real estate entity, asset or portfolio, competitors, and the overall market dynamics that affect value.