Morrison & Foerster recently published a guide on REIT IPOs, to help explain some of the basic concepts, concerns and parameters around launching a new REIT. To read the full report, CLICK HERE.
REIT.com sat down with Thomas Humphreys, a tax partner with the firm and head of its federal tax practice, to discuss how the landscape has changed for new REIT issuances in recent years, as well as some of the tax implications of launching a new IPO.
Humphreys worked on his first REIT IPO in 1982, One Liberty Firestone Properties, a sale leaseback REIT for Firestone Tire Stores, when the REIT industry was still reeling from the major market collapse of the late 1970s. Given the upheaval in the industry at the time, he and others entering the REIT space were very cautious.
“At the time, REIT was a dirty word,” Humphreys said. “When we created that prospectus, you didn’t see the word REIT until you got to the tax section.”
While the REIT industry has gone through what Humphreys called “deep freeze” cycles, in which no one would consider an IPO, he is quick to point out how the reputation of REITs have vastly improved. REITs have become a stabilizing force in the real estate world, especially during the recent economic downturn, according to Humphreys.
“REITs are just a much more accepted vehicle today then they were 30 years ago,” Humphreys said. “Historically, that was your biggest challenge. If you were in a period where REITs were out of favor, there was just nothing you could do.”
Humphreys explained that one of the reasons REITs have steadily improved over the years, and why more and more IPOs have been launched recently, is the REIT tax structure.
“A good thing about the REIT tax laws is that the rules are relatively well settled and therefore it is possible for people to plan and execute large transactions with some certainty,” Humphreys said.
He also pointed out the importance of the Tax Reform Act of 1986, which made it possible for REITs to be internally managed. That change led to the next major period of REIT IPOs in the early 1990s and the birth of the Modern REIT Era.