Last updated: Jan. 14 2021
REITs have helped shape communities and the real estate investment landscape for the past six decades
Since their inception 60 years ago, REITs have helped shape the communities where they own, develop, and operate a wide range of commercial real estate assets. In addition to helping communities grow and revitalize, REITs have also played an important role in investment portfolios for millions of Americans by expanding the boundaries of who can invest in real estate and providing competitive total returns and stable income.
The variety of projects that REITs are involved in show that when REITs invest in projects within communities, the benefits extend beyond the company and tenants and shareholders.
Not all of those projects, however, are limited to physical assets. For example, logistics REIT Prologis, Inc. (NYSE: PLD) has invested in innovative workforce development to address a pressing need for labor within its key markets, while providing students with vital skills for future careers.
Other REIT projects highlight the expertise the industry can bring to unique operating environments. Case in point, Ryman Hospitality Properties, Inc. (NYSE: RHP), which is helping preserve Nashville’s legacy as the home of country music by bringing new audiences to the city’s renowned landmarks. Meanwhile, at JFK Airport in New York, the once-defunct TWA Flight Center has undergone a meticulous $265 million renovation by private REIT MCR to emerge as the new TWA Hotel.
At the same time, infrastructure REITs are using 5G wireless technology to build and support digitally connected communities. And in Hawaii, Washington Prime Group Inc. (NYSE: WPG) has renovated an aging regional mall by acknowledging the local community’s unique heritage.
Through the process of building and connecting communities, REITs also create new jobs encompassing everything from retail sales personnel and property management to temporary construction, while also attracting top-tier talent to communities.
“We are making a huge impact on the built environment of the cities we operate in, working closely with our communities to come up with projects that enhance cities,” says Owen Thomas, CEO of Boston Properties, Inc. (NYSE: BXP).
Democratization of Real Estate
Approximately 145 million Americans, or roughly 44% of American households, are invested in REIT stocks directly or through their collective savings vehicles like mutual funds. The numbers reflect the enduring appeal of the REIT approach to real estate investment.
“REITs have really shown that they can democratize commercial real estate so that everyone can invest in an income-producing asset that previously could only be owned by wealthy corporations or individuals,” says Debra Cafaro, chairman and CEO of Ventas, Inc., (NYSE: VTR).
Thomas agrees. “Anyone who can buy a share of stock can own commercial real estate,” he says.”
Over the course of the last 60 years, REITs have proven to be one of the best long-term asset classes. Between 1972 and 2020, compound annual total returns of the FTSE Nareit All Equity REITs Index rose 11.41%, compared with 10.72% for the S&P 500. REITs of all types collectively own approximately $3.5 trillion in gross assets across the U.S., with public REITs owning approximately $2.5 trillion in assets, representing more than 500,000 properties. U.S. listed REITs have an equity market capitalization of more than $1 trillion.
According to Mike Kirby, co-founder and director of research at Green Street, total returns generated by equity REITs have consistently stacked up favorably versus “virtually every other investment alternative” during the last few decades. “This is particularly true with regard to performance versus other real estate investment vehicles, as REITs have trounced what private investment options have delivered,” he adds.
Part of this growth stems from the versatility of the REIT structure and its increasing global appeal to investors.
“The past 30 years have seen a dramatic shift in commercial real estate from the private sector to public markets, driving substantial growth of the global real estate securities market,” explains Robert Steers, CEO and co-founder of Cohen & Steers, a specialist asset manager. “We’ve seen increasing adoption of the modern REIT structure around the world amid growing investor demand for listed real estate and global real estate allocations,” he says.
Indeed, real estate markets have opened up to private individual investors across the globe, changing the way the world views investing and who can invest. Today, 40 countries have put in place REIT legislation.
“The adoption of the REIT model globally shows it fills a vital need in the market for broad investor access to real estate. REITs allow for portfolio diversification, meaningful dividends, liquidity, and transparency,” says Bill Stein, CEO of Digital Realty Trust, Inc. (NYSE: DLR) and the 2020 Nareit chair.
Leading With Transparency
Since its founding in 1960, Nareit has served as the worldwide representative voice for REITs.
“We can all look to Nareit’s and the broader industry’s high standards when it comes to integrity and responsibility,” Stein says. “Over the decades, that culture of stewardship has helped keep us as a trusted partner to investors.”
One reason the industry has been successful is the transparency and alignment of interests that are associated with the public market, Kirby says. By going public, many companies have ushered in a new era of transparency and taken on leadership roles in setting market standards.
“Transparency is a huge advantage,” agrees Don Wood, president and CEO of Federal Realty Investment Trust (NYSE: FRT), one of the earliest REITs, founded in 1962. “Figuring out how to invest in real estate isn’t easy, but in a REIT model, it’s all laid out for you. The REIT model works.”
Thomas notes that being a large cap public company also means you are setting an example for the others. Public companies disclose business strategies, financial results, and leasing volumes, all of which provide a “benchmark” for private companies assessing their own performance, he notes.
One key aspect of this leadership has been health security during the COVID-19 pandemic. “We’re very much on the front lines of keeping our team members and customers safe as they return to work,” Thomas says. He credits Boston Properties’ approach with providing a model for pandemic management. “Being a REIT, having the funding and transparency, has allowed us to execute even better on health security measures.”
Commitment to Serve
Acknowledging and celebrating REIT success includes recognizing the industry’s role in giving back to the communities where it operates.
“We’ve been really lucky to grow an S&P 500 company over the 20-plus years of my tenure, and we felt it absolutely essential that we share the good fortune that we’ve had with our employees, with our communities, with our partners and of course with the patients and residents and others who live in or work at Ventas communities or facilities,” Cafaro says.
Communities have needed additional support during the coronavirus pandemic, and REITs have stepped up to aid in various ways.
“More people are struggling today to feed their families than ever,” Byron Boston, president, CEO, and Co-CIO of Dynex Capital, Inc. (NYSE: DX), explains. Boston and Dynex Capital partnered with three Richmond-based charities to provide funding for food at the local level.
At its Assembly Row urban, mixed-use development in Somerville, Massachusetts, Federal Realty filled an essential need by donating a parking lot for the deployment of a critical care decontamination system to help facilitate the city’s free outdoor testing program.
Thinking globally, Digital Realty made a $1 million philanthropic commitment to the International Red Cross Society and the World Health Organization’s COVID-19 relief funds, while making significant donations to six COVID-focused charitable organizations.
Ventas also took a hands-on approach to ensuring the safety of its elder neighbors in its communities which are home to more than 70,000 seniors throughout North America.
“We led our industry in making sure testing was available to seniors and frontline workers in partnership with the Mayo Clinic labs,” Cafaro says. Ventas also utilized the strength of its access to capital and relationships to source essential PPE to keep communities safe.
Strong Corporate Citizens
Beyond the pride of knowing they’re making a positive impact on their communities, REIT CEOs agree that good corporate citizenship also pays dividends from an investment standpoint.
“Being a strong corporate citizen definitely makes us a more attractive company for investment,” Thomas says.
Rather than being in conflict with the bottom line, corporate citizenship and working with communities through private and public partnerships go hand-in-hand with performance. Investments in sustainability initiatives have also been shown to increase asset longevity.
“Our company has always believed that doing the right thing is really synergistic with delivering good performance for stakeholders,” Cafaro says. “When you build relationships, when you do the right thing you are more likely to be successful and continue your license to operate.”
The last decade has seen an increased demand among investors for good corporate citizenship, with some of the world’s leading investors in REITs making a point in investing more in companies that have well-established track records on ESG, which has both enhanced stakeholder capitalism and the communities in which REITs operate. “Giving back and bottom line are one in the same,” Wood says.
According to experts, one of the high points of the industry’s 60 years has been the public market’s willingness to embrace newer property types, along with the ability of REITs to adapt and evolve to the demands of ever-changing markets and consumer demand.
The last decade, for example, has seen the emergence of new specialty property types such as cell towers, data centers, logistics warehouses, health care, and student housing.
“REITs play a key role in creating access to the new economy, notably, the increased need for technology and interconnectedness in society,” Stein says.
Cafaro describes the REIT model as “flexible enough and forward-thinking enough to umbrella over all these asset classes. As our economy has changed and grown, the REIT model has been flexible enough to change and grow with it.”
More types of real estate assets are finding funding in the REIT market, according to Thomas. “Starting in the ‘90s, many types of “core” real estate used the REIT market as a source of funding for their businesses. Now that group is less than 50% of the total market cap and you’re seeing a broad expansion of the types of real assets that are finding funding there,” he says.
Given the flexibility of the REIT structure and the adaptability of the market, the future looks promising. “Business follows demand. As demand changes, businesses change,” Wood explains. “The broadening of what’s available to the investment market is a real positive for all REITs,” he adds.
Cafaro agrees. “I would expect to see in the coming decades, that continued evolution of the REIT model to go where the economy and where commercial real estate is going and growing,” she says.
An Industry Evolves
The story of REITs begins with a swipe of a pen from President Dwight Eisenhower, making the REIT Act title law under the Cigar Excise Tax Extension of 1960. It would come to represent a pivotal moment for the U.S. economy in the modern era.
While the untapped potential of the market and the flexibility of the REIT structure were clear from its inception, few predicted how successful the model would become.
Like any venture, REITs had their share of growing pains when early legislation was first introduced. “REITs struggled to gain traction as early laws placed severe limitations on how REITs could operate,” says Robert Steers, CEO and co-founder of Cohen & Steers.
In the 1980s, crucial tax reforms made the REIT structure more appealing to both property companies and investors, and legislation was simplified to provide companies with greater flexibility.
The REIT industry remained small until a wave of more than 80 IPOs occurred in the 1990s, catalyzed by the previous real estate recession.
Those first companies in the 90s to go public were considered some of the most talented developers in the country, according to Mike Kirby, co-founder and director of research at Green Street. He credits them with ushering in a new phase for REITs.
“That era was critical in defining the listed REIT sector as the place populated by the best and brightest. The concurrent growth of capital market specialists/investors meant that public market capital was often cheaper than private capital, which set the stage for explosive growth over the next few decades,” he says.
Indeed, the success of U.S. REITs spurred new legislation across the globe in the new millennium. “The globalization of REITs offered investors a wide range of opportunities in markets with meaningfully different characteristics,” Steers says.
REITs have stepped up in a variety of ways to help their employees, tenants, and communities during the coronavirus crisis.
What began as a global health pandemic quickly turned into an economic crisis with a far-reaching and potentially long-lasting impact. REITs across all sectors of the economy have spent the last few months adapting to the new landscape created by COVID-19, as they deal with both the immediate challenges of the crisis as well as prepare for possible longer-term fundamental changes.
From the onset of the crisis, REITs across the country quickly embraced their role as good corporate citizens and have actively watched out for others—their employees, tenants, and communities—as they grapple with the new challenges. This has produced an array of generous and creative responses that have evolved to meet the changing needs of those in the communities where they operate.
Continue reading for a sample of the many ways in which REITs have been giving back during an unprecedented time. Please note, this list is by no means intended to represent all of the good works the companies mentioned are doing, nor does it include all those companies and industry leaders who have stepped up in so many ways. Nareit is maintaining an ongoing list of the REIT industry’s efforts to support their tenants, employees, and communities on REIT.com.
Fulfilling a Need for Space
From the start of the crisis, finding space to perform essential tasks while following guidelines for physical distancing proved challenging. However, many REITs quickly stepped in to offer their facilities as a solution.
Shopping center REIT Brixmor (NYSE: BRX) responded quickly to local needs by finding creative and meaningful ways to use its shopping centers as community assets. The REIT fast-tracked approvals of drive-through testing centers, blood drive locations, farmers markets, and food trucks. In Palm City, Florida, for example, Brixmor even hosted a drive-in movie night at Martin Downs Town Center.
Elsewhere in the retail REIT sector, Tanger Factory Outlet Centers, Inc. (NYSE: SKT) properties have been used for Red Cross blood drives, food collection sites, curbside food pickup, and as staging areas for law enforcement and emergency medical services.
As communities received the much-needed supplies, not only did they need a place to deliver them safely, but also to store them as well. Iron Mountain Inc. (NYSE: IRM) made floor space available inside its facilities for securing supplies needed by health responders and food and drug retailers, as well as providing overflow storage for businesses stockpiling inventory due to service or supply chain disruptions.
Efforts to provide space were not limited to the United States. Through its Space for Good program, Prologis, Inc. (NYSE: PLD) offered unoccupied buildings and yard space for COVID-19 relief efforts to local, state, and federal agencies in the U.S., and to hospitals and relief organizations throughout the world. So far, Prologis has donated more than one million square feet in 13 markets and $5.5 million in in-kind rent to government agencies and health organizations.
While the need for physical space was critical, REITs also stepped up to provide a variety of other essential monetary and non-monetary donations.
Corporate Office Properties Trust (NYSE: OFC) provided a grant of $20,000 to the Howard Hospital Foundation in support if its ‘Care for Our Caregivers’ program. The grant helped provide meals to the frontline caregivers at Howard County General Hospital, in Columbia, Maryland.
REITs spread their philanthropic efforts to causes at home and abroad. American Tower (NYSE: AMT) made grants through its foundation to organizations focused on supporting COVID-19 response and aid efforts, including the American Red Cross, UNICEF, Project Hope, Partners in Health Organization, Boston Resiliency Fund, PM CARES Fund (India), and many more. The foundation has recently committed an additional $2 million to support global relief efforts.
One of the ways that Digital Realty (NYSE: DLR) helped support the communities it operates in globally is through a $1 million philanthropic effort that includes donations to The World Health Organization’s COVID-19 Solidarity Response Fund and The International Red Cross and Red Crescent Movement’s COVID-19 Emergency Appeal. The REIT has also made direct contributions to smaller charitable organizations across Europe, North America, and the Asia-Pacific region selected by its employees living across the six continents where it operates.
In addition to monetary contributions, REITs also tapped into their unique expertise to provide assistance. Partnering with Feed the Children, Americold Realty Trust (NYSE: COLD) transported more than 84,000 pounds of food to aid the nonprofit’s COVID-19 relief efforts. “Americold associates work year round to help put food on tables around the world, and as testament to our ‘Cold Hands, Warm Heart’ culture, we are glad that we were able to jump in and make an immediate impact,” said Americold president and CEO Fred Boehler.
Meanwhile, an unexpected discovery allowed Extra Space Storage Inc. (NYSE: EXR) to do its part during the crisis. Extra Space employees in hurricane-prone areas of the country donated more than 10,000 N95 masks to local hospitals in need after they realized their storage facility emergency response kits included the much sought-after masks. “One of our guiding principles is to ‘Do the Right Thing,” said Gwyn McNeal, chief legal officer and head of people at Extra Space. “We’ll restock the hurricane kits when supplies aren’t in high demand.”
Assistance to Employees & Tenants
REITs actively engaged in helping their own employees impacted by the crisis as well as the many tenants that were so drastically hurt by the shutdowns that took place.
In the case of Arbor Realty Trust, Inc. (NYSE:ABR), the mREIT launched a $2 million rental assistance program to help thousands of tenants and families significantly impacted by the COVID-19 outbreak. The Arbor Rental Assistance Program (ARAP) was created to supplement existing government rent relief programs and leverage private capital to fill critical gaps for those impacted by a loss of income. The program was offered to tenants at the properties Arbor finances across the country on a first-come, first-served basis.
The idea of bridging a gap and being a real partner in the community was key for Camden Property Trust (NYSE: CPR). The multifamily REIT established a $5 million tenant relief grant to serve as a bridge between when a resident might have lost a job and the receipt of federal benefits. There was more demand for the grant than expected, with the entire $5 million amount allocated in about 16 minutes. Checks were sent out to residents within 24 hours of their grant applications being approved.
Retail tenants have been particularly hard hit by the COVID-19 crisis, and REITs knew it was vital to act fast. Aware that immediate access to capital was critical to keeping its tenants’ businesses afloat, Kimco Realty Corp. (NYSE: KIM) piloted a complimentary Tenant Assistance Program (TAP) to assist tenants in identifying and applying for applicable federal and state loans to help their businesses survive the financial impact of the coronavirus.
Other retail REITs have been helping their tenants through practical, hands-on assistance. RPT Realty (NYSE: RPT), for example, established a complimentary Tenant Concierge Service to provide its small business tenants with direct access to a law firm to assist in applying for governmental aid.
Washington Prime Group Inc. (NYSE: WPG) also saw the need for real-world help. The REIT partnered with the Institute for Justice Clinic on Entrepreneurship and members of the University of Chicago faculty to launch the Open for Small Business initiative. It has provided an easy-to-use lease modification as well as other relevant templates for the deferral of payments until local entrepreneurs get back on their feet. The initiative has also hosted a range of educational webinars.
Finding a Creative Approach
Challenging times tend to encourage new ways of looking at and using resources that are on-hand, and REITs have shown they know how to use everything at their disposal during a crisis.
A shortage of personal protective equipment (PPE) to protect frontline care workers prompted Lamar Advertising Co. (Nasdaq: LAMR) to join forces with Louisiana State University (LSU). Lamar supplied vinyl billboard material for conversion into PPE for immediate use by healthcare workers caring for COVID-19 patients at medical facilities across Louisiana. LSU established a large-scale production facility on the Baton Rouge Campus and Lamar’s billboard material has been converted on-site into heavy-duty, reusable gowns.
While supplying PPE equipment fulfilled a vital medical need during the crisis, paying homage to the countless individuals who have been at the front line of the pandemic reflected a more emotional need.
From the early days of the coronavirus crisis, Empire State Realty Trust, Inc.’s (NYSE: ESRT) Empire State Building lit up the New York skyline. In partnership with iHeartMedia, the Empire State Building beamed a light show synced to Alicia Keys’ Empire State of Mind. The iconic building also dedicated its tower lights to a different first responder organization in late April and early May, shining in their representative colors to acknowledge their bravery and service.
Other REITs have also shown their colors when it comes to supporting first responders. In Boston, the Prudential Center, owned by Boston Properties, Inc. (NYSE: BXP), lit up in red, white, and blue in honor of first responders nationwide.
Meanwhile, social distancing rules forced employees at Ventas, Inc. (NYSE: VTR) to opt for a virtual 5K/10K race to earn mile-matching donations from the Ventas Charitable Fund. By staying active and doing good, employees helped raise $10,000 for Direct Relief and Meals on Wheels America, two organizations dedicating efforts to COVID-19 relief.
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