REIT Modernization Act of 1999
Remarks on S. 1057 by Senator Bob Graham
HON. BOB GRAHAM in the Senate
FRIDAY, MAY 14, 1999
Mr. GRAHAM. Mr. President, I am pleased to join my colleague, Senator Mack, in the introduction of the REIT Modernization Act, legislation that would modernize the tax rules that apply to real estate investment trusts (`REITs').
REITs were created in 1960 to give small investors the ability to invest in income producing real estate. But it was not until the early part of this decade that REITs emerged as a significant factor in real estate finance. Their repid growth then contributed in a major way to the development of real estate markets. The real estate industry is experiencing change today as owners seek to maximize returns by taking greater advantage of their employee expertise and tenant base. This bill will better enable REITS to expand their services to tenants and customers.
The Administration's Fiscal Year 2000 budget includes a proposal to change the rules governing REITs. The legislation that we are introducing today is largely based on that proposal. It would permit REITs to establish taxable subsidiaries to offer services that a REIT cannot offer directly to tenants and third parties. Stringent rules are included to ensure that the subsidiary would be fully subject to taxation. Current rules designed to ensure that REIT income is primarily earned from real estate activities would continue to apply. The bill also modifies the tratment of health care facilities to ensure that patients' lives are not disrupted in the event of an expired lease, and restores the 90% distribution rule that had previously applied to REITs.
REITs play a positive role in the real estate economy that has helped to stabilize property values and provide liquidity to the market. As long as the basic limitations on REIT activities are preserved, those tax rules which impose restraints on REIT activities must be modified. In my own state of Florida, REITs have invested more than $13 billion in the Florida economy, and are an important source of investment capital that has reinvigorated real estate markets.
I want to thank Senator Mack for his leadership on this issue and I welcome the bipartisan support this measure has received from members of the Senate Finance Committee, along with others, who have joined as cosponsors of the bill. I look forward to working with them in the months ahead.