09/23/2010 | By Allen Kenney and Jason C. Flynn
A veteran with more than 40 years of experience in the commercial real estate industry, Terry Considine, chairman and CEO of Apartment Investment and Management Company (NYSE: AIV), more commonly known as AIMCO, is so enthusiastic about the REIT structure that he'd like to see it applied to other sectors of the economy.
According to Considine, using REITs as a model for other industries could address what he considers a problem across corporate America: "double taxation" at the corporate and individual levels. By law, REITs are not subject to federal taxation so long as they distribute at least 90 percent of their annual taxable income to shareholders in the form of dividends.
"What was good about the REIT structure for real estate would also be good for the corporate structure for much of corporate America," Considine said in an interview with REIT.com. "I think it would be interesting to see it applied to other activities."
Denver-based AIMCO held its initial public offering in 1994. AIMCO integrated a number of predecessor companies originally formed by Considine in 1975. The tax benefits helped push him towards organizing under the REIT structure, according to Considine, along with access to public market capital.
"It's a natural choice, for a person who's interested, to organize a national real estate investment company," Considine said.
Looking back at the history of REITs, which were created as part of the Cigar Excise Tax Extension of 1960, Considine cited that piece of legislation as the most important event in the history of the industry. However, he said the creation of the "ingenious" UPREIT has had an underrated impact on the industry.
"It provided greater flexibility for people in conducting transactions," Considine said.
In an UPREIT, the parties of an existing partnership and a REIT become partners in a new "operating partnership." For their respective interests, the parties contribute the properties from the existing partnership and the REIT contributes cash. The REIT typically is the general partner and the majority owner of the operating partnership units, and the partners who contributed properties have the right to exchange their operating partnership units for REIT shares or cash.
Taubman Centers, Inc. (NYSE: TCO) became the first UPREIT in 1992.