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What is REIT Management?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 03 December 2016
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REIT management is the management of a Real Estate Investment Trust, or REIT. The REIT, a kind of real estate investment option, requires active management. REIT management professionals are in charge of “running” these real-estate focused trusts, which have shareholders.

The REIT is a kind of “corporate structure” that allows companies to invest in real estate with certain tax privileges, in exchange for rules about how they treat their shareholders. In a REIT, the majority of the income must be paid out to shareholders as dividends. In general, the REIT is often somewhat like a mutual fund, in that it offers investors access to a “bundle” of real estate property-based yields, as a mutual fund offers access to the yields of different stocks.

Looking at a REIT from this perspective, it’s clear that a successful one requires active management. The REIT management seeks to optimize the return for the shareholder. This may be done by enhancing property values, correctly maintaining properties, or pursuing good acquisitions. The REIT management also looks to reduce investor risk by practicing good diversification, for example, in buying up properties in different areas, or of different price categories or land use categories.

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Other rules on REITs also promote this kind of setup as an opportunity for investors. REITs are required to have a large community of investors in order to operate. The REIT management is responsible to those investors, again, in much the same way that a fund manager is. The REIT is, in principle, a vehicle for supplying yield to the investors, and the REIT manager is similar to other “money management professionals” in that his or her role leads to a better bottom line for all of the properties and mortgage instruments involved in the REIT.

From a market perspective, the emergence of the REIT represents part of the abstraction of the modern market. REITs can either be private or publicly owned. Publicly traded REITs are in some ways like an ETF or exchange traded fund, or a mutual fund. They represent not a single piece of real estate, but an “opportunity,” though many experts would agree that the REIT is not generally as abstract as the class of “derivatives,” which is further separated from an underlying asset. Investors should look closely at the prospectus for a REIT to see how closely the fund is linked to the properties that it is based on, and how REIT management works to promote solid, long term gains rather than just quick opportunities.

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