[Congressional Record Volume 156, Number 123 (Tuesday, September 14, 2010)]
[Senate]
[Pages S7081-S7082]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
50TH ANNIVERSARY OF REAL ESTATE INVESTMENT TRUSTS
Ms. STABENOW. Mr. President, I wish to commemorate the 50th
anniversary of the legislation that allowed for the formation of real
estate investment trusts, now commonly known as REITs.
On September 14, 1960, President Dwight D. Eisenhower signed into law
the Cigar Excise Tax Extension Act. Included in that law were the
critical provisions that first enabled investors from all walks of life
to benefit from the income generation and diversification advantages of
commercial real estate investments. Our predecessors in Congress
recognized that without this innovation such investments would continue
to be limited to institutions and wealthy individuals.
The law signed by President Eisenhower enabled the creation of the
first REITs. However, the groundwork for the modern REIT era was truly
laid in the Tax Reform Act of 1986, when REITs were given the ability
to operate and manage real estate, rather than simply owning or
financing it. As a result, the great majority of today's REITs are
owners, operators, and developers of properties in the office, retail,
industrial, health care, apartment, lodging and self-storage sectors--
properties used by a broad range of tenants from across the economy.
Reflecting the evolving real estate market, Congress and the Treasury
have implemented incremental changes to the REIT approach to real
estate investing over the years. For example, laws such as the REIT
Simplification Act of 1997, the REIT Modernization Act of 1999, the
REIT Improvement Act of 2004, and the REIT Investment Diversification
and Empowerment Act of 2008 have been enacted with the support of
Congresses and Presidents of both parties.
While the REIT model has evolved, the original legislative intent of
making large-scale, income-producing commercial real estate investment
available to all types of investors remains at the core.
For example, by definition in the Internal Revenue Code, 75 percent
of a REIT's assets must be in qualifying real estate, 75 percent of its
income must come from rents and other qualifying sources, and 90
percent of its taxable earnings must be distributed to shareholders in
the form of dividends. Among active businesses, the requirement to pay
out 90 percent of taxable earnings is unique to the REIT industry,
which distributed approximately $13.5 billion to shareholders in 2009.
Additionally, the income, asset, and distribution requirements, when
combined with the disclosure and other regulations that govern public
companies, protect shareholders and provide transparency in a way that
other real estate investments do not. With 132 REITs traded on the New
York Stock Exchange, ownership of shares in these companies also
provides a significant liquidity advantage over alternative real estate
investments.
Michigan has played an important role in creating the vibrant REIT
industry that exists today. Taubman Centers, Inc., based in Bloomfield
Hills, is a leading owner of regional malls. In the 1990s, when they
pioneered a new way to take public a portfolio of real estate that had
been privately held, they unleashed a wave of initial public offerings
by REITs in the 1990s.
Three other REITs--Agree Realty Corporation, Ramco-Gershenson
Properties Trust, and Sun Communities, Inc.--also call Michigan home.
And, more than 620 properties across my home State are owned by REITs.
Commercial real estate accounts for more than 6 percent of the gross
domestic product of the United States, and my colleagues and I are all
too aware of the challenges facing this sector. In the face of this
challenge, REITs have been well-served by staying true to their core
values of careful investment, transparency, and liquidity. While
commercial real estate is not yet out of the woods, I believe
policymakers and the other participants in the commercial real estate
market can learn a great deal from this business model, which has been
emulated by more than two dozen countries around the world.
I thank you for this opportunity to commend the REIT industry on its
50th anniversary. Allow me to also commend our predecessors in Congress
for having the foresight to enable all Americans to access and benefit
from investments in real estate. I look forward to working with my
colleagues to continue this work that began more than 50 years ago.
Mr. ISAKSON. Mr. President, 50 years ago today, President Eisenhower
signed into law legislation that established real estate investment
trusts, commonly known as REITs. His action gave the final stamp of
approval to what our colleagues in this Chamber envisioned at that time
for the general public: A secure and efficient way to invest in high-
quality commercial real estate in the United States. I want to
recognize the 50th anniversary of REITs and their significant
contribution to the overall economic vitality of our Nation over the
past 50 years.
As my colleagues know, REITs allow any investor, no matter their
financial resources, to secure all of the advantages of investing in
real estate in the United States. Prior to 1960, access to the highly
desirable investment returns of commercial real estate assets was
limited to institutions and wealthy individuals who had the financial
wealth to make direct real estate investments. By creating REITs,
Congress recognized that small investors should be afforded the same
opportunity to invest in portfolios of large-scale commercial
properties and achieve the same investment benefits--diversification,
liquidity, performance, transparency--as those able to make direct
investments in real estate.
REITs are companies dedicated to the ownership and development of
income-producing real estate, such as apartments, regional malls,
shopping centers, office buildings, self storage facilities, and
industrial warehouses. Federal tax law requires that REITs meet
specific tests regarding the composition of their gross income and
assets. Specifically, 95 percent of their annual gross income must be
from specified sources such as dividends, interests, and rents; and 75
percent of their gross income must be from real estate related sources.
Similarly, at
[[Page S7082]]
the end of each calendar quarter, 75 percent of a REITs assets must
consist of specified real estate assets. Consequently, REITs must
derive a majority of their gross income from commercial real estate.
While REITs have played a major role in the U.S. economy since 1960,
their mark in the investing world has been achieved since passage of
the Tax Reform Act of 1986, a time period many refer to as the modern
REIT era. This law removed most of the tax-sheltering capability of
real estate and emphasized income-producing transactions, allowing
REITs to operate and manage real estate as well as own it. I am pleased
that over the years, Congress has adopted legislation to perfect the
REIT method of investing in real estate. Among many proposals, these
include the REIT Simplification Act of 1997, the REIT Modernization Act
of 1999, the REIT Improvement Act of 2004, and the REIT Investment
Diversification and Empowerment Act, or RIDEA, passed in 2008.
I am pleased that my home State of Georgia is home to several REIT
companies that are engaged in the daily business of creating wealth and
employment for many investors across the country and my constituents.
These companies include Cousins Properties Incorporated, Gables
Residential Trust, Piedmont Office Realty Trust, Incorporated, Post
Properties, Incorporated, and Wells Real Estate Investment Trust. In
total, there are more than 1,400 REIT properties located in Georgia,
with an estimated historical cost in the billions of dollars.
Commercial real estate represents more than 6 percent of this
country's gross domestic product and is a key generator of jobs and
other economic activities. Today, because of what Congress did five
decades ago, anyone can purchase shares of real estate operating
companies, and do so in a manner that meets their investments needs by
focusing on a particular sector in the commercial real estate world and
a specific region of the country. That is the beauty of the REIT method
of investing, whose influence has now spread abroad to more than two
dozen countries that have adopted a similar model encouraging real
estate investment.
In closing, I want to again congratulate the REIT industry on its 50
years of leadership in the real estate investing market. REITs have
fulfilled Congress's vision by making investments in large scale,
capital intensive commercial real estate available to all investors. I
look forward to continuing to work with them on issues of importance to
REIT investors.
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