50Th Anniversary Of The Creation Of Real Estate Investment Trusts

Floor Speech

Mr. ISAKSON. Mr. President, in just a moment, I will ask the body for unanimous consent to adopt S. Res. 60. Before I do, I wish to talk about the significance of this agreement we have come to on this important resolution.

Fifty years ago last September, President Eisenhower signed into law legislation that established real estate investment trusts, or REITs, as an investment opportunity for all investors. Prior to 1960, access to the highly desirable investment returns of commercial real estate assets was limited to institutions and wealthy individuals that 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.

Some of my colleagues may not be familiar with each REIT property in their States, but they should be aware that these properties are making a significant contribution to the economic vitality of their State and our Nation. 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. They operate under an intricate set of tax rules that require them to, among other things, meet specific tests regarding the composition of their gross income and assets, in order to stay in business. For example, Federal tax law requires that 95 percent of a REIT's annual gross income must be from specified sources such as dividends, interests and rents, and 75 percent of the gross income must be from real estate related sources. Similarly, at the end of each calendar quarter, 75 percent of a REIT's assets must consist of specified ``real estate'' assets. Consequently, REITs must derive a majority of their gross income from commercial real estate. And, the REIT rules require that at least 90 percent of a REIT's total income must be returned to the company's shareholders in the form of dividends.

While REITs have played a major role in the U.S. economy since 1960, their mark in the investing world has primarily 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 passed in 2008.

REIT executives are hard-working business men and women who are singularly focused on bringing increased value to their shareholders. According to the National Association of Real Estate Investment Trusts, NAREIT, which is also celebrating its golden anniversary, these executives have proven to be successful in this objective, especially in the past two years in the wake of the financial downturn. Indeed, the vision of Congress has come to fruition: the equity market capitalization of REITs at the end of 2010 was $389 billion, up from only $1.5 billion at the end of 1971, and listed REITs distributed $13.5 billion to shareholders in 2009.

I am pleased to be joined by my colleague, Senator MIKULSKI, who is a cosponsor of this legislation, and I am pleased that my home state of Georgia is headquarters 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 1400 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 the foresight that Congress had 5 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 2 dozen countries that have adopted a similar model encouraging real estate investment.

I again congratulate the REIT industry on this momentous occasion of their 50 years of leadership in the real estate investing market. REITs have fulfilled Congress' vision by making investments in large scale, capital intensive commercial real estate available to all investors. I thank my colleagues for supporting this resolution, and I look forward to continuing to work with them on issues of importance to REIT investors.

With that, I ask unanimous consent the Senate now proceed to the consideration of S. Res. 60, which was submitted earlier today.

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