Tuesday, September 14, 2010

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on 50th Anniversary of Real Estate Investment Trusts
Remarks as Delivered on the Senate Floor

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 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.