Getting into real estate takes a lot of money, time, and effort to solidify a quality property. But, when you find the right place it’s all worth it. There are many different types of properties you can choose from, one of those being commercial REITs. There are several kinds of commercial properties, including those in multi-family, healthcare, retail, industrial, mixed-use developments, and hospitality.
For almost 40 years, Plaza Companies has been helping investors and businesses alike find quality properties that fit their needs. Whether they’re looking to expand their operations or add new properties to their portfolio, we’ve been a leader in finding the best commercial real estate in Arizona. Read our article below and learn why investing in commercial REITs is the answer to your investment needs.
What Are Commercial REITs?
Commercial real estate encompasses a multitude of properties that facilitate different business needs. Commercial real estate investment trusts (REITs) are specific to business properties and allows investors to purchase shares of these entities.
In 1960, Congress established REITs as an amendment to the Cigar Excise Tax Extension. This resulted in allowing investors the ability to buy shares in commercial real estate. This was a huge development in the real estate world, as this was something really only available for the ultra-wealthy and through large financial intermediaries.
How Do REITs Work?
In general, REITs specialize in specific real estate sectors. But, diversified and specialty REITs can hold different types of properties in their portfolio. For example, some REITs are mixed-use developments, where the property acts as an office and retail space.
Many commercial REITs are traded on a public exchange market like you would with big-name companies like Microsoft or Coca-Cola. Investors can buy and sell them as you would with stocks throughout the trading session. These REITs often trade under significant volume and are considered very liquid.
What Qualifies as Commercial REITs?
Most REITs are fairly straightforward: it leases space and collects rent on the properties. Then it will distribute the income as dividends to the property’s shareholders. To qualify as a commercial REIT, companies must comply with certain provisions in the Internal Revenue Code (IRC). Companies must abide by the following regulations to qualify as a REIT:
- Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
- Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
- Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
- Be an entity that’s taxable as a corporation
- Be managed by a board of directors or trustees
- Have at least 100 shareholders after its first year of existence
- Have no more than 50% of its shares held by five or fewer individuals
The Advantages of Investing in Commercial REITs
While everyone’s needs are different, REITs have the power to lift your portfolio or business forward. Some of the benefits include the following:
- Higher return on investments: Since REITs must distribute 90% of profits to shareholders, you’re more than likely to see a higher ROI.
- Easy to invest: Commercial REITs are bought the same way as stocks and bonds. Providing investors with an easy way to get into the commercial real estate market.
- Invest without taking on a new mortgage: When you directly invest in a real estate property, there is a lot of risk because of the sheer amount of capital needed to obtain funding. Commercial REITs allow investors to spread their money and risk across all shareholders of the trust.
- No management responsibilities: There are a lot of managerial tasks that come with investing in a commercial property. By investing in a REIT, you’re avoiding the time and effort that goes into managing a property.
Plaza Companies is Arizona’s Source for Quality Commercial REITs
Founded in 1982, Plaza Companies is a full-service real estate firm specializing in leasing, management, construction, and development of some of the most innovative projects in Arizona. Additionally, we connect investors and businesses with properties that fit their needs. Our portfolio includes a wide range of commercial types, including those in medical office space, mixed-use developments, retail, multi-family, and many more. Our knowledge, experience, and ability to deliver makes us one of Arizona’s best firms. Contact us today to learn how we can help you.