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REITs becoming less popular with rising interest rates

Some commercial real estate investors in Maryland are becoming more wary of real estate investment trusts. REITs are expected to do poorly in an environment of rising interest rates, and the reduction in the corporate tax rate that was proposed by Trump may also have a negative impact on REITs. However, some analysts say that investors should not write off these vehicles.

For the past few years, REITs have been very attractive investments. Because REITs must use 90 percent of their taxable earnings to pay shareholder dividends, shareholders get high returns when interest rates stay low. The CEO of a REIT said that every time there is talk of rising interest rates, REITs are hit hard. When the Federal Reserve raised interest rates on Dec. 14, many investors began to sell their REIT shares.

Real estate experts who say that investors should keep REITs in their portfolios are pointing out the potential of warehouse REITs. Warehouses are a hot real estate sector right now due to the growth of e-commerce. When there are higher levels of economic activity, REITs that have investments in the high-growth areas will benefit. Right now, many large office buildings are being replaced with warehouse space that is needed by e-commerce businesses.

Even if REITs have lower returns than they used to have, there are many benefits to owning REIT shares that investors may want to keep in mind. REITs require a much smaller investment and they are more liquid than owning property outright. A commercial real estate investor who is considering investing in a REIT or purchasing a property outright may want to talk to an attorney about the options.

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