A Theory of the REIT

61 Pages Posted: 1 Mar 2023 Last revised: 13 Apr 2023

See all articles by Jason Oh

Jason Oh

University of California, Los Angeles (UCLA) - School of Law

Andrew Verstein

University of California, Los Angeles (UCLA) - School of Law

Date Written: February 20, 2023


Real Estate Investment Trusts (REITs) are companies that raise money from the public to invest in real estate. Despite REITs being a vast and growing part of the economy, legal scholars have paid them almost no attention. Accordingly, no one has noticed that REITs possess several unique and puzzling legal characteristics. REITs are the only American business form that is forbidden to reinvest their profits. They are also uniquely immune to hostile takeovers. Since reinvestment and takeovers are thought to be good for investors (at least on average), REIT law would seem to be an obstacle to REIT growth. Yet, REITs have grown feverishly for decades.

We offer a theory to account for the growth of REITS. In essence, we suggest that REITS succeed because of – not despite – their mysterious legal attributes. We argue that their superficially inefficient rules that bar reinvestment and takeovers interlock as part of an efficient solution to tax problems and investor conflicts inherent in real estate markets.

Our theory is important because it clarifies the underlying logic of REIT law, which is highly technical and may appear arbitrary. Clarity allows us to evaluate reforms to the real estate sector. Our theory also links the REIT back to mainstream corporate governance and tax scholarship, showing how an overlooked business form sheds light on some of the fields’ central debates.

Keywords: REIT, Governance, Tax, Takeover

JEL Classification: k2

Suggested Citation

Oh, Jason and Verstein, Andrew, A Theory of the REIT (February 20, 2023). Yale Law Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4365127

Jason Oh

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

Andrew Verstein (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

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