Real Estate Investment Trust

Real Estate Investment Trust — REITs come in two broad flavors: equity REITs, which own and manage physical properties, and mortgage REITs (mREITs), which invest in mortgage loans or mortgage-backed securities. Mortgage REITs are the more directly relevant category for note investors because they hold portfolios of whole loans or MBS and generate income from the interest spread between borrowing costs and loan yields.

Note investors sometimes encounter REITs as both competitors and sellers in the secondary market. Large mREITs periodically shed non-performing or sub-performing assets to clean up their balance sheets, creating buying opportunities for smaller investors. Understanding REIT structures also helps when evaluating potential exit strategies — selling a seasoned portfolio of re-performing notes to a REIT buyer can offer a clean, bulk exit at a negotiated price.