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Mortgage REITS VS. Equity REITS
The idea of real estate investment The major difference to point out here
trusts has certainly expanded over the is that mREITs don’t borrow from
years, but there still remain only two customer deposits to lend out to
broad categories. Those would be others. They instead raise capital by
equity REITs and mortgage REITs. These issuing private and public debt, as well
classifications are based on the types of as equity in capital markets. As a result,
investments they make and, as a result, their revenue comes from both the
the source of their revenue. principal and interest payments on
Broken down to their most simplistic their investments.
definition, mortgage REITs lend money Equity REITs, or eREITs, on the other
to real estate owners in one of two hand, are more “traditional.” The
different ways. This can come in the majority of their revenue comes right
form of direct funding through from their tenants, whether those
mortgages or in a more indirect tenants are businesses or households.
manner by buying up existing loans or
Most of them buy up pieces of
mortgage-backed securities.
property to develop or already
Also known as mREITs, most of them
developed property, often using a
focus their businesses on issuing
portion of their existing debt to help
commercial mortgage loans or making
investments into real estate finance the purchases – rather like how
instruments. To a significant degree, new homeowners buy a new house.
they’re like banks that lend almost Very few REITs can afford these assets
exclusively to commercial real estate
outright; they put down what they can
developers and landlords.
and let an mREIT back the rest through
a standard mortgage (known as
property-level debt) or corporate-level
bonds.
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