This is a review of the Real Estate Investment Trust (REIT) sector from an era that has already passed. These article reviews are intended to highlight the risks of investing in REITs. We’re hoping that insight can be gained from these reviews and translated into meaningful investment education.
This review will cover the beginning of the REIT investment cycle starting in 1971. The review is based on a single New York Times article. Ultimately, we hope to include a series of REIT articles that range from 1971 to 1979.
1971: In The Beginning
The first article under review is titled “Personal Finance: Real Estate Investment Trusts Gain New Luster as Money-Making Medium Personal” by Elizabeth M. Fowler published on July 22, 1971. This article was an introduction to the general public about the virtues of investing in REITs. An attempt to find similar introductory material before 1971 was not readily available. Therefore, we relied on this article as a good overall intro to the topic.
In Fowler’s article, it was pointed out that REITs operate like the property management division of large companies like “…American Standard, the Ogden Corporation, Boise Cascade and many others.” The article also pointed out that new entrants to the REIT model of property management included “…some of the nation's major insurance companies and banks.”
Some statistical facts about the REIT industry by 1971 were that there was “…80 large REIT’s, many of them formed in the last few years…” and that they held more that $3.8 billion in assets. By 1971, approximately 48 REIT’s were publicly traded.
Of the categories of REITs available at the time, there were four categories, long-term mortgage investments, intermediate-term investments, short-term investments and “…then there is a hybrid type or they are sometimes called combination trusts.” The general merits of REITs were outlined, however, the closing paragraph pointed out this warning from Standard and Poor’s:
“Most REIT shares have advanced strongly this year and are near records. It may pay to await a period of temporary weakness to make purchases."
In fact, the temporary weakness did not come for REITs until 1973. However, by 1973, it was too late to warn investors about the risks of investing in REITs as the momentum was too strong on the upside. Below are the prices and yields comparison for a select few of the REITs in 1971 and 1974.
| REIT | 7/22/1971 Price | 1971 Yield | 5/16/1974 Price | 1974 Yield | % chg |
| American Century Mortgage | $25.00 | 8.80% | $5.25 | 4.76% | -79.00% |
| First Mortgage Investors | $30.00 | 6.90% | $3.00 | 57% | -90.00% |
| Republic Mortgage Invest. | $20.00 | 9.00% | $6.87 | 24% | -65.65% |
| Wachovia Realty | $34.00 | 6.40% | $11.50 | 20% | -66.18% |
| Conn. General Mortgage | $31.00 | 5.40% | $16.00 | 11% | -48.39% |
| Equitable Life Mortgage | $27.00 | 3.30% | $14.38 | 15.36% | -46.74% |
| Mass Mutual Mortgage | $25.00 | 2.50% | $12.00 | 15.58% | -52.00% |
| MONY Mortgage | $12.00 | 7.20% | $6.00 | 14.66% | -50.00% |
| Hubbard REIT | $21.00 | 6.90% | $15.58 | 10% | -25.81% |
Source:
- Fowler, Elizabeth M. “Personal Finance: Real Estate Investment Trusts Gain New Luster as Money-Making Medium Personal” New York Times. July 22, 1971.
- New York Stock Exchange Transactions. New York Times. May 16, 1974. page 60.