New tax law could spur REITs to become regular corporations

Businesses may want to take advantage of lower corporate tax rate

New York /
Apr.April 25, 2018 11:20 AM

1666 K Street in DC, 1233 20th Street in DC and Vornado’s 61 Ninth Avenue in Chelsea

Real estate investment trusts may want to take advantage of the new lower corporate tax rate by becoming regular corporations.

Jason Wolf and Ryan Dobratz, managers of the Third Avenue Real Estate Value Fund, wrote in a letter to investors published this week that some REITs should consider becoming standard corporations to maximize their value for shareholders, according to Bloomberg.

REITs currently pay no federal taxes, and converting to regular corporations would require them to pay the new 21 percent corporate tax rate. However, they would also be able to keep their earnings for capital expenditures and use extra cash to buy back stock.

Most REITs will likely remain REITs, but ones that have large development and redevelopment needs could benefit from switching, with Wolf and Dobratz citing Seritage Growth Properties, Vornado Realty Trust and JBG Smith  as examples.

Dobratz told Bloomberg that a Seritage conversion “seems like a no-brainer to us. We think the company would be in a better spot in five years if they made a decision to retain the capital, reinvest in the business and accelerate the pace of putting their legacy Sears and Kmart boxes to a higher and better use.”

Conversions have tended to go the other way, and REITs may be wary of becoming corporations in the event that the tax rate changes again. Their stock price would likely decline as well, but Third Avenue argued that such short-term declines would be countered by long-term gains. [Bloomberg]Eddie Small


Related Articles

arrow_forward_ios
Queens official Donovan Richards, Larry Silverstein and rendering of Innovation QNS (Queens Borough President, Innovation QNS, Getty)
Queens boro prez turns on industry, rejects Silverstein’s $2B project
Queens boro prez turns on industry, rejects Silverstein’s $2B project
From left: Pamela Liebman and Glenn Kelman (Photo Illustration by Steven Dilakian for The Real Deal with Getty Images, Corcoran, Redfin)
Pam Liebman and Glenn Kelman want to buy your house – on TV
Pam Liebman and Glenn Kelman want to buy your house – on TV
Cea Weaver (Getty)
Cea Weaver pokes landlords’ hive over rent reform
Cea Weaver pokes landlords’ hive over rent reform
United States Representative James Clyburn (Getty Images)
Four corporate landlords used “abusive tactics” in pandemic evictions: House committee
Four corporate landlords used “abusive tactics” in pandemic evictions: House committee
Senator Chuck Schumer and Senator Joe Manchin (Illustration by Kevin Cifuentes for The Real Deal with Getty)
Manchin-Schumer deal closes real estate tax loophole
Manchin-Schumer deal closes real estate tax loophole
Hudson Yards, Related Companies' Stephen Ross, Vornado’s Steven Roth and SL Green’s Marc Holliday (Getty, Related, Vornado, SL Green)
Developers all-in on Manhattan casino push
Developers all-in on Manhattan casino push
Fried Frank, City Planning, politics
Former City Planning chief Anita Laremont to join Fried Frank
Former City Planning chief Anita Laremont to join Fried Frank
Jay and Stuart Podolsky with the Marcel in Gramercy at 201 East 24th Street (Getty, Google Maps)
Controversial Podolsky brothers ink more city business
Controversial Podolsky brothers ink more city business
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...