The REIT Revolution: Bridging Public Markets and Real Estate

Is the REIT a solution to real estate capital markets woes?

Phil Bak is the CEO of Armada Investors. Phil has previously served as Founder and CEO of Exponential ETFs, an ETF issuer and sub-advisor acquired by Tidal Financial Group in 2020. Phil has also served as Managing Director at the New York Stock Exchange and Chief Investment Officer at Signal Advisors. He is the host of The Phil Bak Podcast and the author of BakStack.

The capital markets are a miracle. Global capital markets are a miracle. But let’s focus on the biggest and best of them all: the US Stock Market. 

This whole thing got started when 24 stockbrokers signed an agreement under a buttonwood tree next to what is now 68 Wall Street in 1792. To sign the agreement, they used a quill pen, an instrument made from the central shaft of a large bird's feather. The Buttonwood Agreement—the formation of the New York Stock Exchange—was signed with an actual bird feather.

The stock market has come a long way since the quill pen and the Buttonwood Agreement. US stock exchanges now trade more than 10 billion shares per day, and the NYSE processes over 1.5 million quotes per second at trading peaks. Three months ago, on June 28, 2024, during the Russell index reconstitution, Nasdaq executed 2,899,191,109 shares (over $95 billion) in 0.878 seconds.

And, of course, real estate also found its way to public markets via public Real Estate Investment Trusts (REITs). REITs began public trading in 1960 following the Real Estate Investment Trust Act. As of 2024, they accounted for approximately 3-4% of the U.S. stock market's total value, with a market capitalization of around $1.25 trillion. 

REITs allow real estate holding companies to access the miracle of the US stock market. That means accessing liquidity and accessing capital. It is a path to grow through issuing new shares. It forces disclosure and transparency. It facilitates price discovery. And! There are some tax benefits thrown in for good measure.

Today’s letter will dive into what a REIT actually is, why public markets should be more accommodative to real estate companies, as well as:

• How do you form a REIT, and why might it make sense depending on your strategy? 

• The difference between private, non-traded, and public REITs

• The power of using 721 Exchanges or UPREIT transactions

• How public markets don’t accurately reflect the commercial real estate markets

• A view on how small to mid-size real estate firms could access public markets liquidity.