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The History of REITs (1960–Today)

Congress created REITs in 1960 to open large-scale commercial real estate to ordinary investors, and the industry grew from there

1960: Congress creates the REIT

The REIT structure was created by the U.S. Congress in 1960, through provisions attached to the Cigar Excise Tax Extension of 1960 and signed into law by President Eisenhower. The goal was straightforward: give ordinary investors a way to put money into large-scale, income-producing real estate — the kind of office buildings, apartment complexes, and shopping centers that had previously been accessible mainly to wealthy individuals and institutions — the same way they could already invest in stocks or mutual funds.

Before 1960, participating in large commercial real estate generally required either enough capital to buy a property outright or membership in an exclusive investment syndicate. The new law aimed to open that door much wider.

Early growth, with one big restriction

For its first quarter-century, the REIT structure came with a significant catch: REITs could own real estate, but they generally could not operate or manage it themselves. The law required them to hire independent contractors to run day-to-day operations, which limited how actively a REIT could add value to its properties. Combined with a still-small and unfamiliar asset class, growth in the early decades was modest compared with what came later. See What Is a REIT? for how the structure works today, without that restriction.

Because of this limitation, many early REITs operated more like passive investment trusts than the hands-on real estate companies most REITs are today, and the industry remained a relatively small corner of the investment world through the 1960s and 1970s.

1986: REITs get the green light to operate real estate

That changed with the Tax Reform Act of 1986, which allowed REITs to both own and directly operate most types of real estate, hiring their own staff to lease, manage, and maintain properties rather than relying on outside contractors. This is widely considered one of the most important turning points in REIT history: it let REITs function as genuine operating companies rather than passive investment pools, and set the stage for the growth that followed.

The change also coincided with broader tax reform that reduced the appeal of many real estate tax shelters that had proliferated in the early 1980s, which indirectly pushed more capital toward operating companies, REITs among them, rather than pure tax-driven partnerships.

The 1990s: the modern REIT era

The early 1990s brought a real estate credit crunch that left many private real estate companies short on capital and heavily indebted. A wave of them responded by going public, often using an umbrella partnership structure (see What Is an UPREIT (and DownREIT)?) that let existing owners contribute properties to the new public company in exchange for operating partnership units rather than cash, deferring certain taxes in the process. This period, often called the start of the "modern REIT era," brought a surge of REIT IPOs and a steady increase in institutional and pension fund investment.

By the middle of the decade, REIT initial public offerings had become common enough that the structure was no longer a niche curiosity but a recognized way for real estate operating companies to access the public markets.

1999–2001: the REIT Modernization Act

The REIT Modernization Act, enacted in 1999 and effective in 2001, made two changes that shaped the REITs investors see today. First, it lowered the required distribution of taxable income from 95% to 90%, see The 90% Distribution Rule, giving REITs a bit more flexibility to retain capital. Second, it allowed REITs to set up taxable REIT subsidiaries, which can provide services to tenants and pursue certain business activities that would not otherwise qualify under the REIT income rules, again broadening what REITs could do without losing their tax status.

Together, these two changes reflected a broader theme in REIT history: as the industry matured, the rules gradually evolved to give REITs more operating flexibility while preserving the core distribution requirement that defines the structure.

2001–2016: REITs join the investment mainstream

REITs also became harder for mainstream investors to ignore. Standard & Poor's began adding REITs to the S&P 500 in 2001, and in 2016 the Global Industry Classification Standard, the system S&P and MSCI use to sort public companies into sectors, created Real Estate as its own headline sector for the first time, separating REITs out from Financials, where they had been grouped for decades. That reclassification reflected how large and distinct the REIT market had become.

Index inclusion mattered in practice because it meant a growing share of ordinary retirement savings, invested through index funds tracking the S&P 500 or similar benchmarks, now included REITs automatically, without an investor having to seek them out.

REITs today

Today's REITs stretch well beyond the offices and apartments of the early decades, into data centers, cell towers, self-storage facilities, timberland, and more, see REIT Sectors Overview for the full range, or browse them directly on the sectors page. The sector list on this site reflects that breadth today, spanning traditional categories like Residential and Retail REITs alongside newer-economy categories like data centers and cell towers.

Publicly traded REITs are now widely held through index funds, ETFs, and retirement accounts, and are commonly compared with other ways to invest in stocks and real estate, a comparison explored in REITs vs. Stocks.

See it in the data: Browse the REIT directory →

Research and education only — nothing here is investment advice. Figures such as the 90% distribution rule are general and can change; always confirm against a company's filings.