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Lessons from the US and German Reit Markets for Drafting a Polish Reit Act

Lessons from the US and German Reit Markets for Drafting a Polish Reit Act Investors are increasingly allocating capital into the real estate market through indirect investment vehicles such as REITs. There are currently no classic REITs in Poland, but given the experience of other countries and the expectations of Polish investors, an act is being prepared to regulate their functioning. The introduction of legal regulations regarding REITs has not always resulted in successful proliferation of these vehicles in each country. The German market for G-REITs is such an example, were only six G-REITs have evolved. There is also the example of the market in the United States, where extremely dynamic development of such institutions has been observed, especially in the recent years. At the end of 2019, 219 institutions of this type were operating on the US market. The purpose of this article is to identify, based on the experiences of the American and German markets, aspects stimulating and inhibiting the development of the REIT market, and then, on their basis, to recommend certain regulations, which might have been included in the PL-REIT act, and which were not included in first draft of the act in 2018. Taking them into account could cause the Polish act to stimulate the development of REITs in Poland to a greater extent. Keywords: REIT, legal conditions of REIT activity, real estate market, Poland. JEL Classification: L85; R39. Citation: Kowalke, K., & Funk, B. (2022). Lessons from the US and German REIT markets for drafting a Polish REIT Act. Real Estate Management and Valuation, 30(1), 01-12. DOI: https://doi.org/10.2478/remav-2022-0001 1. Introduction Real estate investments are usually illiquid investments. Furthermore, private investment into real estate requires substantial capital, as investment in apartments, office buildings, retail property or similar categories demands considerable amounts of equity and/or debt. Therefore, more liquid forms of investment into real estate have been introduced, such as various forms of real estate funds and real estate vehicles, including public listed real estate companies and tax-favored Real Estate Investment Trusts (abbreviated REITs), which are the most popular (Devaney,2012). The Polish government has been contemplating introducing the REIT format into Polish legislation, allowing for formation of REITs in Poland for investment purposes. In 2018, there was even a draft law on Polish REITs (denoted PL-REITs in this article further on), which, however, was not passed by the end of 2020 (Projektustawy z dnia 25.04.2018…).Work on it was resumed recently, at the beginning of 2021. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav Other countries have had different experiences with the introduction of the REIT vehicle. Whereas the United States of America has seen a strong market growth, especially since the 1990s, having transformed REITs into a very important player in the real estate investment market and an investment opportunity into REIT shares, both for private and institutional clients; Germany, on the other hand, has seen a less dynamic development. The purpose of this article is to identify, based on the experiences of the American and German markets, aspects stimulating and inhibiting the development of the REIT market and then, on their basis, to recommend certain regulations which might have been put in the Polish REIT act and which were not included in first draft act in 2018. Making use of experience gained from markets in which REITs already operate could cause the Polish legal regulations to stimulate the development of the Polish market PL-REITs more effectively in order to become an important element of the local real estate market 2. Literature review The introduction of regulations governing REITs on the Polish market may have a positive impact on the economy and the real estate markets, as well as create new investment opportunities for real estate investors. Transformation of listed real estate companies to the REIT structure will result in institutional changes of Polish financial markets (Papież, 2020). Due to their low capital requirements, REITs are considered financial instruments that effectively attract investment capital to the real estate market (Maratiaet al., 2017), (Glascock et al., 2000). In addition, there are other advantages to investing in REITs. One of them is that, although often listed as part of public capital markets, they behave like real property markets rather than like stock markets in the long run, which is indicated in research conducted by Hoesli and Oikarunen (2012). This fact is of great importance for the diversification process of investment portfolios, as prices on the real estate market are characterized by a relatively low correlation with prices on the stock and bond markets (Liow& Huang, 2018). The consequence is that REITs are just as effective in diversifying investment portfolios as direct real estate investments (Hoesli&Oikarinen,2012). The benefits of diversification may also contribute to attracting investors and foreign capital to the Polish real estate market. The literature on the subject recognizes the advantages of international diversification of real estate investment through REITs (Liow & Huang, 2018). The establishment of PL-REITs will allow foreign investors to take the Polish market into account in the formerly unavailable process of international diversification. However, it should be emphasized that investors prefer markets with high liquidity and a transparent organizational structure, as the risk of capital allocation is lower in such markets (Devaney, 2012). An element that may significantly contribute to the liquidity of the REIT market and contribute to its dynamic development is the authorization of REITs to allocate funds in foreign markets. It is widely believed that the introduction of legal regulations enabling the purchase of real estate on foreign markets was one of the main reasons for the dynamic development of REITs in Singapore, which became the pan- Asian REIT center (the second largest REIT market in Asia after Japan) (Newellet et al., 2015). The creation of legal norms for the operation of PL-REIT will also open new investment opportunities for domestic Polish investors. It was found that allocation of capital through US-REITs coincides with relatively high rates of return compared to other forms of investment vehicles (Newellet et al., 2015). However, it is worth paying attention to some elements that foster the generation of high rates of return by REITs. Analyses by Ambrose et al. (2019) indicate the presence of the scale effect on the REIT market. This means that, as REITs increase, their financial situation improves. This phenomenon is stronger for smaller REITs than for already relatively large-scale ones. Another regularity was observed by Bao and Gong (2017), who analyzed the relationship between the level of debt and the effectiveness of REITs. Their research showed that, during a boom, REITs with a higher level of debt brought higher rates of return, while in unfavorable economic conditions, they were more risky investments and generated lower rates of return. In connection with the results of their research, the authors suggest that legislators should consider introducing a lower limit of obligatory dividend payments in times of unfavorable economic conditions. Such action could reduce the level of debt in REITs during the downturn and, consequently, reduce the risk of their operation. As research conducted on the American market by Damodaran et al. (1997) shows, the obligation to pay high dividends is a serious issue for REITs in a situation of deteriorating financial conditions, which is why their managers often change the form of doing business from REITs to a less restrictive one. Conversely, when the financial position is strong, they switch to the REITs legal regime and enjoy REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav the associated tax advantages. The above studies show that such actions improve profitability and increase prices of shares, at least in the medium term. On the basis of the presented literature, certain elements that stimulate or inhibit the development of REITs can be identified. It should be emphasized, however, that the literature on the subject lacks publications that would present this problem more comprehensively. The authors of this article want to fill this gap, even if only to a small extent. A study of this kind is especially important for countries such as Poland, where REITs do not yet exist, but where there is a discussion on the scope of the legal conditions that are to enable their creation. It will allow to identify the aspects that legislators may carefully consider, as they can support the development and growth of the REIT market 3. Data and Methods The goal of the article has been achieved on the basis of deductive inference. Moreover, basic descriptive statistics have been presented. The analyses began with the presentation of the specifics of the local REIT markets in the United States and Germany in order to identify the similarities and differences between them. Then, on their basis, success aspects and problems that determine the development of the studied markets were identified. The next part presents the specificity of the Polish market in terms of collective investment in real estate, as well as the main characteristics of the PL-REIT act prepared by the Polish parliament in 2018. Ultimately, based on the experience of the American and German markets, recommendations for changes to the draft act were formulated, which, in the authors' opinion, would contribute to a more dynamic development of the REIT market in Poland. The analyses carried out in the article were based on data from the literature on the subject, commercial reports of institutions, as well as statistical data from statistical offices on individual markets. In addition, data provided by stock exchanges was used, on the basis of which rates of return were estimated. 4. Empirical results 4.1. Characteristics of US and Germany REIT market – similarities and differences US REITs were enacted in 1960 by the US REIT Act (Coletta & Busato, 2019). In 1975, there were 34 REITs with a capitalization of 1.5 billion USD. Since then, the capitalization has been growing dynamically. In 2019, there were 219 REITs with a capitalization of 1323.8 billion USD (REITWatch, 2020). The US REIT market is the largest market of this type of institutions in the world. The idea behind creating REITs was to allow individuals to participate in larger real estate investments (Adnanet al., 2021). A characteristic feature of REITs is their privileged tax status. To be able to retain such status on the US market, REITs are required to (Gim & Jang, 2020): – distribute 90% of distributable income to shareholders, – have at least 100 shareholders, of whom 5 or fewer may not hold more than 50% of shares (5/50 test), – invest at least 75% of their assets in real estate, – obtain 75% of its gross income from the real estate business. The US REITs can be organized both as private REITs or as publicly listed REITs. Creating a new REIT may involve considering the economic and organizational advantages or disadvantages of being a private or public listed REIT. The specificity of REITs, which due to the obligation to distribute profits to shareholders have very limited possibilities of financing their development with internal capital, means that they have stronger incentives to become a public company. There are, however, negative aspects to being a publicly traded company; the regulatory burden for them is greater, and they have to bear the high costs of being a public company. This is especially problematic for small companies, as the high fixed costs associated with being listed on the public market mean that the percentage costs are higher in the case of smaller entities (Rodríguez et al., 2010). One of the advantages of REITs is the high liquidity of their shares. Thanks to this feature, illiquid assets such as real estate become highly liquid assets. This is one of the most important reasons behind the dynamic growth of the US REIT market. In the 1990s, institutional investors on the US market had problems with selling real estate at a fair value, especially in the periods of the market slowdown. Consequently, to deal with this issue, there was a massive turn to the public REIT market. This action REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav initiated a dynamic development of this market, which continues to this day (Danielsen & Harrison, 2007; Clayton & MacKinnon, 2000). The REIT segment also allows for diversification by investing in portfolios. US REITs are often specialized in certain property segments. Table 1 presents the real estate sectors in which US REITs invest. We aim to exclude special factors triggered by the pandemic on capital markets and, therefore, refer to 2019 figures. Table 1 Real estate sectors in which REITs invest in the US market as of December 31, 2019 Equity Market Capitalization, % of FTSE Nareit All Investment Sector Number of REITs December 31, 2019 ($M) REITs Office 20 106 927 8.05% Industrial 15 119 450 8.99% Retail 38 171 404 12.90% Shopping Centers 20 60 366 4.54% RegionalMalls 7 54 211 4.08% Free Standing 11 56 827 4.28% Residential 21 188 672 14.20% Apartments 15 136 687 10.29% Manufactured Homes 3 27 370 2.06% Single Family Homes 3 24 615 1.85% Diversified 18 62 984 4.74% Lodging/Resorts 18 46 071 3.47% Self Storage 6 63 979 4.81% HealthCare 17 123 106 9.26% Timber 4 30 227 2.27% Infrastructure 6 190 184 14.31% Data Centers 5 89 501 6.74% Specialty 11 53 374 4.02% MortgageREITs 40 82 928 6.24% Home Financing 24 55 159 4.15% Commercial Financing 16 27 769 2.09% IndustryTotals 219 1 328 806 100.00% Source: REITWatch (2020). Overall, there are 13 different real estate sectors in which REITs invest in the US market. Retail is the leading real estate sector in which REITs are allocated. At the end of 2019, 38 entities of this type were operating on the US market. Moreover, a significant REIT sector are vehicles dealing with financing the purchase of residential real estate (24 REITs) and entities investing in residential (21 REIT) and office (20 REIT) markets. It is also worth noting the market capitalization of REITs operating in individual sectors. At the end of 2019, the highest were infrastructure REITs (190.2 billion USD) and residential REITs (188.7 billion USD). Interestingly enough, such a high capitalization of infrastructure REITs was created by only 6 entities, compared to 21 constituting the capitalization of residential REITs. Thanks to the high variety of companies, the investors are able to diversify the portfolio of real estate holdings according to their preferences. This is also true for geographical diversification. REIT shares can be chosen based on certain geographical areas in the United States of America. Public vehicles require substantial disclosure of information. This is required by the federal supervisory authorities as well as the stock market listing requirements. While more intransparent and illiquid closed-end fund structures dominated the real estate investment world of the Reagan era, newer listed REIT structures are obliged to disclose in-depth information about their financial and legal organization. All the above make REITs transparent and professionally managed institutions (Bairagi & Dimovski, 2011). Another market to be discussed is the German market. The German REIT regime (denoted G-REIT) was enacted in 2007, which means a very delayed start as compared to US market. However, the REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav introduction of G-REIT was associated with substantial political debate. Similarly to REITs in the US,G-REITs have a privileged tax nature. To retain it, they have to (Mizerski, 2016;Hackemann, 2020): – pay out at least 90% of profit in the form of dividends, – have a minimum of 75% of real estate assets, – maintain equity of at least 45% of the total asset value of immovable property, – secure a free float of 25% at the time of IPO, which can be reduced to 15% later-on, after IPO. The German REIT regime excluded residential properties built before 2007. This means that most apartment stock in Germany is not accessible for investment of G-REITs. Other countries do not have such an exclusion. So why did Germany choose to exclude residential properties from the G-REITs? Answers can be found in the ownership structure of residential properties in Germany. According to the German statistical office (Destatis, 2021), less than 50% of German residential properties at the federal level are owner-occupied. However, looking at big cities, the ownership rate is much lower. For example, in the capital of Berlin, less than 18% of residential properties are owner-occupied. In larger cities, apartment blocks can be owned by corporations organized as listed or non-listed public companies (German: Immobilienaktien). Furthermore, given the upswing of the German real estate market between 2004 and 2006, before the enactment of the G-REIT law in 2007, several international private equity funds acquired large portfolios of German real estate. Therefore, tenant advocacy groups (German: Mieterverbaende) raised concerns that larger holdings of German apartments would fall in the hands of international investors, not accustomed to the German model of strong tenant rights. It was because of this political aspect that German legislation omitted residential properties as a valid investment for G-REITs. It seems that, due to the broad German traditions for renting real estate (as evidenced by the relatively low share of owner-occupied real estate), REITs in the residential market would have the best chance for dynamic development. However, due to the introduced restrictions, this market has become largely unavailable for G-REITs. Germany designed a cap on leverage into its legislation. The German REIT-act expects the G-REIT to maintain a minimum of 45% of equity of the book value of immovable goods (real estate) (Hackemann, 2020). As for the German market, the gearing limitation has posed severe problems for the development of G-REITs. Before the introduction of REITs, many entities operated on the real estate market with a higher level of debt. However, after the introduction of legal regulations concerning G-REITs, they did not transform into a REIT structure, as they assessed that it would be a challenge to raise additional equity to lower the leverage. The US REIT legislation does not stipulate a cap on leverage. Self-restriction on gearing in the US REIT markets stems not from regulatory demands, but from the policy of (credit) rating agencies. As US REITs will issue secured or unsecured debt, rating agencies may look at gearing levels, as these are correlated with credit risk quality. As a result, the long-term average leverage of US REITs is around 45% (Giacominiet al., 2017). Germany excluded private REITs. This means that under G-REIT law, only G-REITs organized as joint stock companies and listed on the stock exchanges in Germany, the EU or the EEA are allowed. Therefore, enforcing the format of listed joint stock company will require a certain size of the REIT. Whereas a private REIT in the US can be formed for more project-type real estate property transactions, the German REIT is not suitable for this purpose. The auditing, tax-reporting and listed joint stock company disclosure requirements and listing requirements demand substantial organizational resources and bring about costs, all of which hinders small or medium-sized companies to evolve under the G-REIT regime. Table 2 presents the most important characteristics related to the functioning of the REIT market in the United States and Germany. Table 2 Comparison of the REIT market in the United States and Germany Characteristics USA Germany Number of REITs at the 219 6 end of 2019 REIT capitalization at the 1324.8 billion USD 5.1 billion USD end of 2019 REITs deduct dividends paid Exemption from Corporate Income REIT tax advantage from the Corporate Income Tax Tax and no tax on current income REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav base Obligation to pay at least 90% of gross taxable at least 90% of yearly net income dividends income Obligation to be a public No Yes company Manifold property types eligible, Residential real estate built after 2006 REIT investment provided the asset and income and commercial real estate, provided opportunities tests are met Mortgage REIT the asset and income tests are met feasible as well Must have a minimum of 100 shareholders, and five or fewer One shareholder may not own more Shareholder restrictions individuals cannot own more than 10% of the shares or voting than 50% of the value of the REIT rights of the REIT stock Minimum gross income At least 75% At least 75% from real estate business Possibility of investing in Yes Yes the foreign market Cap on leverage No limit Maximum 66.25% leverage Source: own study based on data from Hackemann (2020) and Feuerstein and Allen (2019). The scale of REIT operations on the American and German markets differs significantly, but when we compare the legal regulations, the differences are not so significant. The most important of these is the restriction of REITs on the German market for residential real estate and the G-REITs' obligation to be a public company. In addition, on the German market, REITs have some debt constraints that do not exist in the US market. The remaining legal characteristics are similar for both markets, or there are no significant differences between the markets. 4.2. Success aspects and drawbacks on the US and the German REIT market The success of the American REIT market and the failure of the German G-REITs were related to many factors. The major ones include: – private investors stock market holding culture, – flexibility on leverage, – operation of REITs in the public and private form, – information on the functioning of the REITs market, – REIT investment opportunities. Regarding the first point, US pension plans and pension schemes, such as 401ks, rely heavily on stock market investments. US culture is much more accepting of the volatility of stock markets, hence it was much easier to win over private investors for the idea of REITs investment. In Germany, the biggest investment of insurance companies and pension schemes is in government bonds. Investment into stocks plays a minor role. The industry average is less than 5% and allocations to stocks of 10% are considered very high (Berneburg & Reinecker, 2019). The same is true for private investors. Only approximately between 15 and 18% of Germans either invest in stocks directly or hold stocks through mutual investment funds (Fey, 2020).As Germany requires G-REITs to be listed on the stock exchange, in the minds of investors investing in them, is treated as investing in stocks and, therefore, their volume is limited in the investment portfolio. The US REIT market theoretically does not limit the gearing ratio; however, in reality, the gearing ratios do not exceed 50%. Therefore, the cap on leverage as stipulated in the G-REITs would be more important for private REITs rather than the mandatory listed REITs. Stock markets would usually “punish” high gearing levels. To conclude, the limit on gearing level may pose problems in day-to- day operations competing with non-listed real estate vehicles such as real estate funds, but is not overly important for the listed segment. As Germany did not allow for private REITs, certain investors who do not want to be restricted by public information disclosure and rigid listing requirements of organized stock markets are excluded. In the US, non-listed private REITs can serve as incubators of later-on, larger listed REITs structures. This is not possible in Germany. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav In the US, specialized stock market analysts focused on the US REIT segment constantly analyze the performance and track-record of US REITs. Furthermore, credit analysts from rating agencies such as S&P, Fitch, and Moody´s assess the credit quality of US REITs. In the context of information economics, the aforementioned institutions reduce the gap of information asymmetries between principal and agent. In Germany, the market segment is too small to justify allocating resources at rating agencies and banks towards only the G-REIT sector. Therefore, usually stock market analysts cover the complete listed sector for real estate companies, including G-REIT, but also real estate stock companies (German: Immobilien AG).This aspect is extremely important from the point of view of market development. The more analyses of a given market segment, in this case the REIT segment, are conducted and the more information is available to potential investors, the greater the interest of investors; moreover, as shown by the research conducted by T. Khoo et al. (1993), the volatility of rates of return of REIT is lowered. Therefore, when creating the REIT legal framework, the legislator should ensure that this market is as broad as possible. This increases the probability of success. The investment opportunities of REITs are another factor that may significantly affect the development of this market On the German market, G-REITs have been deprived, almost entirely, of the possibility of investing in the residential real estate market, which is generally believed to be one of the reasons for the poor development of this market The situation on the American market is completely different. The investment opportunities for REITs, as already mentioned in the previous section are wide. This not only allows REITs to provide a possibility for often niche sub-sectors of the real estate market to raise capital, but also enable investors who allocate capital through REITs to benefit from these sub-sectors. Table 3 shows the average annual rates of return of individual US-REIT sectors in 2010-2019. Table 3 Geometric average annual rates of return generated by the US-REIT sectors in 2010-2019 Investment Sector/Subsector Geometricmean Office 9.11% Industrial 16.26% Retail 10.06% Shopping Centers 8.58% RegionalMalls 8.44% Free Standing 13.69% Residential 15.44% Apartments 14.45% Manufactured Homes 22.92% Single Family Homes*** 14.12% Diversified 8.47% Lodging/Resorts 8.95% Self Storage 16.82% HealthCare 10.03% Timber* 8.30% Infrastructure** 18.31% Data Centers*** 10.42% Specialty*** 15.35% MortgageREITs 10.15% Home Financing 8.58% Commercial Financing 16.69% FTSENareitAllREITs 12.46% * years 2011-2019; ** years 2012-2019; *** years 2015-2019 Source: own study based on REITWatch (2020). REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav In the analyzed period, the highest rate of return, at the level of 22.92% annually, was generated by the Manufactured Homes sub-sector. The infrastructure real estate sector placed second, allowing investors to generate 18.31%. The specialist real estate sector also brought a relatively high rate of return, exceeding the market average. REITs operating in this sector generated an average annual return of 15.35%. As can be seen, high rates of return, exceeding the average for the entire market, were generated by relatively niche real estate sectors. This fact makes them very popular among investors, which additionally supports the development of this market in the USA. For this reason, the extensive investment opportunities of REITs on the American market should undoubtedly be counted among the success factors of this market 4.3. The specificity of the Polish real estate fund market There are no pure REITs in Poland. Investors, however, have the opportunity to invest indirectly in the real estate market by allocating resources to investment funds. According to the Polish law, investment funds can function as (Ustawa z …, 2004): open-end investment funds and alternative investment funds. The second group includes specialized open-end investment funds, closed-end investment funds and alternative investment companies. The open-end investment funds invest indirectly in the real estate market. They purchase financial instruments of companies listed on stock exchange markets that are related to the real estate market, i.e. shares and bonds of developers, construction companies or producers of building materials. Pursuant to Polish law, open-end investment funds are not entitled to allocate funds directly in real estate. The greatest advantage of this form of investment, from the investors' perspective, is the high liquidity of investments, as open-end investment funds are obliged to buy financial instruments that they sell to investors (Szelągowska, 2008). The second of the mentioned types of funds, specialized open-end investment funds, have many features in common with open-end funds. Similarly, they can only invest funds in real estate indirectly. However, there could be an exception to this rule when the fund limits its participants to legal persons, organizational units without legal personality or natural persons making contributions of no less than 40,000 Euro. Their investment policy can then be extended and they can invest in real estate much the same as closed-end investments funds (Ustawa z …, 2004). The aforementioned closed-end investment funds have the opportunity to invest directly in the real estate market. They may take the form of public funds, i.e. funds directed at a wide group of investors, or non-public funds with a closed, relatively narrow group of investors. Financial instruments issued by public funds are traded on the Warsaw Stock Exchange, while private ones are not; it is therefore usually difficult to finish investments in this type of funds before the fund ceases to operate (Kowalke, 2012). It is worth emphasizing here that closed-end funds usually have a closed period of operation, after which the fund is dissolved and its assets are sold. Real estate closed-end investment funds have many features in common with REITs and are therefore included in the REIT- like group (Papież, 2011). However, unlike REITs, they are not obliged to pay out most of the profit in the form of dividends and they do not have special tax advantages that would positively affect their investment attractiveness. The last form of indirect collective investment on the Polish real estate market are alternative investment companies. They operate as capital companies, limited partnerships or limited joint-stock partnerships. Their form of operation does not differ significantly from that of ordinary companies (Miziołek & Trzebiński, 2018). To establish them, it is necessary to appoint a manager who is registered at the Polish Financial Supervision Authority (Polish: Komisja Nadzoru Finansowego). Notably, alternative investment companies allocating funds on the real estate market are not privileged in terms of taxation. Overall, the real estate fund market in Poland is relatively small. The value of its assets as of December 31, 2019 was EUR 510 million, which accounted for 0.8% of the assets of the entire Polish investment fund market (www.analizy.pl/raporty/25060/aktywa-funduszy-inwestycyjnych-styczen- 2020 01.04.2021).The problem of this market may be the low confidence of investors in this form of capital allocation in the real estate market, due to the abuses that have taken place in recent years. An example is the public fund BPHSektor Nieruchomości, which lost 99.22% of its invested capital in 2005-2016 (Kowalke & Swyd, 2019). Another example is private fund WI InwestycjeRolneFIZ AN, which turned out to be a ponzi scheme and which strongly undermined trust in these types of institutions, which in turn may have a significant impact on the development of the REIT market in REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav Poland (www.fxmag.pl/artykul/w-investments-niewygodna-historia-piramidy-finansowej-pod- panstwowym-nadzorem 27.04.2021). 4.4. The characteristics of Polish REIT act draft As has already been mentioned, the Polish market lacks legal conditions that would enable the creation of a PL-REIT. However, the discussion on their introduction has been going on for a long time and is broad in spectrum. The opinions on the enactment of legal conditions regulating the activity of REITs in Poland are not clear. Apart from the advantages of this form of investing, certain threats are also noticed. This is shown, for example, by the stance of the National Bank of Poland (Polish: NBP - Narodowy Bank Polski) on this issue, which expressed its concerns about the risk of capital allocation by REITs in the commercial real estate market. It assessed that the moment of adopting the act and enabling REITs to enter the market should be well thought through, because if it were to happen during the peak in the real estate market, it could result in high losses for investors and, in turn, undermine the stability of the market (Uwagi NBP dotyczące…, 19.05.2017). Moreover, the Polish real estate market seems quite shallow, so the question arises as to whether the creation of REITs would not contribute to an increase in real estate prices. The perceived threats related to the introduction of legal conditions for the operation of PL-REITs, as well as negative past experiences related to Polish closed-end investment funds, make this process exceedingly lengthy and it is not certain when it will end. Poland came closest to introducing real estate investment funds, similar to classic REITs, in 2018, when the Polish parliament dealt with the act on companies investing in real estate leasing. It was to come into force on 01.01.2019 (www.businessinsider.com.pl/finanse/ustawa-o-reit-ach-wejdzie-w- zycie-od-poczatku-2019-roku/0cdms81 14.08.2018), though it was not adopted in 2018, and its legislative process was suspended. The work was resumed at the beginning of 2021, and the new draft is planned to appear in the second half of the year. Even though the shape of it remains unknown, it could be assumed that it will be based on the first draft from 2018. According to this draft, a company that wishes to have the status of a company investing in the rental of real estate (Polish: F.I.N.N. – Firmy Inwestujące w Najem Nieruchomości) will be required to, among others (Projekt ustawy z dnia 25.04.2018…): – be listed on the public market, – have a share capital at a level no lower than 11.5 million EUR/50 million PLN, – hold 80% of the carrying amount of residential real estate assets, – obtain 90% of revenues from the rental of residential real estate or their sale (if they were rented for the year preceding the sale), – obtain rental income from at least 5 properties, – have an amount of loan or loan liabilities not exceeding 50% of the amount of assets, – make the payment of the annual dividend at a level of no lower than 90% of profit for the last financial year. If the new act is based on the 2018 draft, the REITs will only be able to invest in rentable residential real estate (Papież, 2020). In the initial version of 2018 draft, PL-REITs were to invest only in office and warehouse properties. Real estate lobbying expanded the catalogue to include residential real estate. Ultimately, however, after consultation with the National Bank of Poland (Uwagi NBP dotyczące…, 19.05.2017), it was decided that, in the first phase, PL-REITs would be able to invest only in the residential market. On the other hand, if the formula was successful, the legislator would not prohibit the extension of REIT investment opportunities to include commercial real estate (www.businessinsider.com.pl/finanse/ustawa-o-reit-ach-wejdzie-w-zycie-od-poczatku-2019- roku/0cdms81 14.08.2018). PL-REITs are planned to have a favored tax nature. These entities will pay a lower corporate tax rate of 8.5% (the standard rate is 19%). The income of the funds will be taxable, the calculation of which will not include depreciation charges related to rented real estate. In addition, PL-REIT investors will also be privileged in terms of taxation. The income earned by a REIT will not be subject to capital gains tax. This exemption will apply to both, individual investors and enterprises paying CIT (Corporate Income Tax) (Uzasadnienie do ustawy…, 25.04.2018). REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav 5. Discussion and conclusions Based on the experience of the American and German markets, as well as on the basis of a literature review on the subject, it seems legitimate to recommend certain changes to the presented draft of the PL-REIT Act. The first recommendation is to introduce legal conditions enabling the establishment of private REITs. The costs of their operations are much lower than those of listed companies, which is especially important for young REITs at an early stage of development. They would be given time to evaluate and become large enough to bear the cost of listing requirements and to effectively maintain the format of a listed company. An important element is also the REIT authorization for the acquisition of both residential and commercial real estate, as well as niche real estate, both by private and public REITs. The greater the investment universe for Polish REITs, the greater the likelihood that this segment will evolve and be accepted in the real estate industry. The possibility of purchasing real estate outside Poland could also have a positive impact on the development of the Polish REIT market This would enhance the flexibility of Polish REITs in order to develop their portfolios in times of asynchronous market changes in different countries, for instance in times of declining real estate prices in Poland versus growth opportunities for real estate prices in foreign countries. Moreover, by enabling REITs to invest in foreign markets, PL-REITs could become leaders of this market in the region, as Singapore has become one of the leaders of the Asian REIT market, as had been mentioned earlier. In the case that PL-REITs would be able to invest outside of Poland, it can be assumed that they would invest mainly in Central and Eastern Europe, as well as in markets where there are no local REITs. As a result, PL-REITs would be considered as representatives of the entire region, not only Poland, which would make them more attractive to foreign investors. Undoubtedly, this would have a positive impact on the dynamics of market development in Poland. Additionally, a lifting of the leverage limit or a high leverage limit may be recommended. This would help REITs to generate effective returns that are attractive to investors. This would lead to REITs being competitive in regards to other market players that do not have such limits. Apart from the presented changes, which refer directly to the draft act on PL-REITs, the Polish legislator may also consider an additional aspect when introducing corrections to the act draft. Legal regulations in some countries combine the borrowing allowance with the market value of the real estate holdings that REITs possess. This is an element that could negatively affect the PL-REIT market, and therefore no such restrictions should not appear in the act, as they are unfavorable, especially in a period of decreasing real estate prices. They limit the flexibility of real estate portfolio management by REITs. In the authors’ opinion, the introduction of the presented changes to the proposed act could result in a greater probability of success of the REIT sectors on the Polish market. Institutions of this type could become an important participant in the Polish real estate market and support its capital development, as the needs in this matter are still significant. Further topics to be researched are the question of acceptance of new investment structures by domestic Polish investors: Would Polish investors adopt the REIT structure after their negative experiences with Polish investment funds on the real estate market? This is undoubtedly a topic for further analysis. It should also be emphasized that the presented recommendations for changes to the act were concluded mainly on the basis of comparing experiences of markets in the United States of America and Germany. Further research and analysis of other markets can add supplemental insights to the research. This would enrich knowledge on the subject and allow greater success as well as identification of failure factors for REITs. 6. References Adnan, Y. M., Lamin, N., Razali, M. N., Jalil, R. A., & Esha, Z. (2021). Real estate investment trusts’ (REITs) asset management strategies within global REIT portfolios. Real Estate Management and Valuation, 29(1), 72–86. https://doi.org/10.2478/remav-2021-0007 Ambrose, B. W., Fuerst, F., Mansley, N., & Wang, Z. (2019). Size effects and economies of scale in European real estate. Global Finance Journal, 42, 100470. https://doi.org/10.1016/j.gfj.2019.04.004 Bairagi, R. K., & Dimovski, W. (2011). The underpricing of US REIT IPOs: 1996–2010. Journal of Property Research, 28(3), 233–248. https://doi.org/10.1080/09599916.2011.577905 REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav Bao, H. X. H., & Gong, C. M. (2017). Reference-dependent analysis of capital structure and REIT performance. Journal of Behavioral and Experimental Economics, 69, 38–49. https://doi.org/10.1016/j.socec.2017.05.008 Berneburg, M., & Reinecker, F. (2019). Fondsinvestoren, Praxishandbuch Immobilienfondsmanagement und – investment. Rock, V. et al., 485 – 502. Clayton, J., & MacKinnon, G. (2000). Measuring and Explaining Changes in REIT Liquidity: Moving Beyond the Bid-Ask Spread. Real Estate Economics, 28(1), 89–115. https://doi.org/10.1111/1540- 6229.00794 Coletta, C. M., & Busato, F. (2019). U.S. REITs: A Financial Economics Review as of 2018. Real Estate Management and Valuation, 27(2), 20–32. https://doi.org/10.2478/remav-2019-0012 Damodaran, A., John, K., & Liu, H. C. (1997). The Determinants of Organizational Form Changes: Evidence and Implications from Real Estate. Journal of Financial Economics, 45, 169–192. https://doi.org/10.1016/S0304-405X(97)00015-9 Danielsen, B., & Harrison, D. (2007). The Impact of Property Type Diversification on REIT Liquidity. Journal of Real Estate Portfolio Management, 13(4), 329–344. https://doi.org/10.1080/10835547.2007.12089787 Destatis. (2021). Eigentuemerquote nach Bundeslaendern. German Statistical Office, Wiesbaden 2021. Devaney, M. (2012). Financial crisis, REIT short-sell restrictions and event induced volatility. The Quarterly Review of Economics and Finance, 52, 219–226. https://doi.org/10.1016/j.qref.2012.04.003 Feuerstein, A., & Allen, J. (2019). Worldwide Real Estate Investment Trust Regimes. PWC. Fey, G. (2020). Deutschland und die Aktie. Deutsches Aktieninstitut. Giacomini, E., Ling, D. C., & Naranjo, A. (2017). REIT Leverage and Return Performance: Keep Your Eye on the Target. Real Estate Economics, 45(4), 930–978. https://doi.org/10.1111/1540-6229.12179 Gim, J., & Jang, S.C.S. (2020). Lodging REITs and third-party operators: Do more operators enhance the performance of REITs? Tourism Management, 79, 104092. https://doi.org/10.1016/j.tourman.2020.104092 Glascock, J. L., Lu, Ch., & So, R. W. (2000). Further Evidence on the Integration of REIT, Bond, and Stock Returns. The Journal of Real Estate Finance and Economics, 20(2), 177–194. https://doi.org/10.1023/A:1007877321475 Hackemann, T. (2020) G-REIT – A comparison of the major REIT regimes around the world. EPRA Global REIT survey 2020, 58 – 68. Hoesli, M., & Oikarinen, E. (2012). Are REITs real estate? Evidence from international sector level data. Journal of International Money and Finance, 31, 1823–1850. https://doi.org/10.1016/j.jimonfin.2012.05.017 Khoo, T., Hartzell, D., & Hoesli M. (1993). An Investigation of the Change in Real Estate Investment Trust Betas. Journal of the American Real Estate and Urban Economics Association, 21(2), 107-130. https://doi.org/10.1111/1540-6229.00603 Kowalke, K. (2012). Fundusze inwestycyjne rynku nieruchomości w Polsce (Real estatefunds in Poland). Studia i Materiały Towarzystwa Naukowego Nieruchomości, 3, 199–209. Kowalke, K., & Swyd, P. 2019, Działalność funduszy inwestycyjnych REIT w Stanach Zjednoczonych w kontekście polskich funduszy inwestycyjnych rynku nieruchomości (REITactivity in the United States in the context of the Polish real estate investment funds). Studia ekonomiczne. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach, pp. 91-108. Liow, K. H., & Huang, Y. (2018). The dynamics of volatility connectedness in international real estate investment trusts. Journal of International Financial Markets, Institutions and Money, 55, 195–210. https://doi.org/10.1016/j.intfin.2018.02.003 Marfatia, H. A., Gupta, R., & Cakan, E. (2017). The international REIT’s time-varying response to the U.S. monetary policy and macroeconomic surprises. The North American Journal of Economics and Finance, 42, 640–653. https://doi.org/10.1016/j.najef.2017.09.007 Mizerski, G. (2016). Real Estate Investments Trusts (REITs). Efektywne inwestowanie na rynku nieruchomości (Real Estate Investments Trusts (REITs), Effective investing in the real estate market). CeDeWu, Warsaw. Miziołek, T., & Trzebiński, A. A. (2018). Rynek funduszy inwestycyjnych w Polsce (The investment funds market in Poland). Difin. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav Newell, G., Pham, A. K., & Ooi, J. T. L. (2015). The significance and performance of Singapore REITs in a mixed-asset portfolio. Journal of Property Investment & Finance, 33(1), 45–65. https://doi.org/10.1108/JPIF-12-2010-0027 Papież, R. (2011). Strategia globalizacji jako przesłanka ekspansji funduszy inwestycyjnych na rynkach nieruchomości (Globalization strategy as a premise for the expansion of investment funds on real estate markets). In A. Nalepka (Ed.), Inwestycje i nieruchomości wyzwania XXI wieku (Investments and real estate - challenges of the 21st century) ( 55–68). Cracow University of Economics. Papież, R. (2020). Companies investing in real estate leasing or rental (finn) as Poland’s reit–the concept of institutional change. Geomatics, Landmanagement and Landscape, 3, 7–17. https://doi.org/10.15576/GLL/2020.3.7 Projekt ustawy z dnia 25.04.2018 o firmach inwestujących w najem nieruchomości (The draft act of 25.04.2018 on companies investing in the rental of real estate). REITWatch. 2020. A Monthly Statistical Report on the Real Estate Investment Trust. RODRÍGUEZ, M., CARPENTER, J.T., & BRAU, J.C. (2010). REIT Going Private Decisions. The Journal of Real Estate Finance and Economics, 46(1), pp. 1-20. Szelągowska, A. (2008). Rozwój funduszy rynku nieruchomości na polskim rynku finansowym a tendencje światowe (Development of real estate funds on the Polish financial market and global trends), pp. 45-63, in: Innowacje finansowe (Financial innovation), ed. Antkiewicz S., Kalinowski M., CeDeWu, Warsaw. Ustawa z dnia 27.05.2004 o funduszach inwestycyjnych i zarządzaniu alternatywnymi funduszami inwestycyjnymi, Dz. U. 2004 Nr 146 poz. 1546. z późn. zm. (Act of 27 May 2004 on investment funds and management of alternative investment funds, Journal of Laws, 2004, no. 146, item 1546, as amended). Uwagi NBP dotyczące projektu ustawy o spółkach wynajmu nieruchomości z dnia 19.05.2017 (NBP comments on the draft act on real estaterentalcompanies of 19.05.2017). Uzasadnienie do ustawy o firmach inwestujących w najem nieruchomości z dnia 25.04.2018 (Justification to the law on companiesinvesting in therentalof real estate of 25.04.2018). www.analizy.pl/raporty/25060/aktywa-funduszy-inwestycyjnych-styczen-2020 available at 01.04.2021. www.businessinsider.com.pl/finanse/ustawa-o-reit-ach-wejdzie-w-zycie-od-poczatku-2019- roku/0cdms81 available at 14.08.2018. www.fxmag.pl/artykul/w-investments-niewygodna-historia-piramidy-finansowej-pod- panstwowym-nadzorem available at 27.04.2021. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Real Estate Management and Valuation de Gruyter

Lessons from the US and German Reit Markets for Drafting a Polish Reit Act

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de Gruyter
Copyright
© 2022 Krzysztof Kowalke et al., published by Sciendo
ISSN
1733-2478
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2300-5289
DOI
10.2478/remav-2022-0001
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Abstract

Investors are increasingly allocating capital into the real estate market through indirect investment vehicles such as REITs. There are currently no classic REITs in Poland, but given the experience of other countries and the expectations of Polish investors, an act is being prepared to regulate their functioning. The introduction of legal regulations regarding REITs has not always resulted in successful proliferation of these vehicles in each country. The German market for G-REITs is such an example, were only six G-REITs have evolved. There is also the example of the market in the United States, where extremely dynamic development of such institutions has been observed, especially in the recent years. At the end of 2019, 219 institutions of this type were operating on the US market. The purpose of this article is to identify, based on the experiences of the American and German markets, aspects stimulating and inhibiting the development of the REIT market, and then, on their basis, to recommend certain regulations, which might have been included in the PL-REIT act, and which were not included in first draft of the act in 2018. Taking them into account could cause the Polish act to stimulate the development of REITs in Poland to a greater extent. Keywords: REIT, legal conditions of REIT activity, real estate market, Poland. JEL Classification: L85; R39. Citation: Kowalke, K., & Funk, B. (2022). Lessons from the US and German REIT markets for drafting a Polish REIT Act. Real Estate Management and Valuation, 30(1), 01-12. DOI: https://doi.org/10.2478/remav-2022-0001 1. Introduction Real estate investments are usually illiquid investments. Furthermore, private investment into real estate requires substantial capital, as investment in apartments, office buildings, retail property or similar categories demands considerable amounts of equity and/or debt. Therefore, more liquid forms of investment into real estate have been introduced, such as various forms of real estate funds and real estate vehicles, including public listed real estate companies and tax-favored Real Estate Investment Trusts (abbreviated REITs), which are the most popular (Devaney,2012). The Polish government has been contemplating introducing the REIT format into Polish legislation, allowing for formation of REITs in Poland for investment purposes. In 2018, there was even a draft law on Polish REITs (denoted PL-REITs in this article further on), which, however, was not passed by the end of 2020 (Projektustawy z dnia 25.04.2018…).Work on it was resumed recently, at the beginning of 2021. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav Other countries have had different experiences with the introduction of the REIT vehicle. Whereas the United States of America has seen a strong market growth, especially since the 1990s, having transformed REITs into a very important player in the real estate investment market and an investment opportunity into REIT shares, both for private and institutional clients; Germany, on the other hand, has seen a less dynamic development. The purpose of this article is to identify, based on the experiences of the American and German markets, aspects stimulating and inhibiting the development of the REIT market and then, on their basis, to recommend certain regulations which might have been put in the Polish REIT act and which were not included in first draft act in 2018. Making use of experience gained from markets in which REITs already operate could cause the Polish legal regulations to stimulate the development of the Polish market PL-REITs more effectively in order to become an important element of the local real estate market 2. Literature review The introduction of regulations governing REITs on the Polish market may have a positive impact on the economy and the real estate markets, as well as create new investment opportunities for real estate investors. Transformation of listed real estate companies to the REIT structure will result in institutional changes of Polish financial markets (Papież, 2020). Due to their low capital requirements, REITs are considered financial instruments that effectively attract investment capital to the real estate market (Maratiaet al., 2017), (Glascock et al., 2000). In addition, there are other advantages to investing in REITs. One of them is that, although often listed as part of public capital markets, they behave like real property markets rather than like stock markets in the long run, which is indicated in research conducted by Hoesli and Oikarunen (2012). This fact is of great importance for the diversification process of investment portfolios, as prices on the real estate market are characterized by a relatively low correlation with prices on the stock and bond markets (Liow& Huang, 2018). The consequence is that REITs are just as effective in diversifying investment portfolios as direct real estate investments (Hoesli&Oikarinen,2012). The benefits of diversification may also contribute to attracting investors and foreign capital to the Polish real estate market. The literature on the subject recognizes the advantages of international diversification of real estate investment through REITs (Liow & Huang, 2018). The establishment of PL-REITs will allow foreign investors to take the Polish market into account in the formerly unavailable process of international diversification. However, it should be emphasized that investors prefer markets with high liquidity and a transparent organizational structure, as the risk of capital allocation is lower in such markets (Devaney, 2012). An element that may significantly contribute to the liquidity of the REIT market and contribute to its dynamic development is the authorization of REITs to allocate funds in foreign markets. It is widely believed that the introduction of legal regulations enabling the purchase of real estate on foreign markets was one of the main reasons for the dynamic development of REITs in Singapore, which became the pan- Asian REIT center (the second largest REIT market in Asia after Japan) (Newellet et al., 2015). The creation of legal norms for the operation of PL-REIT will also open new investment opportunities for domestic Polish investors. It was found that allocation of capital through US-REITs coincides with relatively high rates of return compared to other forms of investment vehicles (Newellet et al., 2015). However, it is worth paying attention to some elements that foster the generation of high rates of return by REITs. Analyses by Ambrose et al. (2019) indicate the presence of the scale effect on the REIT market. This means that, as REITs increase, their financial situation improves. This phenomenon is stronger for smaller REITs than for already relatively large-scale ones. Another regularity was observed by Bao and Gong (2017), who analyzed the relationship between the level of debt and the effectiveness of REITs. Their research showed that, during a boom, REITs with a higher level of debt brought higher rates of return, while in unfavorable economic conditions, they were more risky investments and generated lower rates of return. In connection with the results of their research, the authors suggest that legislators should consider introducing a lower limit of obligatory dividend payments in times of unfavorable economic conditions. Such action could reduce the level of debt in REITs during the downturn and, consequently, reduce the risk of their operation. As research conducted on the American market by Damodaran et al. (1997) shows, the obligation to pay high dividends is a serious issue for REITs in a situation of deteriorating financial conditions, which is why their managers often change the form of doing business from REITs to a less restrictive one. Conversely, when the financial position is strong, they switch to the REITs legal regime and enjoy REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav the associated tax advantages. The above studies show that such actions improve profitability and increase prices of shares, at least in the medium term. On the basis of the presented literature, certain elements that stimulate or inhibit the development of REITs can be identified. It should be emphasized, however, that the literature on the subject lacks publications that would present this problem more comprehensively. The authors of this article want to fill this gap, even if only to a small extent. A study of this kind is especially important for countries such as Poland, where REITs do not yet exist, but where there is a discussion on the scope of the legal conditions that are to enable their creation. It will allow to identify the aspects that legislators may carefully consider, as they can support the development and growth of the REIT market 3. Data and Methods The goal of the article has been achieved on the basis of deductive inference. Moreover, basic descriptive statistics have been presented. The analyses began with the presentation of the specifics of the local REIT markets in the United States and Germany in order to identify the similarities and differences between them. Then, on their basis, success aspects and problems that determine the development of the studied markets were identified. The next part presents the specificity of the Polish market in terms of collective investment in real estate, as well as the main characteristics of the PL-REIT act prepared by the Polish parliament in 2018. Ultimately, based on the experience of the American and German markets, recommendations for changes to the draft act were formulated, which, in the authors' opinion, would contribute to a more dynamic development of the REIT market in Poland. The analyses carried out in the article were based on data from the literature on the subject, commercial reports of institutions, as well as statistical data from statistical offices on individual markets. In addition, data provided by stock exchanges was used, on the basis of which rates of return were estimated. 4. Empirical results 4.1. Characteristics of US and Germany REIT market – similarities and differences US REITs were enacted in 1960 by the US REIT Act (Coletta & Busato, 2019). In 1975, there were 34 REITs with a capitalization of 1.5 billion USD. Since then, the capitalization has been growing dynamically. In 2019, there were 219 REITs with a capitalization of 1323.8 billion USD (REITWatch, 2020). The US REIT market is the largest market of this type of institutions in the world. The idea behind creating REITs was to allow individuals to participate in larger real estate investments (Adnanet al., 2021). A characteristic feature of REITs is their privileged tax status. To be able to retain such status on the US market, REITs are required to (Gim & Jang, 2020): – distribute 90% of distributable income to shareholders, – have at least 100 shareholders, of whom 5 or fewer may not hold more than 50% of shares (5/50 test), – invest at least 75% of their assets in real estate, – obtain 75% of its gross income from the real estate business. The US REITs can be organized both as private REITs or as publicly listed REITs. Creating a new REIT may involve considering the economic and organizational advantages or disadvantages of being a private or public listed REIT. The specificity of REITs, which due to the obligation to distribute profits to shareholders have very limited possibilities of financing their development with internal capital, means that they have stronger incentives to become a public company. There are, however, negative aspects to being a publicly traded company; the regulatory burden for them is greater, and they have to bear the high costs of being a public company. This is especially problematic for small companies, as the high fixed costs associated with being listed on the public market mean that the percentage costs are higher in the case of smaller entities (Rodríguez et al., 2010). One of the advantages of REITs is the high liquidity of their shares. Thanks to this feature, illiquid assets such as real estate become highly liquid assets. This is one of the most important reasons behind the dynamic growth of the US REIT market. In the 1990s, institutional investors on the US market had problems with selling real estate at a fair value, especially in the periods of the market slowdown. Consequently, to deal with this issue, there was a massive turn to the public REIT market. This action REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav initiated a dynamic development of this market, which continues to this day (Danielsen & Harrison, 2007; Clayton & MacKinnon, 2000). The REIT segment also allows for diversification by investing in portfolios. US REITs are often specialized in certain property segments. Table 1 presents the real estate sectors in which US REITs invest. We aim to exclude special factors triggered by the pandemic on capital markets and, therefore, refer to 2019 figures. Table 1 Real estate sectors in which REITs invest in the US market as of December 31, 2019 Equity Market Capitalization, % of FTSE Nareit All Investment Sector Number of REITs December 31, 2019 ($M) REITs Office 20 106 927 8.05% Industrial 15 119 450 8.99% Retail 38 171 404 12.90% Shopping Centers 20 60 366 4.54% RegionalMalls 7 54 211 4.08% Free Standing 11 56 827 4.28% Residential 21 188 672 14.20% Apartments 15 136 687 10.29% Manufactured Homes 3 27 370 2.06% Single Family Homes 3 24 615 1.85% Diversified 18 62 984 4.74% Lodging/Resorts 18 46 071 3.47% Self Storage 6 63 979 4.81% HealthCare 17 123 106 9.26% Timber 4 30 227 2.27% Infrastructure 6 190 184 14.31% Data Centers 5 89 501 6.74% Specialty 11 53 374 4.02% MortgageREITs 40 82 928 6.24% Home Financing 24 55 159 4.15% Commercial Financing 16 27 769 2.09% IndustryTotals 219 1 328 806 100.00% Source: REITWatch (2020). Overall, there are 13 different real estate sectors in which REITs invest in the US market. Retail is the leading real estate sector in which REITs are allocated. At the end of 2019, 38 entities of this type were operating on the US market. Moreover, a significant REIT sector are vehicles dealing with financing the purchase of residential real estate (24 REITs) and entities investing in residential (21 REIT) and office (20 REIT) markets. It is also worth noting the market capitalization of REITs operating in individual sectors. At the end of 2019, the highest were infrastructure REITs (190.2 billion USD) and residential REITs (188.7 billion USD). Interestingly enough, such a high capitalization of infrastructure REITs was created by only 6 entities, compared to 21 constituting the capitalization of residential REITs. Thanks to the high variety of companies, the investors are able to diversify the portfolio of real estate holdings according to their preferences. This is also true for geographical diversification. REIT shares can be chosen based on certain geographical areas in the United States of America. Public vehicles require substantial disclosure of information. This is required by the federal supervisory authorities as well as the stock market listing requirements. While more intransparent and illiquid closed-end fund structures dominated the real estate investment world of the Reagan era, newer listed REIT structures are obliged to disclose in-depth information about their financial and legal organization. All the above make REITs transparent and professionally managed institutions (Bairagi & Dimovski, 2011). Another market to be discussed is the German market. The German REIT regime (denoted G-REIT) was enacted in 2007, which means a very delayed start as compared to US market. However, the REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav introduction of G-REIT was associated with substantial political debate. Similarly to REITs in the US,G-REITs have a privileged tax nature. To retain it, they have to (Mizerski, 2016;Hackemann, 2020): – pay out at least 90% of profit in the form of dividends, – have a minimum of 75% of real estate assets, – maintain equity of at least 45% of the total asset value of immovable property, – secure a free float of 25% at the time of IPO, which can be reduced to 15% later-on, after IPO. The German REIT regime excluded residential properties built before 2007. This means that most apartment stock in Germany is not accessible for investment of G-REITs. Other countries do not have such an exclusion. So why did Germany choose to exclude residential properties from the G-REITs? Answers can be found in the ownership structure of residential properties in Germany. According to the German statistical office (Destatis, 2021), less than 50% of German residential properties at the federal level are owner-occupied. However, looking at big cities, the ownership rate is much lower. For example, in the capital of Berlin, less than 18% of residential properties are owner-occupied. In larger cities, apartment blocks can be owned by corporations organized as listed or non-listed public companies (German: Immobilienaktien). Furthermore, given the upswing of the German real estate market between 2004 and 2006, before the enactment of the G-REIT law in 2007, several international private equity funds acquired large portfolios of German real estate. Therefore, tenant advocacy groups (German: Mieterverbaende) raised concerns that larger holdings of German apartments would fall in the hands of international investors, not accustomed to the German model of strong tenant rights. It was because of this political aspect that German legislation omitted residential properties as a valid investment for G-REITs. It seems that, due to the broad German traditions for renting real estate (as evidenced by the relatively low share of owner-occupied real estate), REITs in the residential market would have the best chance for dynamic development. However, due to the introduced restrictions, this market has become largely unavailable for G-REITs. Germany designed a cap on leverage into its legislation. The German REIT-act expects the G-REIT to maintain a minimum of 45% of equity of the book value of immovable goods (real estate) (Hackemann, 2020). As for the German market, the gearing limitation has posed severe problems for the development of G-REITs. Before the introduction of REITs, many entities operated on the real estate market with a higher level of debt. However, after the introduction of legal regulations concerning G-REITs, they did not transform into a REIT structure, as they assessed that it would be a challenge to raise additional equity to lower the leverage. The US REIT legislation does not stipulate a cap on leverage. Self-restriction on gearing in the US REIT markets stems not from regulatory demands, but from the policy of (credit) rating agencies. As US REITs will issue secured or unsecured debt, rating agencies may look at gearing levels, as these are correlated with credit risk quality. As a result, the long-term average leverage of US REITs is around 45% (Giacominiet al., 2017). Germany excluded private REITs. This means that under G-REIT law, only G-REITs organized as joint stock companies and listed on the stock exchanges in Germany, the EU or the EEA are allowed. Therefore, enforcing the format of listed joint stock company will require a certain size of the REIT. Whereas a private REIT in the US can be formed for more project-type real estate property transactions, the German REIT is not suitable for this purpose. The auditing, tax-reporting and listed joint stock company disclosure requirements and listing requirements demand substantial organizational resources and bring about costs, all of which hinders small or medium-sized companies to evolve under the G-REIT regime. Table 2 presents the most important characteristics related to the functioning of the REIT market in the United States and Germany. Table 2 Comparison of the REIT market in the United States and Germany Characteristics USA Germany Number of REITs at the 219 6 end of 2019 REIT capitalization at the 1324.8 billion USD 5.1 billion USD end of 2019 REITs deduct dividends paid Exemption from Corporate Income REIT tax advantage from the Corporate Income Tax Tax and no tax on current income REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav base Obligation to pay at least 90% of gross taxable at least 90% of yearly net income dividends income Obligation to be a public No Yes company Manifold property types eligible, Residential real estate built after 2006 REIT investment provided the asset and income and commercial real estate, provided opportunities tests are met Mortgage REIT the asset and income tests are met feasible as well Must have a minimum of 100 shareholders, and five or fewer One shareholder may not own more Shareholder restrictions individuals cannot own more than 10% of the shares or voting than 50% of the value of the REIT rights of the REIT stock Minimum gross income At least 75% At least 75% from real estate business Possibility of investing in Yes Yes the foreign market Cap on leverage No limit Maximum 66.25% leverage Source: own study based on data from Hackemann (2020) and Feuerstein and Allen (2019). The scale of REIT operations on the American and German markets differs significantly, but when we compare the legal regulations, the differences are not so significant. The most important of these is the restriction of REITs on the German market for residential real estate and the G-REITs' obligation to be a public company. In addition, on the German market, REITs have some debt constraints that do not exist in the US market. The remaining legal characteristics are similar for both markets, or there are no significant differences between the markets. 4.2. Success aspects and drawbacks on the US and the German REIT market The success of the American REIT market and the failure of the German G-REITs were related to many factors. The major ones include: – private investors stock market holding culture, – flexibility on leverage, – operation of REITs in the public and private form, – information on the functioning of the REITs market, – REIT investment opportunities. Regarding the first point, US pension plans and pension schemes, such as 401ks, rely heavily on stock market investments. US culture is much more accepting of the volatility of stock markets, hence it was much easier to win over private investors for the idea of REITs investment. In Germany, the biggest investment of insurance companies and pension schemes is in government bonds. Investment into stocks plays a minor role. The industry average is less than 5% and allocations to stocks of 10% are considered very high (Berneburg & Reinecker, 2019). The same is true for private investors. Only approximately between 15 and 18% of Germans either invest in stocks directly or hold stocks through mutual investment funds (Fey, 2020).As Germany requires G-REITs to be listed on the stock exchange, in the minds of investors investing in them, is treated as investing in stocks and, therefore, their volume is limited in the investment portfolio. The US REIT market theoretically does not limit the gearing ratio; however, in reality, the gearing ratios do not exceed 50%. Therefore, the cap on leverage as stipulated in the G-REITs would be more important for private REITs rather than the mandatory listed REITs. Stock markets would usually “punish” high gearing levels. To conclude, the limit on gearing level may pose problems in day-to- day operations competing with non-listed real estate vehicles such as real estate funds, but is not overly important for the listed segment. As Germany did not allow for private REITs, certain investors who do not want to be restricted by public information disclosure and rigid listing requirements of organized stock markets are excluded. In the US, non-listed private REITs can serve as incubators of later-on, larger listed REITs structures. This is not possible in Germany. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav In the US, specialized stock market analysts focused on the US REIT segment constantly analyze the performance and track-record of US REITs. Furthermore, credit analysts from rating agencies such as S&P, Fitch, and Moody´s assess the credit quality of US REITs. In the context of information economics, the aforementioned institutions reduce the gap of information asymmetries between principal and agent. In Germany, the market segment is too small to justify allocating resources at rating agencies and banks towards only the G-REIT sector. Therefore, usually stock market analysts cover the complete listed sector for real estate companies, including G-REIT, but also real estate stock companies (German: Immobilien AG).This aspect is extremely important from the point of view of market development. The more analyses of a given market segment, in this case the REIT segment, are conducted and the more information is available to potential investors, the greater the interest of investors; moreover, as shown by the research conducted by T. Khoo et al. (1993), the volatility of rates of return of REIT is lowered. Therefore, when creating the REIT legal framework, the legislator should ensure that this market is as broad as possible. This increases the probability of success. The investment opportunities of REITs are another factor that may significantly affect the development of this market On the German market, G-REITs have been deprived, almost entirely, of the possibility of investing in the residential real estate market, which is generally believed to be one of the reasons for the poor development of this market The situation on the American market is completely different. The investment opportunities for REITs, as already mentioned in the previous section are wide. This not only allows REITs to provide a possibility for often niche sub-sectors of the real estate market to raise capital, but also enable investors who allocate capital through REITs to benefit from these sub-sectors. Table 3 shows the average annual rates of return of individual US-REIT sectors in 2010-2019. Table 3 Geometric average annual rates of return generated by the US-REIT sectors in 2010-2019 Investment Sector/Subsector Geometricmean Office 9.11% Industrial 16.26% Retail 10.06% Shopping Centers 8.58% RegionalMalls 8.44% Free Standing 13.69% Residential 15.44% Apartments 14.45% Manufactured Homes 22.92% Single Family Homes*** 14.12% Diversified 8.47% Lodging/Resorts 8.95% Self Storage 16.82% HealthCare 10.03% Timber* 8.30% Infrastructure** 18.31% Data Centers*** 10.42% Specialty*** 15.35% MortgageREITs 10.15% Home Financing 8.58% Commercial Financing 16.69% FTSENareitAllREITs 12.46% * years 2011-2019; ** years 2012-2019; *** years 2015-2019 Source: own study based on REITWatch (2020). REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav In the analyzed period, the highest rate of return, at the level of 22.92% annually, was generated by the Manufactured Homes sub-sector. The infrastructure real estate sector placed second, allowing investors to generate 18.31%. The specialist real estate sector also brought a relatively high rate of return, exceeding the market average. REITs operating in this sector generated an average annual return of 15.35%. As can be seen, high rates of return, exceeding the average for the entire market, were generated by relatively niche real estate sectors. This fact makes them very popular among investors, which additionally supports the development of this market in the USA. For this reason, the extensive investment opportunities of REITs on the American market should undoubtedly be counted among the success factors of this market 4.3. The specificity of the Polish real estate fund market There are no pure REITs in Poland. Investors, however, have the opportunity to invest indirectly in the real estate market by allocating resources to investment funds. According to the Polish law, investment funds can function as (Ustawa z …, 2004): open-end investment funds and alternative investment funds. The second group includes specialized open-end investment funds, closed-end investment funds and alternative investment companies. The open-end investment funds invest indirectly in the real estate market. They purchase financial instruments of companies listed on stock exchange markets that are related to the real estate market, i.e. shares and bonds of developers, construction companies or producers of building materials. Pursuant to Polish law, open-end investment funds are not entitled to allocate funds directly in real estate. The greatest advantage of this form of investment, from the investors' perspective, is the high liquidity of investments, as open-end investment funds are obliged to buy financial instruments that they sell to investors (Szelągowska, 2008). The second of the mentioned types of funds, specialized open-end investment funds, have many features in common with open-end funds. Similarly, they can only invest funds in real estate indirectly. However, there could be an exception to this rule when the fund limits its participants to legal persons, organizational units without legal personality or natural persons making contributions of no less than 40,000 Euro. Their investment policy can then be extended and they can invest in real estate much the same as closed-end investments funds (Ustawa z …, 2004). The aforementioned closed-end investment funds have the opportunity to invest directly in the real estate market. They may take the form of public funds, i.e. funds directed at a wide group of investors, or non-public funds with a closed, relatively narrow group of investors. Financial instruments issued by public funds are traded on the Warsaw Stock Exchange, while private ones are not; it is therefore usually difficult to finish investments in this type of funds before the fund ceases to operate (Kowalke, 2012). It is worth emphasizing here that closed-end funds usually have a closed period of operation, after which the fund is dissolved and its assets are sold. Real estate closed-end investment funds have many features in common with REITs and are therefore included in the REIT- like group (Papież, 2011). However, unlike REITs, they are not obliged to pay out most of the profit in the form of dividends and they do not have special tax advantages that would positively affect their investment attractiveness. The last form of indirect collective investment on the Polish real estate market are alternative investment companies. They operate as capital companies, limited partnerships or limited joint-stock partnerships. Their form of operation does not differ significantly from that of ordinary companies (Miziołek & Trzebiński, 2018). To establish them, it is necessary to appoint a manager who is registered at the Polish Financial Supervision Authority (Polish: Komisja Nadzoru Finansowego). Notably, alternative investment companies allocating funds on the real estate market are not privileged in terms of taxation. Overall, the real estate fund market in Poland is relatively small. The value of its assets as of December 31, 2019 was EUR 510 million, which accounted for 0.8% of the assets of the entire Polish investment fund market (www.analizy.pl/raporty/25060/aktywa-funduszy-inwestycyjnych-styczen- 2020 01.04.2021).The problem of this market may be the low confidence of investors in this form of capital allocation in the real estate market, due to the abuses that have taken place in recent years. An example is the public fund BPHSektor Nieruchomości, which lost 99.22% of its invested capital in 2005-2016 (Kowalke & Swyd, 2019). Another example is private fund WI InwestycjeRolneFIZ AN, which turned out to be a ponzi scheme and which strongly undermined trust in these types of institutions, which in turn may have a significant impact on the development of the REIT market in REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022 www.degruyter.com/view/j/remav Poland (www.fxmag.pl/artykul/w-investments-niewygodna-historia-piramidy-finansowej-pod- panstwowym-nadzorem 27.04.2021). 4.4. The characteristics of Polish REIT act draft As has already been mentioned, the Polish market lacks legal conditions that would enable the creation of a PL-REIT. However, the discussion on their introduction has been going on for a long time and is broad in spectrum. The opinions on the enactment of legal conditions regulating the activity of REITs in Poland are not clear. Apart from the advantages of this form of investing, certain threats are also noticed. This is shown, for example, by the stance of the National Bank of Poland (Polish: NBP - Narodowy Bank Polski) on this issue, which expressed its concerns about the risk of capital allocation by REITs in the commercial real estate market. It assessed that the moment of adopting the act and enabling REITs to enter the market should be well thought through, because if it were to happen during the peak in the real estate market, it could result in high losses for investors and, in turn, undermine the stability of the market (Uwagi NBP dotyczące…, 19.05.2017). Moreover, the Polish real estate market seems quite shallow, so the question arises as to whether the creation of REITs would not contribute to an increase in real estate prices. The perceived threats related to the introduction of legal conditions for the operation of PL-REITs, as well as negative past experiences related to Polish closed-end investment funds, make this process exceedingly lengthy and it is not certain when it will end. Poland came closest to introducing real estate investment funds, similar to classic REITs, in 2018, when the Polish parliament dealt with the act on companies investing in real estate leasing. It was to come into force on 01.01.2019 (www.businessinsider.com.pl/finanse/ustawa-o-reit-ach-wejdzie-w- zycie-od-poczatku-2019-roku/0cdms81 14.08.2018), though it was not adopted in 2018, and its legislative process was suspended. The work was resumed at the beginning of 2021, and the new draft is planned to appear in the second half of the year. Even though the shape of it remains unknown, it could be assumed that it will be based on the first draft from 2018. According to this draft, a company that wishes to have the status of a company investing in the rental of real estate (Polish: F.I.N.N. – Firmy Inwestujące w Najem Nieruchomości) will be required to, among others (Projekt ustawy z dnia 25.04.2018…): – be listed on the public market, – have a share capital at a level no lower than 11.5 million EUR/50 million PLN, – hold 80% of the carrying amount of residential real estate assets, – obtain 90% of revenues from the rental of residential real estate or their sale (if they were rented for the year preceding the sale), – obtain rental income from at least 5 properties, – have an amount of loan or loan liabilities not exceeding 50% of the amount of assets, – make the payment of the annual dividend at a level of no lower than 90% of profit for the last financial year. If the new act is based on the 2018 draft, the REITs will only be able to invest in rentable residential real estate (Papież, 2020). In the initial version of 2018 draft, PL-REITs were to invest only in office and warehouse properties. Real estate lobbying expanded the catalogue to include residential real estate. Ultimately, however, after consultation with the National Bank of Poland (Uwagi NBP dotyczące…, 19.05.2017), it was decided that, in the first phase, PL-REITs would be able to invest only in the residential market. On the other hand, if the formula was successful, the legislator would not prohibit the extension of REIT investment opportunities to include commercial real estate (www.businessinsider.com.pl/finanse/ustawa-o-reit-ach-wejdzie-w-zycie-od-poczatku-2019- roku/0cdms81 14.08.2018). PL-REITs are planned to have a favored tax nature. These entities will pay a lower corporate tax rate of 8.5% (the standard rate is 19%). The income of the funds will be taxable, the calculation of which will not include depreciation charges related to rented real estate. In addition, PL-REIT investors will also be privileged in terms of taxation. The income earned by a REIT will not be subject to capital gains tax. This exemption will apply to both, individual investors and enterprises paying CIT (Corporate Income Tax) (Uzasadnienie do ustawy…, 25.04.2018). REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no. 1, 2022 www.degruyter.com/view/j/remav 5. Discussion and conclusions Based on the experience of the American and German markets, as well as on the basis of a literature review on the subject, it seems legitimate to recommend certain changes to the presented draft of the PL-REIT Act. The first recommendation is to introduce legal conditions enabling the establishment of private REITs. The costs of their operations are much lower than those of listed companies, which is especially important for young REITs at an early stage of development. They would be given time to evaluate and become large enough to bear the cost of listing requirements and to effectively maintain the format of a listed company. An important element is also the REIT authorization for the acquisition of both residential and commercial real estate, as well as niche real estate, both by private and public REITs. The greater the investment universe for Polish REITs, the greater the likelihood that this segment will evolve and be accepted in the real estate industry. The possibility of purchasing real estate outside Poland could also have a positive impact on the development of the Polish REIT market This would enhance the flexibility of Polish REITs in order to develop their portfolios in times of asynchronous market changes in different countries, for instance in times of declining real estate prices in Poland versus growth opportunities for real estate prices in foreign countries. Moreover, by enabling REITs to invest in foreign markets, PL-REITs could become leaders of this market in the region, as Singapore has become one of the leaders of the Asian REIT market, as had been mentioned earlier. In the case that PL-REITs would be able to invest outside of Poland, it can be assumed that they would invest mainly in Central and Eastern Europe, as well as in markets where there are no local REITs. As a result, PL-REITs would be considered as representatives of the entire region, not only Poland, which would make them more attractive to foreign investors. Undoubtedly, this would have a positive impact on the dynamics of market development in Poland. Additionally, a lifting of the leverage limit or a high leverage limit may be recommended. This would help REITs to generate effective returns that are attractive to investors. This would lead to REITs being competitive in regards to other market players that do not have such limits. Apart from the presented changes, which refer directly to the draft act on PL-REITs, the Polish legislator may also consider an additional aspect when introducing corrections to the act draft. Legal regulations in some countries combine the borrowing allowance with the market value of the real estate holdings that REITs possess. This is an element that could negatively affect the PL-REIT market, and therefore no such restrictions should not appear in the act, as they are unfavorable, especially in a period of decreasing real estate prices. They limit the flexibility of real estate portfolio management by REITs. In the authors’ opinion, the introduction of the presented changes to the proposed act could result in a greater probability of success of the REIT sectors on the Polish market. Institutions of this type could become an important participant in the Polish real estate market and support its capital development, as the needs in this matter are still significant. Further topics to be researched are the question of acceptance of new investment structures by domestic Polish investors: Would Polish investors adopt the REIT structure after their negative experiences with Polish investment funds on the real estate market? This is undoubtedly a topic for further analysis. It should also be emphasized that the presented recommendations for changes to the act were concluded mainly on the basis of comparing experiences of markets in the United States of America and Germany. Further research and analysis of other markets can add supplemental insights to the research. This would enrich knowledge on the subject and allow greater success as well as identification of failure factors for REITs. 6. References Adnan, Y. M., Lamin, N., Razali, M. N., Jalil, R. A., & Esha, Z. (2021). Real estate investment trusts’ (REITs) asset management strategies within global REIT portfolios. 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Geomatics, Landmanagement and Landscape, 3, 7–17. https://doi.org/10.15576/GLL/2020.3.7 Projekt ustawy z dnia 25.04.2018 o firmach inwestujących w najem nieruchomości (The draft act of 25.04.2018 on companies investing in the rental of real estate). REITWatch. 2020. A Monthly Statistical Report on the Real Estate Investment Trust. RODRÍGUEZ, M., CARPENTER, J.T., & BRAU, J.C. (2010). REIT Going Private Decisions. The Journal of Real Estate Finance and Economics, 46(1), pp. 1-20. Szelągowska, A. (2008). Rozwój funduszy rynku nieruchomości na polskim rynku finansowym a tendencje światowe (Development of real estate funds on the Polish financial market and global trends), pp. 45-63, in: Innowacje finansowe (Financial innovation), ed. Antkiewicz S., Kalinowski M., CeDeWu, Warsaw. Ustawa z dnia 27.05.2004 o funduszach inwestycyjnych i zarządzaniu alternatywnymi funduszami inwestycyjnymi, Dz. U. 2004 Nr 146 poz. 1546. z późn. zm. (Act of 27 May 2004 on investment funds and management of alternative investment funds, Journal of Laws, 2004, no. 146, item 1546, as amended). Uwagi NBP dotyczące projektu ustawy o spółkach wynajmu nieruchomości z dnia 19.05.2017 (NBP comments on the draft act on real estaterentalcompanies of 19.05.2017). Uzasadnienie do ustawy o firmach inwestujących w najem nieruchomości z dnia 25.04.2018 (Justification to the law on companiesinvesting in therentalof real estate of 25.04.2018). www.analizy.pl/raporty/25060/aktywa-funduszy-inwestycyjnych-styczen-2020 available at 01.04.2021. www.businessinsider.com.pl/finanse/ustawa-o-reit-ach-wejdzie-w-zycie-od-poczatku-2019- roku/0cdms81 available at 14.08.2018. www.fxmag.pl/artykul/w-investments-niewygodna-historia-piramidy-finansowej-pod- panstwowym-nadzorem available at 27.04.2021. REAL ESTATE MANAGEMENT AND VALUATION, eISSN: 2300-5289 vol. 30, no.1, 2022

Journal

Real Estate Management and Valuationde Gruyter

Published: Mar 1, 2022

Keywords: REIT; legal conditions of REIT activity; real estate market; Poland; L85; R39

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