499 Week 5 A/ For WIZARD KIM

The basic format of all REITs

There are lawful structures that a real estate company portrays that will enable it to be considered as a REIT. These structures constitute the basic formats to all the REITs in the U.S. These formats dictate their working and also provide knowledge to the public of what they should equip themselves with in case one needs to invest in the REITs (Block, 2011). The RIETs work in such a way that they pool together money invested by various interested investors. The raising of this money is done through a forum known as Initial public offering (IPO). The pooled together money is then taken to a collective investment arrangement in commercial estate assets that deal with the generation of income. Such assets may include shopping malls and hotels.

The assets are then leased out to the various tenants in the U.S and are under the control of professional managers from the RIETs. These managers ensure that the income generated is distributed at a regular interval to all the investors of the RIETs. The distribution amount is a net amount after the management fees and the RIET fees have been deducted (Ellen, 2011). The flowing back of income to the investors ensures equity in the income generated by the commercial estate assets in the U.S. This typical structure is what that has led to the prosperity of the RIETs in the U.S and as a result gains popularity in the commercial estate business.

Holdings of the UMH

United mobile homes constitute part of the REIT that advocates for public equity in ownership and operation of manufactured home communities in the U.S. it came into operation in 1968 and ever since it has grown into one of the most land lease business in the United States. Its holdings comprise of management and operation of 114 manufactured home communities and with almost 23,100 home sites established in 8 states of the U.S. The northern states are the major areas where the UMH has located as their target market. Such states are like Network, Ohio, and Indiana. Additionally, today UMH owns more than 1700 acres of land set aside for future development of home communities. Therefore, by the fact that the acquisitions of these various states have been occurring year in year out since the UMH establishes itself in the market and its present position, there is no doubt for the future prosperity of the UMH in the real estate investment businesses in the U.S ().

Financial performance of UMH before the real estate crash of 2007

The 2007 collapse of the commercial estate business had been predicted by many RIETs. UMH as one of them had started showing signs of collapse due to many losses that it was incurring. This was majorly due to a decrease in the prices of houses in the U.S in 2006 and 2007. Although the UMH has been performing fairly in its RIET business, it has no more assets to secure itself from the house bubbling effect that was approaching. its many householders had huge debts that steered its downfall in 2007 (Hardin III, 2010). An increase in the loan rate in the early 2000s had shied away UMH in redeeming itself by taking loans to sustain itself during the house bubbling effect of 2007 in the U.S. Its performance was thus deteriorating drastically till the federal government intervenes to rescue real estate business from the verge of collapsing.

Financial performance of UMH after the real estate crash of 2007

After the house bubbling in the U.S, there has been a steep increase in the performance of the UMH. This is due so as to prevent a future collapse of the business and be the victim of irregular loan rates variation in the financing policy of the U.S. After commercial estate business picked up in 2012 when the federal government intervenes to rescue the U.S economy from collapsing, the UMH made several opportunistic moves to liberate itself (Munnell, 2014).

UMH resolved in buying more real estates in the northern states to as to increase its business. In 2011 it had bought an additional 40 home communities and develops over 8900 new house sites. With the same trend to increase its ownership, UMH had more than 100 communities across the northern states of the U.S and around 18,000 house sites in place by 2016. This drastic increase in the holdings by the UMH leads to its great performance in the last decade (Schelkle, 2012). This great performance made UMH received various awards such as the 2018 award for being the best manufacturing and land leasing company in the U.S.

Future of REITs as a financial tool in real estate

The REITs will still be a viable investment tool in the commercial estate business in the U.S. this is due to its purpose that has seen thriving greatly in the business over the last period. The strategic plans to set a platform of equity in income generated properties have attracted many investors in the real estate business. It is clear to us that the higher the investors, the high the available money for purchasing the property income generated assets and thus the growth of such business. This, therefore, implies that the increase in investors, the decline of REITs is thus far from the horizon which will not occur very easily.

References:

Block, R. L. (2011). Investing in REITs: real estate investment trusts (Vol. 141). John Wiley & Sons.

Ellen, I. G., Tye, J. N., & Willis, M. A. (2011). The secondary market for housing finance in the United States: A brief overview. In The American Mortgage System: Crisis and Reform (pp. 7-25). University of Pennsylvania Press.

Hardin III, W. G., & Wu, Z. (2010). Banking relationships and REIT capital structure. Real Estate Economics, 38(2), 257-284.

Munnell, A. H., & Sass, S. A. (2014). The government’s redesigned reverse mortgage program. Center for Retirement Research at Boston College, 14(1), 1-6.

Schelkle, W. (2012). A crisis of what? Mortgage credit markets and the social policy of promoting homeownership in the United States and in Europe. Politics & society, 40(1), 59-80.