Policy implications of structural options in the development of real estate investment trusts in Europe

Abstract

This is a policy paper that examines the most important issues that must be addressed in designing the institutional structure for tax‐advantaged public real estate companies in Europe. The real estate investment trust form of corporate structure was first created in the USA in 1960. In Europe, the real estate invstment trust (REIT) regime has been authorized only in The Netherlands, and very recently in Belgium. However, the establishment of REIT‐like public investment vehicles is under discussion in the UK, and in several Continental European nations. Advocates of European REITs believe that these investment vehicles would reduce costs of capital, improve liquidity in local real estate markets, and promote more efficient allocation of capital. European countries that are moving toward the establishment of REITs face a series of important decisions regarding the features of the institutional environment in which these firms will operate. This paper summarizes the most important decisions that must be made, and considers the policy implications of each. We conclude that the US model should not be adopted uncritically in Europe; instead, structural options should be considered carefully. Problems of international taxation are identified, and the possible development of a pan‐European REIT structure is discussed.