From a small northwestern observatory…

There is a great article in the current edition of REIT Magazine, by Michele Chandler, celebrating the 25th anniversary of the creation of REITs in Canada.  Ms. Chandler does a great job explaining why Canada has a REIT system in the first place, and why Canada’s REITs came into being in 1993.

In short, Canada’s commercial real estate market collapsed in 1993, and open-ended funds were flooded with investors redeeming shares.  The funds quickly appealed to the government which allowed them to suspend redemption.  This, of course, led to liquidity problems for investors.  The solution was to turn those funds into close-end REITs which would then be listed on the Toronto Stock Exchange.  Investors could sell their shares on the exchange to gain liquidity.  Today, the exchange has 38 Canadian REITs with total capitalization of about C$57.7 Billion as of the end of 2017.

This article illustrates one of the subtle but important benefits of REITs as opposed to a private equity fund or an open-ended fund — liquidity without having to sell off the underlying assets in a down market.