INSIGHT

Types of REITs every investor needs to understand 

Tara Wilson • July 9, 2025

Industries: Real Estate Investment Trusts (REITs)

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Real estate investment trusts (REITs) play a significant role in the real estate market. For organizations navigating the complexities of REITs—whether managing large portfolios, structuring new REIT vehicles, or seeking to optimize tax strategies—understanding the full range of REIT types is essential to making informed decisions and achieving targeted outcomes. 

To qualify as a REIT, a company must meet several requirements under the Internal Revenue Code, including the obligation to distribute at least 90% of its taxable income to shareholders annually.  This requirement applies to all REITs, regardless of type, and is a key reason many investors are attracted to REIT structures. 

In a market shaped by evolving regulations, shifting demand, and ongoing market fluctuations, knowing how to leverage the right REIT sectors can be a decisive factor in portfolio performance and long-term capital appreciation.  

The three main types of REITs 

REITs span diverse property types and investment strategies, from office buildings and shopping centers to data centers and healthcare facilities. Each REIT structure presents unique opportunities and challenges in terms of income generation, regulatory compliance, and risk management.   

REITs generally fall into three primary categories, each with unique strategies, income characteristics, and risk profiles. Understanding these differences is key to selecting the right mix for your organization’s objectives. 

Here’s a breakdown of the main types of REITs: 

REIT Type	What They Invest In	How They Generate Income	Example Property Types
Equity REITs	Direct ownership and management of income-producing real estate	Rental income, property appreciation	Office buildings, shopping malls, apartment complexes, self-storage facilities, shopping centers, retail real estate, medical office buildings, skilled nursing facilities, healthcare facilities, residential properties
Mortgage REITs	Commercial and residential property mortgages, mortgage-backed securities	Interest income from lending activities	Commercial buildings, residential mortgages, commercial mortgages
Hybrid REITs	Combination of real estate properties and mortgage assets	Rental income and interest income	A mix of owned properties and mortgage loans or securities

Selecting the right REIT type—or a combination—can help organizations tailor their investment portfolios to specific income, growth, and risk management goals. 

Equity REITs 

Equity REITs are the foundation of the REIT market, offering organizations direct exposure to income-producing real estate without the operational burden of day-to-day property management.  

What is an equity REIT? 

Equity REITs own, operate, and often develop a broad range of commercial real estate assets, generating revenue primarily through rental income and, over time, capital appreciation as property values rise. 

How equity REITs generate value 

Equity REITs create value by leveraging real estate to generate income, increase asset values, and distribute profits to shareholders; thus, providing investors with predictable cash flows, access to professional asset management, and the ability to diversify holdings across multiple sectors and geographic markets. 

Traditional equity REIT sectors 

Traditional equity REIT sector includes:  

• Residential REITs: Own and manage apartment complexes, single-family rentals, and manufactured housing. These REITs generate income through long-term leases and typically benefit from stable demand in urban and suburban markets.  
• Retail REITs: Focus on shopping malls, shopping centers, and freestanding retail. Rental income is driven by leases with national and regional tenants. 
• Office REITs: Invest in office buildings in central business districts and suburban hubs, generating revenue from leases to a diverse range of business tenants.  
• Industrial REITs: Own warehouses, distribution centers, and logistics facilities, which have seen increased demand due to the growth of e-commerce. Prologis is a leading industrial REIT. 

But there are other emerging and specialty equity REIT sectors to note as well, such as: 

• Data center REITs: Own and operate facilities that are the physical foundation of the digital world, supporting services such as cloud computing, enterprise IT, and AI.  
• Cell tower REITs: Invest in communications infrastructure supporting mobile and wireless networks, with American Tower and Crown Castle among the largest. 
• Healthcare REITs: Own hospitals, medical office buildings, skilled nursing facilities, and senior living communities. 
• Gaming REITs: Specialize in casino and resort properties, separating real estate ownership from operational management. 
• Self-storage, infrastructure, and timberland REITs: These specialty sectors provide additional diversification, with assets like self-storage facilities, energy infrastructure, and timberlands for sustainable resource management. 

The diversity of equity REIT sectors isn’t just a list of property types – it’s a toolkit for managing risk, capturing opportunity, and aligning your real estate strategy with evolving market dynamics.  

By investing across multiple sectors – traditional and emerging – your organization can better mitigate risks, capture growth from new economies, enhance portfolio flexibility, and access professional management at scale. Leveraging established and emerging sectors allows you to align your holdings with market trends, organizational goals, and the evolving needs of your stakeholders. 

Mortgage REITs 

Mortgage REITs (mREITs) offer organizations a distinct approach to real estate investing, focusing on the financing side of the market rather than direct property ownership. 

What is a mortgage REIT? 

A mortgage REIT is a real estate investment trust that invests primarily in real estate debt—such as commercial property mortgages and mortgage-backed securities—instead of owning and operating physical properties.  

mREITs provide capital to real estate owners and operators by purchasing or originating mortgages and related assets, playing a critical role in the broader real estate finance ecosystem. 

How mortgage REITs generate value 

Mortgage REITs earn income by collecting interest payments on the mortgages and securities they hold. Their business model is centered on the spread between the interest income they receive from these loans and the cost of funding their investments, often through short-term borrowing. This focus on interest income, rather than rental income, distinguishes mREITs from equity REITs. 

Hybrid REITs 

Hybrid REITs offer organizations a flexible approach to real estate investing by blending the strategies of both equity and mortgage REITs. 

What is a hybrid REIT? 

A hybrid REIT is a real estate investment trust that invests in both income-producing properties (like an equity REIT) and real estate debt instruments such as mortgages and mortgage-backed securities (like a mortgage REIT). This dual approach allows hybrid REITs to participate in both the ownership and financing sides of the real estate market. 

How hybrid REITs generate value 

Hybrid REITs create value by combining rental income from owned properties with interest income from mortgage investments. This structure enables them to balance the potential for property appreciation and steady rental cash flow with the yield generated from lending activities.  

The allocation between equity and debt investments can be adjusted based on market conditions and organizational strategy. 

Publicly traded vs. Private REITs 

When evaluating REIT investments, organizations face a fundamental choice between publicly traded and private REITs. Each structure brings distinct advantages and considerations for liquidity, transparency, and risk management. 

Publicly traded REITs are listed on major stock exchanges and regulated by the Securities and Exchange Commission. This means shares can be bought and sold easily, offering high liquidity and the flexibility to adjust portfolio allocations as market conditions change.  

• Public REITs are also subject to stringent financial reporting and disclosure requirements, ensuring a high level of transparency for investors. However, their valuations can be influenced by market sentiment and broader economic trends, sometimes leading to greater short-term volatility. 
• Private REITs, on the other hand, are not traded on public exchanges and are typically available only to accredited or institutional investors. These vehicles often require higher minimum investments and longer holding periods, making them less liquid than their public counterparts.  
• Private REITs may offer access to niche markets or specialized strategies and can potentially deliver higher returns, but they come with less regulatory oversight and limited financial transparency.  
• Investors must rely more heavily on the management team’s integrity and experience, and should be aware of the risks associated with unaudited financials and less frequent valuation updates. 

Choosing between public and private REITs depends on your organization’s investment objectives, risk tolerance, and need for flexibility. 

Build a REIT investment strategy for your organization 

REITs offer organizations a powerful and flexible way to access the full spectrum of commercial real estate, from traditional sectors like office and retail to emerging opportunities in data centers and healthcare.  

By understanding the different types of REITs and how they fit into a broader investment strategy, your organization can better navigate market cycles, manage risk, and pursue both income and long-term growth. 

Whether you’re looking to expand your REIT portfolio, evaluate new asset classes, or optimize your tax and compliance strategies, BPM’s dedicated REIT team is here to help. Our professionals bring deep industry knowledge and a people-first approach to every engagement, guiding organizations through the complexities of real estate investing with clarity and confidence. 

Ready to take the next step? Connect with BPM’s REIT industry team to discuss your organization’s goals and discover how a tailored REIT strategy can drive results for your business.