Tifia increases solve the aff—make infrastructure projects easier to fund
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- REIT’s Solve – Creates Effective Investment
- REIT’s Solve – Other Sectors Prove
- REIT’s Solve – Comparative Evidence
Real Estate Investment Trusts CP1NC Solvency AdvocateCP causes large increases in private funding support Rohatyn and Slater, former advisers to the former US transportation secretary, 12 (Felix and Rodney, 2/20/12, "America needs its own infrastructure bank," accessed 6/25/12, http://www.ft.com/cms/s/0/c61b2084-5bb3-11e1-a447-00144feabdc0.html#axzz1yqMKVMhg, CNM) Second, Congress can expand the definitions of Real Estate Investment Trusts (Reits) and Master Limited Partnerships to include investments in assets such as roads, water, ports, airports, transmission lines, waste water and bridges. Reits are publicly traded corporate entities that invest in commercial real estate and pay a reduced or zero rate of tax on their earnings. In turn, Reits must distribute 90 per cent of their income to investors. Similarly, MLPs are publicly traded partnership vehicles that do not pay federal and state income taxes and return income to partners. Applying the Reit/MLP model to infrastructure assets would attract investment from the deep US retail and institutional investor market, dramatically increasing funding support for new projects. Projects that were once unable to attract support could become financially viable, and more infrastructure projects could be supported. REIT’s Solve – Creates Effective InvestmentCreates effective form of investmentGregor, New York Times, 11 (Alison, 12-20-11, "Specialty REITs, Exploiting Niche Categories, Outperform the Mainstream Players," accessed 6-25-12, http://www.nytimes.com/2011/12/21/realestate/commercial/specialty-real-estate-investment-trusts-excel-beyond-the-usual.html, CNM) Real estate investment trusts, or REITs, have largely outperformed other investment vehicles in the sluggish economy of the last few years. But one subset — “specialty” trusts that invest in real estate other than the four major groups of office, retail, residential and industrial — has been exceptionally solid. Such trusts that fall into the specialty category can have trouble attracting investors, who often perceive them as being risky, real estate experts said. Typical investment assets are cellphone towers, cold storage warehouses, or transportation and energy infrastructure, among other things. “What we’ve seen is these specialty or noncore property types have actually done pretty well this year,” said Steve Shigekawa, a co-manager of the Neuberger Berman Real Estate fund, which has about $378 million under management and has invested in several unusual REITs, for timber, self-storage properties and data centers. “You’ve seen pretty consistent demand, and growth in net operating income has actually been better than in the more traditional sectors.” While the Dow Jones U.S. Real Estate Investment Trusts index shows a year-to-date total return of 3.32 percent, the Dow Jones U.S. Specialty REITs index shows a return of 7.94 percent. REIT’s Solve – Other Sectors ProveOther sectors prove solvencya) Self storage businessesGregor, New York Times, 11 (Alison, 12-20-11, "Specialty REITs, Exploiting Niche Categories, Outperform the Mainstream Players," accessed 6-25-12, http://www.nytimes.com/2011/12/21/realestate/commercial/specialty-real-estate-investment-trusts-excel-beyond-the-usual.html, CNM) Markets that drive the demand for assets of the specialty REITs tend to be different from the four core trust classes, which can make some of them particularly good investment opportunities in tough economic times, real estate experts said. Self-storage businesses, for example, are obvious beneficiaries of the increase in housing foreclosures and the downsizing of American homes, said Stacy Chitty, a managing partner at Blue Vault Partners, a Georgia company that tracks the performance of public nontraded REITs. b) data storage centersGregor, New York Times, 11 (Alison, 12-20-11, "Specialty REITs, Exploiting Niche Categories, Outperform the Mainstream Players," accessed 6-25-12, http://www.nytimes.com/2011/12/21/realestate/commercial/specialty-real-estate-investment-trusts-excel-beyond-the-usual.html, CNM) Another sector is data storage centers, which are growing because of increased Internet usage, which seems to be recession-proof. Mr. Chitty mentioned mortgage and real estate-related debt instruments and health care assets as other areas that could flourish in the coming year despite a poor economy. c) Mexico provesTrevino, Haynes and Boone leader of real estate, 10 (Luis F. Moreno Trevino, 12/07/10, "The Infrastructure and Real Estate Trust in Mexico (FIBRA)," accessed 6-25-12, http://www.haynesboone.com/fibra_english/, CNM) After nearly five years of legislative effort in Mexico, particularly in the area of tax, a structure has been established that will make it attractive for companies to issue, and investors to acquire, securities based on a beneficial interest in an Infrastructure and Real Estate Trust (known by its Spanish acronym “FIBRA”). FIBRAs are modeled after investment vehicles used in other countries that have worked very effectively, such as the Real Estate Investment Trusts or “REITS” used in the United States. These types of instruments have enabled investors to participate in large real estate projects, with good returns, a favorable tax regime, and low risk. FIBRAs are trusts into which one can contribute lease revenue-generating real property; they allow trust share certificates to be issued to investors at large in initial public offerings. It is also possible to conduct private offerings of FIBRA securities, provided they meet the following requirements: (i) the trust shares must be acquired by a group of at least ten investors; (ii) members of the group must not be related to each other; and (iii) none of the investors may own more than 20 percent of the total number of shares issued. The issuance and placement of FIBRA shares on the Mexican Stock Exchange will be backed up by the real estate portfolio comprising the trust assets. These securities will give their holders the right to the revenue stream from the lease payments generated by the real estate in the trust. They will also be able to trade them on the secondary market and earn profit from price fluctuations in the securities. Companies that choose to issue trust share certificates based on FIBRAs will be able to earn money on the placement of those securities, use the proceeds to acquire real estate, undertake construction, or obtain the right to receive lease revenue generated by the real estate. REIT’s Solve – Comparative EvidenceREIT’s solve better than funding models and public private partnerships – many reasonsDeloitte, group of professionals in independent firms, no date ("REITs and infrastructure projects The next investment frontier?" accessed 6-25-12, p. 3, http://www.deloitte.com/view/en_US/us/industries/Real-Estate/ba1319fbf6fb7210VgnVCM100000ba42f00aRCRD.htm#, CNM) To date, pooled or syndicated capital raised in the United States to invest in infrastructure projects has largely used the fund model: a privately offered investment pool structured to be taxed as a partnership for U.S. tax purposes. This allows losses, which are common in a project’s early years, to flow directly up to investors as a shelter against other income. In addition, income and proceeds from an ultimate sale would be distributed without tax penalties at the entity level, as would be the case if a corporation served as the syndication vehicle. Although rarely applied until recently, a REIT is another vehicle that can be used to raise capital for infrastructure investments in P3 transactions. In the abstract, REITs have certain advantages over the fund model. Recently, several favorable IRS private letter rulings sanctioning the use of REITs to own electric and gas distribution systems have increased interest in their role in infrastructure investments. Advantages of REIT investments in P3 infrastructure transactions REITs offer several advantages over the Fund model as a way to raise and distribute capital: • Liquidity — If publicly traded, REIT stock can be sold through recognized securities channels. • Incremental scalability — Future capital raised for incremental investments after a project’s start-up can be scaled to the size of the projected activities of the investment pool and its advisors through follow-on offerings without the complexity associated with Fund structures. • Capital market access — REITs can access capital markets made up of the entire range of institutional and individual investors. • Taxation – The dividends paid deduction under Internal Revenue Code section 561 allows a REIT to effectively operate without tax at the entity level as long as it distributes its taxable income annually. – Since ownership is via investment in stocks and income comes in the form of dividends, REITs provide a way to avoid characterization of a foreign owner as having a U.S. branch or effectively connected income. – No tax is imposed under the Foreign Investment in Real Property Tax Act (FIRPTA) on the sale of a non-U.S. Taxpayer’s investment if either (i) the REIT stock is publicly traded and the investor owns less than 5 percent or (ii) the REIT is domestically controlled. If enacted, recently proposed legislation will lessen the adverse affect of FIRPTA on non-U.S. investors who use REITs to own U.S. real estate. – REIT dividends generally do not constitute unrelated business taxable income under IRC section 512 to tax-exempt entity owners, even where the REIT’s property is leveraged. – Unlike Fund owners, REIT shareholders do not have to file tax returns in each state where a REIT owns assets or generates income. In short, REITs offer certain advantages over partnerships in their ability to raise capital from diverse sources, particularly foreign investors. This may be especially helpful in the P3 market, where many of the current equity investors and project developers are global corporations that often need complex tax structuring to optimize their participation in P3s. In addition, expanding the investor base to individual investors may increase the availability of equity capital for infrastructure projects. 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