Real estate

A real-estate company buys buildings, rents them out, and pockets the difference between rent income and operating costs. The bigger ones own thousands of properties — apartments, offices, shopping malls, warehouses, data centers, cell towers.

Most public real-estate companies are structured as REITs, which means they pay almost all their income as dividends. That makes them a popular income investment.

Raise money from investors. Buy properties. Sign leases with tenants. Pay operating costs (taxes, maintenance, utilities). Send what's left to shareholders as dividends.

Different REITs specialize. Equity Residential owns apartments. Simon Property owns malls. Prologis owns warehouses. American Tower owns cell towers. Each lives or dies on different forces.

Rent. Sometimes ancillary fees (parking, storage, signage). For warehouses and data centers, fees for power and connectivity.

Costs are mostly property taxes, maintenance, leasing brokers, and interest on mortgages.

Property is bought with massive amounts of debt. When interest rates rise, refinancing gets expensive and existing properties are worth less.

The dividend yield also competes with bond yields. When 10-year Treasuries pay 5%, a 4%-yielding REIT looks worse. Real estate stocks tend to fall when rates rise.

Apartments and industrial warehouses tend to hold up best — people need places to live and goods need places to be stored.

Office is the most challenged post-COVID. Retail malls have been declining for a decade. Data centers and cell towers are growth stories tied to digital infrastructure.

Interest rates — the dominant force. Vacancy spikes in a recession (especially for offices). Local property taxes can rise unexpectedly. And one-off shocks like COVID can transform a whole subsector overnight.

Leverage is also high — even healthy REITs may carry 40-60% debt-to-value, which amplifies both gains and losses.