WASHINGTON, DC-The REIT industry took a big, collective gulplast week when news emerged that the Internal RevenueService had formed a Working Group toexamine the legal definition of real estate for the purposes offorming a, or converting to, a REIT. Iron Mountain,Equiniz, a data center provider, and LamarAdvertising have all been reportedly informed that the IRSplans to study this issue closely and that it may delay someconversions.

It is not surprising that the IRS has decided to study thisissue. The tax advantages of REIT conversion are generous, REITinvestors tend to be loyal and the competitive advantages of beingable to tap capital markets in recent years have become quiteclear. A number of companies, in short, have been tempted to try toshoehorn their particular business model into the REIT structure asa result.

Many have been successful and are current well into theconversion process, such as Iron Mountain, a document storagecompanies, and Penn National Gaming.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.