Today, according to the National Association of Real Estate Boards, more Americans than ever before are participating in the ownership of income-producing real estate. People in all walks of life are seeking secondary income through real estate investment. Many prefer a tangible piece of property such as a farm, a house, or an apartment building to a mere piece of paper like a stock certificate.

But the true attractiveness of real estate investment is understandable. A rapidly growing world of population has to make an ever increasing demand on its limited land mass. This is especially true in places which are experiencing a population boom, like Florida or California.

Moreover, real estate is relied upon as an excellent hedge against inflation. Within the past few years, prices of big-city properties have doubled and tripled. Much of this rise results from the relentless increase in construction costs and from a growing shortage of well-located downtown land. (Though there are unmistakable signs of a slowdown in appreciation of such property values.)

Investment in office buildings and apartment houses, however, usually involves such large sums of money that it is beyond the power of most small investors. And, for individuals to buy a piece of raw property in the hope of selling it at profit is nothing more than rank speculation. Therefore, in recent years, it has become increasingly popular for small investors to turn to real estate syndicates.

A syndicate is a limited partnership organized to purchase and operate a parcel of real estate. Partnership shares are usually available in comparatively small amounts, anywhere from $1,000 to $10,000.

The properties can be any real estate holdings such as hotels, office buildings, shopping centers, terminals, or industrial parks. The prime incentive of a syndicate for small investors is the relatively high rate of income return coupled with a reasonable safety of principal.
The fact that most syndicate properties are heavily mortgaged imparts a high degree of leverage to participants. The leverage factor, or margin buying in realty investment, means that investors can buy large parcels of properties for minimum cash outlays. Moreover, most syndicate operations afford important tax advantages to investors because of their partially tax-free nature.

Now, something new looms on the horizon: the real estate investment trust. In the view of many, it will add millions of investors to those who already have an equity, however tiny, in income-bearing property.

The real estate investment trust is a sort of realty-owning mutual fund. Barrorn’s calls it the "hottest prospect" in the trade. For one thing, the Real Estate Investment Trust Act has placed real estate investment organizations on the same tax footing as regulated investment companies. The Act exempts from federal income tax all real estate trusts which distribute at least 90 per cent of their net income to stockholders, with at least 75 per cent of their income coming from real estate.

The makers of this new real estate law seemed to have meant only to protect small investors from double taxation involved in corporate ownership. However, operators o£ hotel chains have seen the law as an opportunity to improve their financial structures.

This enthusiasm on the part o£ realty-holding hotel chains and railroads to profit from the new law, however, has been dampened by reports that the Department o£ Treasury opposed any such action, presumably on the ground that congressional debates prior to the passage o£ the new law had made no mention of relief of large corporations operating in the real estate field.

However, realty firms such as the former syndicator groups are generally believed to qualify for reorganization into real estate investment trusts. The $1.5 billion-a-year realty syndication is expected to be swelled by many newcomers sensing an even wider market for real estate investment.

Of course, the new law places important limits on the operation of such trusts, particularly provisions requiring the distribution of 90 per cent of the profits to investors. Here are a few of those restrictions:

1.A real estate investment trust may not actively engage in business.

2.A real estate investment trust may not directly render services to tenants or manage or operate property.

3.Such a trust may not deal in real estate as a business. It must hold property and/or mortgages for investment only.

4.Less than 30 per cent of its gross income may come from a capital gain on real estate held for less than four years.

5.The organizer of a trust who proposes being the manager may not own over 35 per cent of the shares or voting control of the trust.

6.The trust may be managed by one or more trustees and have at least 100 shareholders. No five of these shareholders can own more than 50 per cent of its shares.

Quite different from the real estate investment trust, but just as exciting a growth area, is the broad-area real estate investment industry. Here too, the growth is just beginning, with plenty of room to get in on the ground floor. Following is a brief survey of two representative companies in the field.
 
Regarded by some experts as the most highly integrated construction company in America, the Frouge Company could safely be called a prime capital gain opportunity. Its June 1961 price was approximately 10. And management has estimated that total reported profits may triple as a result of the company's construction for its own account—a program scheduled for the next two years.

Another investment of this new type, Adson Industries, integrates the fields of real estate development, management, public and private construction, and financing. Analysts base their glowing opinion of Adson on the company's ability to participate in urban redevelopment throughout the country as evidenced by their role in the gigantic Title One Project in New York City.

Also indicative of Adson's alert management is their recent purchase of the property over which the Long Island Railroad trackage runs in Kew Gardens, Queens. Adson plans to construct a $10,000,000 apartment complex astride the trackage and has already developed some ingenious engineering solutions to permit economic construction without vibration from underlying trains.

Through its real estate syndication activities, Adson has shared in substantial income-producing properties at very little capital investment of its own. The company augments this type of income through its management division which frequently obtains the contract to manage the building which Adson itself builds.

Before investing in real estate, you should have a thorough knowledge of the company's operating philosophies and specializations. Some realty companies, for example, stress broad geographic diversification. Others concentrate in one city. Some specialize in apartment houses, in office buildings, in bowling alleys and country clubs. Some deal only in new construction. Others trade exclusively in existing properties.

Take, for example, two giants of realty growth, the Glickman Corporation and Kratter Corporation. Both these companies believe in "sale-and-leaseback." They prefer to avoid the risks of owner-operation. "The headaches of signing tenants, replacing leases and plumbing fixtures, worrying over a rise in taxes and a hundred other unexpected things all are best left to experts. We want to be experts in making a profit, and we prefer the blue-ribbon safety of fixed annual rentals guaranteed by a triple-A lease-holder."

On the other hand, Uris Building Corporation prefers to operate its own properties, retire the debt quickly, and enhance the equity. Realty Equities, in its nonsyndicated deals, also prefers to operate rather than lease. They feel it is the most feasible way to achieve quick improvements and a fast resale.

An example of firms investing directly in diversified real estate operations is the United Improvement and Development Corporation, which represents an exciting new concept of broadly based real estate, mortgage and title insurance activities. It is the only real estate company structured with a diversification of real estate, manufacturing and title insurance divisions under one roof. What's more, it is the only such company with public stature participating in land development in the rapidly growing outlying areas surrounding New York City.

The title insurance end of the real estate business is, according to many analysts, just about the safest kind of real estate investment. Its title search is its own insurance against a high proportion of losses; and the loss record has indeed been very low in proportion to premiums written. Among this group of title insurance companies, specialists consider Inter-County Title Guaranty and Mortgage Company an excellent long-term investment. Its rapid growth is attributable to the postwar building boom and its continual expansion of territories served.

Another interesting situation is All-State Properties, which has grown from a local residential property developer to a national, well-diversified real estate company in a few short years.

Indicative of All-State's rapid growth was its steep sales climb from $3,312,919 in 1959 to $10,315,326 in fiscal 1960, while earnings advanced to $1,180,106 (equivalent to 70¢ per share) from $127,256 (equivalent to 16¢ per share). Behind this growth is an aggressive management, experienced in acquiring properties by using other people's money. The company has achieved a broad diversification of real estate activities which now include residential properties, multiple dwelling properties, shopping centers, a utility company and bowling properties.

If you want to participate in Florida's real estate boom, consider General Development Corporation which owns outright or has options on almost 200,000 acres of Florida land. It is building three major cities. It claims to have sold close to 100,000 lots and 6,000 homes, which according to its president, Frank Mackle, have only scratched the surface of the potential market. "People are discovering," said Mr. Mackle, "that it is cheaper, in some cases, to buy a Florida home than it is to pay rent during an annual vacation."

Another vehicle for participation in the Florida land boom is Coral Ridge Properties, which is engaged primarily in the business of acquiring unimproved land and converting it into developed real estate. It operates on the Florida Gold Coast, one of the fastest growing areas in the United States. Coral Ridge's properties, carried on the balance sheet at a cost of $20.2 million, were recently valued at $50.5 million by independent real estate appraisers. Undeveloped acreage, which accounted for $13.6 million of the total appraised value, represented a potentially large source of future revenues and earnings. A typical undeveloped piece of property usually has an appreciation in value of three or four times as a result of development.

Participating in the strategically located California real estate is Garden Land Company, a Los Angeles-based real estate holding and development company. Great Western Financial is a participator in the financial end of California real estate activities. It is a holding company which operates through seven savings and loan associations with combined assets of more than $600 million. The major source of its revenues comes from interests received from first mortgage loans made by the associations to home owners. Great Western Financial is likely to continue this superior growth in the face of the tremendous population and industrial expansion on the West Coast.

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