Change has been a hallmark of the REIT industry during its entire 40-year history. The most obvious change has been the tremendous explosion in size. At the end of 1971, after its first decade, total equity market cap was just $1.5 billion. By the end of last year, the industry's total equity market cap had grown to over $124 billion, including 167 Equity REITs with a combined equity market cap of $118 billion.

But perhaps less obvious is the way in which REIT organizations have transformed themselves over the years from passive owners of real estate to dynamic real estate businesses. The early REITs owned baskets of properties in multiple locations—of many property types—and used outside companies to manage them. Many retained no more than one or two employees, relying upon outside "advisors" to help them select properties for investment. Eventually, however, more REITs began to create true organizations.

The Tax Reform Act of 1986 was a major milestone for the REIT industry; it eliminated the need for REITs to retain outside independent contractors to perform property-related services such as leasing and management. This was the first major impetus to REITs becoming completely integrated real estate operating companies, and eliminated potentially significant conflicts of interest.

The next major catalyst for change was the IPO Boom of '93–'94, in which 95 initial public offerings raised $16.5 billion. But the volume of deals was overshadowed in importance by the nature of the new public companies. For the very first time we saw some of the deepest and most experienced real estate organizations—such as General Growth Properties, Post Properties, Simon Property Group, Spieker Properties and scores of others—go public as REITs. Many of these companies brought to the public markets an assortment of skills not previously known in the REIT industry, not the least of which was the ability to develop.

More recently, the combination of a shutdown in the equity markets and advances in available technology challenged REIT organizations to devise new ways in which revenues could be captured. REITs accelerated their commitment to being active businesses, and many sold off mature assets and recycled the proceeds into higher yielding investments (including their own shares). They began to search for all kinds of ancillary revenues, such as the sale of telecom services, developing co-branding strategies, selling naming rights and marketing signage.

They formed new subsidiaries to engage in related businesses such as third-party development, landscape services, property management and cold storage. Joint ventures were organized, helping to generate additional fee income and alleviating the need to raise additional equity to pursue new projects. And, of course, many developed, capturing a large spread over cap rates available on existing properties. The REIT Modernization Act, which will become effective next year, will provide further opportunities for the realization of non-rental income streams.

There remains a place for the passive REIT within our industry; many investors prefer the higher yields and lower risk profiles offered by these companies. But today investors also have the opportunity, by investing in REIT organizations with more dynamic business strategies, to reap total returns greater than the very low double-digits available on traditional real estate investments.