What type of REIT borrows money from lenders to finance real estate purchases?

The correct answer is that a Mortgage REIT, or mREIT, borrows money from lenders to finance real estate purchases. This type of Real Estate Investment Trust primarily engages in the financing of real estate through mortgages and mortgage-backed securities rather than by owning properties directly.

Mortgage REITs provide capital to real estate owners and operators by purchasing existing mortgages and mortgage-related securities. They earn income from the interest on these financial instruments. This financing structure allows them to leverage their capital to acquire more mortgage assets, potentially increasing returns compared to direct property ownership.

Equity REITs, on the other hand, primarily invest directly in and own properties, generating income from property rentals rather than through borrowing. Hybrid REITs combine both strategies; they own properties and also invest in mortgages, but they do not represent the borrowing focus of Mortgage REITs solely. Commercial is a broad term that refers to the type of properties these REITs may invest in, such as office buildings or shopping centers, but it doesn’t specifically address the financing aspect.

Thus, the distinction of Mortgage REITs lies in their operational model of financing real estate through borrowed funds, making them unique in the REIT structure.