Some $7 billion worth of limited partnership units were sold last year,
compared with publicly traded real estate investment trust (REIT)
sales of $8 billion. Just five years ago, the ratio was 4-1 in favor of REITs.
Limited partnerships have been offering payouts of 7 percent-8
percent per year, versus 5-6 percent for REITs. This appeals to income-
oriented investors.
Compared with REITs, limited partnerships are illiquid: they don’t
trade freely. Thus, investors are willing to pay higher prices for REITs,
which means they have lower yields than limited partnerships.
Often, these limited partnership buy commercial properties for cash
and rent them to tenants on long-term leases. In this manner, a
substantial cash flow can be generated for investors because there are
no mortgage payments to make. Many brokers and financial planners
offer these limited partnerships.
