How “hollowed” hotels are destroying worker rights
REITs aren’t just for money laundering.
The Real Estate Investment Trust is (REIT) a sixties-era tax shelter designed to allow mom-and-pop investors to buy into income properties. REITs are exempt from corporate tax, but they’re also prohibited from managing the buildings they own.
Banning REITs from management roles was supposed to scare off rich people looking for a tax break and keep REITs firmly in the realm of the “little guy.” But as with any tax-shelter, the super-rich used REITs as a wedge to create a parallel system of property ownership and taxation reserved for plutocrats.
REITs offer many benefits to the ultra-rich beyond their tax-exempt status. They offer a highly anonymized vehicle for offshore money-laundering. Billions in oligarch wealth has been converted to tax-free ownership of American commercial real-estate, cleaned, and remobilized as bribes, yachts and cryptos.
https://twitter.com/CZEdwards/status/1213597148274511872
Not all of that offshore money is truly offshore, of course: when an American oligarch parks his cash on a treasure island, he doesn’t spend it there. There’s nothing to buy in the BVI or Gibraltar. That money is sent back to America, anonymized, tax-free, and turned into real-estate via REITs.
(Though of course, a lot of that overseas oligarch cash comes from actual overseas oligarchs; post-Crimea invasion, REITs were a handy way for Russian oligarchs to beat US sanctions)
https://twitter.com/CZEdwards/status/1213611855244972033
Now, recall that REITs have a poison pill: an REIT is allowed to own real-estate, but not manage it. In 1999, hospitality industry lobbyists successfully pushed through the REIT Modernization Act, which effectively ended this stricture. Under the new law, the REIT can incorporate a wholly owned subsidiary, a “taxable REIT subsidiary corporation” (TRS) which can manage the operations of hospitality businesses like hotels.
You may have noticed the word “taxable” in “taxable REIT subsidiary corporation.” Unlike an REIT, a TRS’s profits are subject to taxation. But that’s easily evaded: just have the leasing fee the TRS pays to its parent REIT represent…
