If you are like most investors hungry for yield, you likely have at least one real
estate investment trust stashed away somewhere.
The shine has come off REITs recently, however, as bond yields have started to tick upwards. This has prompted prospective buyers to worry about the impact that rising rates will have on REITs mortgage costs down the road.
Despite this, yield starved investors are hoping that mortgage investment corporations won't be hit in the same way. But tread carefully here, warns Hamilton Capital Managers analyst Rob Wessel in a recent report. Most MICs are riskier than you might think.
Unlike REITs, which buy income-producing properties and then use the
rents to pay distributions to investors, MICs are
generally more interested in funding land development and real estate construction, and they
attract retail investors by offering much higher yields as a result, often in the range of 7 to 8 per cent.
A typical borrower might be someone who owns a multi-residential
property owner and needs short-term cash for construction, for instance -- a loan the big bank simply can't be bothered with.