Pat Koval Comments on REIT Legacy

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June 28, 2013

The decades-long success of the REIT structure traces its roots back to Torys. Partner Pat Koval, among those Torys lawyers responsible for developing the first REIT in 1993, was asked to comment on the 20-year development and expansion of REITs in a recent article for the Globe and Mail Report on Business. Below is an excerpt of the article.

Canada’s red-hot real estate investment trusts (REITs) were born out of a crisis 20 years ago. In 1993, in the wake of the recession, the real estate market was sagging–and real estate mutual funds were in a death spiral.

The problem was simple: Investors could redeem mutual fund units for their net asset value, but the payout was often based on year-old property appraisals. That made for a kind of run on the bank, as investors scrambled to get out before new appraisals caught up with falling real estate prices. “It was a last-one-out-turn-out-the-lights scenario,” says Torys LLP partner Patricia Koval, part of a small team retained by the then-bleeding First City real estate mutual fund, an arm of the Belzberg family empire.

The solution was not so simple: First, securities regulators agreed to freeze redemptions from the fund; then, in a frenzied six months of talks with regulators, tax authorities and the Toronto Stock Exchange, lawyers from Torys and advisers from CIBC Wood Gundy developed a plan to convert the troubled mutual fund into RealFund—the country’s first REIT, a new investment vehicle that would trade on the exchange for whatever the market deemed a fair price.

For the full article, click here.

For more about the evolution and success of REITs, Pat Koval and Simon Knowling’s “Real Estate Investment Trusts” from the Capital Markets 2013 Mid-Year Report is available here.


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