Risks Associated with a Commercial REIT

Hard Real Estate Investment Reits

As an investment analyst, you are tasked with evaluating a publicly-traded Real Estate Investment Trust (REIT) that primarily focuses on commercial properties in urban areas. The REIT has reported a consistent dividend yield of 5% over the past five years, and its share price has seen gradual appreciation due to increasing demand for commercial real estate.

One of the recent developments includes the REIT entering into a joint venture for developing a new office complex in a rapidly growing metropolitan area. However, there are concerns regarding the impact of rising interest rates on the REIT's financing costs and the potential for a recession affecting tenant demand.

Based on this information, which of the following statements best describes the risks associated with investing in this REIT?

The primary risk for this REIT is credit risk, as it deals exclusively with tenants with lower credit ratings.

The main risk stems from interest rate fluctuations, which could increase financing costs and affect cash flows.

This REIT is primarily exposed to liquidity risk due to its investments in illiquid assets.

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