The Allure and Danger of Double-Digit Yields in Mortgage REITs
Mortgage Real Estate Investment Trusts (mREITs) captivate investors with their sky-high dividend yields, often eclipsing traditional equity returns. Yet beneath the surface lies a labyrinth of leverage and financial engineering that demands scrutiny.
These instruments operate more like Leveraged hedge funds than conventional real estate plays. Their yields—frequently breaching 10%—represent compensation for navigating interest rate volatility, prepayment risks, and complex arbitrage strategies rather than stable cash flows from physical assets.
The sector's dependence on short-term borrowing to finance long-term mortgage holdings creates inherent fragility. When yield curves flatten or funding costs spike, mREITs can unravel with startling speed—a reality many yield-chasing investors overlook.
