Internally managed versus externally managed REITs - what is the difference and why do investors care?

An internally managed REIT employs its own executives and staff, with costs running through G&A; an externally managed REIT pays a separate manager fees - typically based on assets or equity under management, sometimes with incentive fees. Investors generally prefer internal management because external structures create conflicts: fees tied to ASSET SIZE reward growth for its own sake, even dilutive growth; the manager may allocate deals across multiple vehicles; and termination fees entrench the manager. Externally managed REITs consequently tend to trade at valuation discounts, and internalization of management is a common value-unlock event. The counterargument for external management is access to a larger platform for small REITs that cannot support full infrastructure.