Which of the following is a characteristic of hybrid REITs?

Hybrid REITs are distinct in that they incorporate both debt and equity investments within their portfolios. This means they invest in real estate properties (equity) while also providing financing through mortgages (debt). This combination allows hybrid REITs to capitalize on various aspects of real estate investment and income generation. By having the flexibility to engage in both types of investments, they can potentially provide a more balanced risk-return profile compared to pure equity or mortgage REITs.

The other options don't accurately represent the characteristics of hybrid REITs. Investing only in equity limits the REIT to one specific type of investment, while focusing solely on mortgage lending would define a mortgage REIT, which does not engage in equity investments. Operating only in commercial real estate would suggest a restriction that hybrid REITs do not necessarily have, as they can also invest in residential properties alongside commercial ones. Therefore, the option that accurately reflects the nature of hybrid REITs is the incorporation of both debt and equity in their investment strategies.