> Why not just buy fractional shares of a property?

Transaction costs for diversification. The same reason it makes sense to buy ETFs versus directly balance your own portfolio for anything below your first million.

REITs don't pay capital gains the way you and I would if we bought a house together.

Because a REIT gives you a fractional share of hundreds of properties.

Your comment doesn't really answer my question... you just typed the same observation from the other side. You've added nothing. Zero value.