With REITs, there is typically no leverage and the dividends are taxed as ordinary income. If you invest in real estate directly, you can borrow at low rates and the tax treatment is better through deductions, depreciation, 1031 exchange, etc.
Often with a strong commercial real estate project you can show taxable losses but still get positive cash flow. Why? Because of generous IRS depreciation treatment of the improvements. Then, when you get to the end of the investment and you can sell it, you can just defer the capital gains taxes indefinitely by using a 1031 exchange. This can be done until you die, when your heirs will get your property with a "Stepped up basis", effectively eliminating the capital gains tax altogether.
You can't get this with REITS. Doesn't matter if they are publicly traded, non-traded, private, or the new fad eREITS.
The question wasn't "why is investing directly in real estate better than REITs?" it was not "why are eREITs better than a diversified REIT mutual fund or ETF?"
However, the tax angle is interesting.
How easy is it to diversify with real estate syndication? Or so called real estate crowdfunding - which I assume are more or less the same thing?