Plenty of Steam Left for REITs

Investors thinking of putting fresh money into real estate investment trusts might easily be dissuaded by unremitting news of distressed commercial property-- and predictions that the situation will become even worse. Real estate investment trusts (REIT) shares have already doubled from their low point in March, handily outpacing the 65 percent rebound of the Standard & Poor’s 500-stock index through the end of last year, suggesting that REITs are no longer a bargain.

“We went from a near-death experience to a shocking investment recovery,” says Mike Kirby, chairman and research director of Green Street Advisors, a REIT specialist. For all of 2009, mutual funds that invest in American real estate--a category that includes REIT funds--gained 30.35 percent, after a 39.7 percent battering in 2008. But despite the stocks’ recovery and the persistently grim headlines of default and bankruptcy, careful investors may still find opportunities if they are seeking diversified exposure to real estate.

“Yields are still handsome, and there is room for continued growth,” says Tom Roseen, a senior research manager for Lipper. “People are able to get into these funds at prices that have changed very little from 2003, the middle of seven consecutive years of positive performance, and the longest stretch for any sizable asset class,” he adds. While the shares are no longer in the bargain bin, Kirby says that REITs should “always” be part of every portfolio.