Managers of REIT portfolios are a bit like the Energizer Bunny. In good times or bad, they are constantly out making a pitch for their offerings. In this turbulent marketplace, investors may finally be willing to listen.

At the SunStar/Quasar press briefing earlier this week, Sam Lieber, ceo at Alpine Management & Research, was pressing his case for REITs. Firstly, he believes that REITs should be a part of most portfolios. "Morningstar's real estate sector is the only equity fund category -- with the possible exception of gold funds -- to show positive returns this year," the executive contended. He also argued that it has been the top equity fund category and second for all categories for the past three years.

"The correlation with the S&P 500 is very low. Business models are simple. There are long term leases for most commercial properties which provide 12-24 months of cash flow stability and visibility. There are 6-12 months of order backlogs at home builder organization," Lieber further reported.

"And REITs are relatively inexpensive," he added. "The dividen yields are at historically high spreads compared to ten-year US treasuries. Home builder P/E's are relatively cheap when compared to the S&P 500."

Lieber also contends that real estate is in a transitional period. "Commercial property typically lags behind the business cycle. Right now, vacancies are approaching a peak, while apartments are soft."

"Home sales typically lead the economy out of recession. New home sales hit a new record for one month in July (1.017 million homes annualized," he stated.

But what about the anticipated real estate bubble?

"There isn't a bubble in the commercial sector," Lieber explained. "Rents have fallen, even though prices for top properities remain high. Median residential prices nationwide are up 6.2 percent annually over the past three years. Some markets are still too hot, but most have started to cool."
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Making a Case, 5/14/02  

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