By Jeanne B. Pinder
N.Y. Times News Service
Many real estate investment trusts are providing the kind of
returns that would catch any investor's attention. But should
every investor buy?
One expert who says yes is Gregory J. Whyte, first vice
president at Dean Witter Reynolds, a leader in real estate
investment trusts, which are a kind of mutual fund that buys real
estate or mortgages, converts them into securities and passes any
profit on to investors.
"These are great investments for individual investors," Whyte
said. "I'm called every day by people asking, `What should I buy
for widows and orphans?' My response is, `Don't buy one, buy two
or three _ diversify.' But I do think you want to buy quality."
One expert who takes a different approach is John Fosheim of
Green Street Advisors, a Newport Beach, Calif., firm that
analyzes real estate trusts. If an investor asks about individual
real estate investment trusts, which are traded like stocks,
Fosheim said: "I would tell them not to, but the reason is not
that I don't like REITs (real estate investment trusts). When
individual investors call here, we tell them, `Listen, this thing
is fraught with danger.' Most individual investors get too
focused on the wrong thing _ the dividend _ and don't ask the
right questions, about interest rates and cash flows and
management. Our suggestion to individual investors who want to
buy a REIT is always the same: Go buy a low-cost mutual fund and
let the experts do it for you."
A primary factor in the popularity of real estate investment
trusts is their returns. Publicly traded ones had an average
total return of 19.11 percent in the first quarter, said the
National Association of Real Estate Investment Trusts, an
industry group based in Washington, compared with a 4.28 percent
total return on the Standard Poor's index of 500 stocks. In the
second quarter, all publicly traded real estate investment trusts
had a negative return of 2.8 percent, compared with a 0.5 percent
gain for the S P 500.
While it is unwise to generalize about a sag in real estate
investment trust fortunes from such sketchy figures, many real
estate experts say that a lot of smart money bought real estate
investment trust stocks in the last two years, and that bargains
and opportunities are now a lot harder to come by.
There are ample reasons for investor caution. The trusts have
been around since 1960, and they have a record of booms and
crashes _ including a memorable crash in the early 1970s that
burned a lot of investors. Even more important, not all real
estate investment trusts are stars. For example, apartments are
among the best real estate investments right now, but office
buildings are generally considered a less desirable investment
because of the glut of office space.
It also pays to remember the history of the real estate
industry. The crash in values that followed the boom of the 1980s
shocked traditional lenders, and most of them have stopped or
sharply reduced their lending for real estate. …