REIT Run Goes the Distance

For the near term, add in the 4% dividend yield and higher earnings and you get a 7.5% expected return.

Green Street expects REITs' adjusted funds from operations (a proxy for cash flow available for dividends) to increase 10% in 2007 and 9% in 2008 (and that growth is pretty visible based on in-place rents and other factors, Kirby says).

Of course, not everyone believes this REIT run can continue.

"In the aggregate, it's going to be hard for investors to achieve the types of returns they like in that market," says Christopher Mayer, a professor of real estate at Columbia University and a part-time research director for Oak Hill REIT Management, a real estate hedge fund.

Signs of a richly valued market, he says, include the fact that sophisticated investors like Boston Properties and Carr America (which Blackstone purchased earlier this year) have been selling a ton of assets.

"I'm quite concerned about REIT valuations," Mayer says. "I think REITs are really richly priced."

Then again, similar things were said by others last year, and investors who heeded this caution missed out on a huge buying opportunity.