REITs' Rut May Be Exaggerated

After soaring 21% from late March through early August, the Dow Jones REIT Index got clobbered last week as 10-year Treasury yields rose dramatically. Following a bearish cover story about the sector in Barron's over the weekend, the index fell another 3% Monday and it seemed as if no one wanted to touch real estate investment trusts.

But the sector has made a bit of a comeback since, and industry observers say the same conditions that originally attracted investors toward high-yielding investments such as REITs remain in place. Notably, REITs rose while the rest of the market fell on Wednesday, and the Dow Jones REIT Index was recently up 1.7% Thursday, outperforming major averages.

"We believe that capital looking for property investment will prove to be quite sticky and will not disappear in a higher-yield environment," says Dave Harris, REIT analyst at Lehman Brothers. ...