Most domestic real estate stocks -- from homebuilders and real estate investment trusts to hotels -- look like houses in the aftermath of a tornado. But Samuel Lieber, the president of Alpine Woods Capital Investors and manager of the $2.5 billion (EGLRX) - Get Report Alpine International Real Estate (EGLRX), says there are still some good investments in this sector, particularly overseas.

Lieber says there is a direct connection between real estate stocks and the local economy: Job and income growth typically translate into demand for both residential and commercial real estate. And while the U.S. economy is slowing down, many economies overseas are still doing well.

That helps explain why his fund is blowing the roof off the house. For the year to date through Oct. 31, Alpine International Real Estate has returned 16.9%, outperforming its peers by 18.0 percentage points and the

S&P 500

by 6.0 percentage points, according to Morningstar.

Among the things setting Lieber apart from his peers are well-timed bets on various overseas markets. Real estate markets in Germany, Austria and the U.K. hit a 25% premium earlier this year in anticipation of new REIT laws, but have since fallen back by 25% to 35%, says Lieber.

As in the U.S., the rally in international real estate stocks over the past four years has attracted so much capital that the sector got ahead of itself in terms of valuations.

When growth rates stopped meeting investors' expectations, real estate stocks no longer justified the prices being paid. These markets were also hit by concerns that the subprime mortgage crisis in the U.S. might spread across the ocean.

According to Lieber, the only markets that have escaped unscathed are Hong Kong and Southeast Asia. However, the fund manager also sees opportunities in Latin America. He says these two areas will experience the most economic growth over the next 10 years. What they have in common are growing population, large inflows of capital and low prices for most goods.

Over the next five years, Lieber expects to see real estate stocks return in the low double-digits in Europe and the mid to upper teens in Asia.

Among his top picks is

Orient-Express Hotels

(OEH)

, a premier global chain of high-end boutique hotels. This is a U.S. company, but it gets 80% of its revenues from abroad and has rebuffed two merger proposals from two larger rivals.

Among the stocks he likes in Europe are Unibail-Rodamco, the largest European shopping mall owner.

Lieber also sees strong growth prospects with Agra, an emerging Brazilian developer.

The fund manager also sees some opportunities in the U.S., at least over the next year or so. "I'm not assuming a favorable outcome in the subprime situation, but the best opportunity is when people are looking for cover," he says.

That doesn't mean he's snapping up depressed shares of homebuilders and REITs; he's been a seller of the former since the second quarter of 2006 and of the latter since the third quarter of last year.

In fact, Lieber doesn't expect U.S. real stock market to bottom out for at least another nine months. Over that time, he predicts some real estate companies will go "belly up" as the market's downside continues.

According to Lieber, the normal rate of subprime mortgage defaults during a recession is 20% to 25%. But he thinks that number could reach 40% this time because "no one is restructuring the securities backed by mortgages."

Moreover, the connection between U.S. real estate stocks and the local economy has been largely severed, as the subprime mortgage crisis demonstrates. Local banks still make loans to people in their neighborhood, but more often than not the mortgages are then repackaged into collateral for securities and sold to investors who are several times removed from the actual borrowers.

Still, with so many people dumping these stocks, he thinks they could reach attractive valuations sometime in 2008.

His domestic fund, the $149 million

(EUEYX)

Alpine U. S. Real Estate Equity (EUEYX) hasn't fared so well this year. As of Oct. 31, it was down 7.4%, underperforming its category by 6.3 percentage points and the S&P 500 by 18.3 points.

Like the international fund, Alpine U.S. Real Estate Equity has a big stake in Orient-Express Hotels.Other top holdings include

Diamondrock Hospitality

(DRH) - Get Report

and

Sunrise Senior Living

( SRZ). Diamondrock is benefiting from the weak dollar as foreign tourists fill up its rooms. Meanwhile, Sunrise caters to the higher end of assisted living facilities. And the demographics of aging baby-boomers are very positive for this company.