When a group of real estate giants unveiled a technology consortium to capture a piece of dot-com mania, some real estate investors got excited. But a hard look at the details -- and the companies' own moves outside of the pact -- suggests there may be less here than meets the eye.

Under the deal announced last week, nine real estate companies and two investment banks will each chip in between $10 million and $15 million to

Project Constellation

, a New Economy think tank that will pursue real estate-related Internet, e-commerce, and broadband enterprises.

The players are heavyweights in the real estate world --

AMB Property

(AMB)

,

Equity Residential Properties

(EQR) - Get Report

,

Equity Office Properties

(EOP)

,

Simon Property Group

(SPG) - Get Report

,

Spieker Properties

(SPK)

,

Kaufman & Broad

(KBH) - Get Report

,

CB Richard Ellis

(CBG)

,

Jones Lange LaSalle

(JLL) - Get Report

, and

Trammell Crow

(TCC)

as well as two investment banks,

Morgan Stanley Dean Witter

(MWD)

and

Chase Manhattan Bank's

(CMB)

Chase H&Q Capital Partners

-- that control over $250 billion in real estate assets across the office, retail, apartment and industrial property types.

While the companies involved hope that Project Constellation rockets them into dot-com heaven, pundits say it amounts to nothing more than star-gazing. "We see more hype than substance, at least to start," says

Donaldson, Lufkin & Jenrette

analyst Larry Raiman. Indeed, the consortium did not list any immediate projects or even prospective projects that will yield any near-term benefit to investors, but instead relied on the power of a concept that

could

yield future results. "This is likely a great idea that will amount to nothing," says one

sell-side analyst.

While the size, clout and diversity of the partners is impressive, it is also a potential pitfall. While a number of

REITs have already announced projects and collaborations attempting to leverage broadband, the Internet and other technologies, those partnerships have largely revolved around property-types. For example, a group of seven office REITs, including Equity Office and Spieker, already have made commitments to

BroadBand Office

, a privately held supplier of communications technology to office REITs. Similarly, apartment REITs have announced projects to provide high-speed Internet access to tenants.

However, Raiman and others are skeptical that diverse property types will be able to share the same applications of new technology. "Real estate service companies are much different than homebuilders, who are much different than office REITs, who are much different than residential REITs," Raiman said.

On top of the diversity, the sheer number of participants may create an unwieldy management structure for the project. "With 11 constituent members, and the possibility of additional members/investors, we anticipate potential operational and governance issues for the

project," wrote

Goldman Sachs

analyst Jim Kammert. Another sell-side analyst was more blunt, "With so many elbows on the table, it will be hard to accomplish anything."

Perhaps the most troubling news for the consortium is that on the same day the project was launched, Kaufman & Broad, a consortium member, announced the creation of

HomebuildersXchange

, an independent B2B company offering homebuilders the ability to buy and exchange goods and services over the Internet. "The fact that Kaufman & Broad chose to launch this exchange with others reflects poorly on Project Constellation," says Raiman.

In addition, the week before the announcement, the consortium's three real estate service companies -- CB Richard Ellis, Jones Lang LaSalle and Trammell Crow -- formed

Octane

, a real estate B2B and B2C program that will begin operations this summer.

Given that all the consortium members -- including the four recent entrants -- are involved in possibly competing ventures raises concerns. At a minimum, it shows both the lack of barriers to developing projects and the potential for additional competition. Any success of the consortium may be short-lived and subject to competitive pressures that could quickly erode both profit and any advantage the partners may perceive. That, in turn, is likely to leave investors looking for more. "Investors must necessarily be skeptical regarding the degree of cooperation that will take place among the members of Constellation," wrote Kammert.

While the upside potential may not be as great as expected, the liabilities of the project are likewise limited. "It's a small investment with probably a small return," says the REIT fund manager. "Yet, if technology is going to be a part of the future of these companies, those companies might as well invest in it rather than have to buy it."

Which leads Raiman to bring the project down to earth: "We see little value to Project Constellation at this point. However, given the high caliber of its founding members we'll keep one eye on future developments that might change our view."

Looking for the Tech Pop

Project Constellation is, at its core, an attempt by a group of real estate companies to get the "tech pop" in their stock prices that other real estate companies have received after announcing e-commerce and technology initiatives.

Possibly the best example of a real estate company benefiting from the Internet hype is the performance of

BRE Properties

(BRE)

, a multi-family REIT, since announcing Project Velocity, its high speed connectivity and technology platform for its apartment communities. Since the debut of the product in early March, BRE stock has jumped more than 20%, vs. gains of just under 10% for the average REIT. "The stock is way ahead of itself," says one investment manager who has a short position in the stock. "It's all about a technology platform that will add little to the company's bottom-line." (BRE is so excited about the prospects of its service, that it announced in an

SEC

filing last week that it will spin off VelocityHSI common stock to BRE shareholders in June 2000.)

Interestingly, none of the Project Constellation members experienced a significant price change on their news. And the REIT mutual fund manager doesn't expect a significant move anytime soon. "The equity markets just aren't willing to pay for these gimmicks any more."

In the end, investors should remember that buying into real estate companies should be seen as just that -- a decision to invest in real property. Regardless of the ancillary services, 99% of a real estate company's profit and cash flow will always come from bricks and mortar, not from the click of a mouse.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, Edmonds had no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback at

invest@cjnetworks.com .