"The steep decline in stock prices mixed with the occasional sharp upturn has created betas that are unusually high," wrote RBC Capital Markets analyst Rich Moore in a research note last week. "These kinds of betas should not be associated with companies that produce the generally stable earnings results found in the commercial real estate sector." Sam Lieber, portfolio manager with Alpine Woods Capital, says the big selling pressure in REIT stocks is probably done. The recent drop in REIT prices was largely due to selling from non-dedicated REIT investors -- whose rapid buying helped fuel the sector's boom in recent years, he says. Going forward, Lieber expects the fund flows into the sector to be less than the past two years, when shares rose sharply. "A lot of that money came in from hedge funds that needed exposure or individual investors who wanted more exposure," Lieber says. Lieber's sense is that REIT prices may not be done correcting, but, he adds: "I think a lot of the bad news is in the prices."
Even if dividend yields look good and fundamentals seem solid, the problems in the real estate debt markets continue to hurt valuations, which is why some investors are largely staying away from the stocks today.