It may take a while, but REITs should right themselves in the coming year.

Spurred by a building and lending boom, shares of real estate investment trusts enjoyed a spectacular five-year run before peaking in February 2007. Since hitting that apex, the iShares Dow Jones US Real Estate Index ( IYR) exchange traded fund, which tracks REIT giants such as Simon Property Group ( SPG), Vornado Realty Trust ( VNO) and Boston Properties ( BXP), has fallen more than 30%, due to worries over economic growth and a subprime credit crunch that has consumed the banking system.

REITs Bound to Bounce Back

"Real estate transactions dropped significantly last year and it's not likely to improve in the immediate future," says Ronald Katz, real estate specialist at Weiser LLP. "Nothing is moving because the subprime crisis is causing banks to suffer from a lack of capital. Meanwhile, buyers and sellers have not reached equilibrium."

Katz expects REITs to be flat for the first half of 2008, while banks untangle themselves from the credit mess. "The big banks will break the logjam. They need to make transactions to survive."

REITs Bound to Bounce Back

As for the market participants getting together, that depends on what have always been the three most important things in real estate: location, location, location.

"First of all, you need to separate New York from the rest of the country, because it's a different animal," says Katz. "On the commercial side, there is a desire to have Class A space in New York. However, prices will be pressured by investment banks looking to sublet blocks of space due to layoffs from the subprime slowdown."

On the residential side, Katz predicts that rents at multifamily properties in New York will remain strong because it's tough to obtain a loan, and co-op and condo prices remain high. Moreover, the feeble dollar will keep up a steady stream of foreign buyers, not just in New York, but surprisingly in places as hard-hit as Florida.

"As bad as Florida is, foreign buyers will prop that market up. You will see speculators unload their inventory to South American and Mexican buyers," says Katz, who also predicts a comeback -- or at least a bottoming out -- for the Las Vegas real estate market later this year.

" MGM Mirage ( MGM) and Wynn Resorts ( WYNN) are hiring over 10,000 people over the next few years," says Katz. "Those people need places to live."

Well, they have a lot of places to choose from -- for the time being.

Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.

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