Peter Lynch (or maybe Warren Buffett, I forget) used to say that you should avoid a company developing new technology and buy the ones using it. The point being that upgrading an existing business is easier and safer than creating a new field from scratch.

That was lousy advice for most of the 1990s. But lately it's starting to make sense, as old-line industries use chips and fiber to make themselves a lot more interesting. In real estate, for instance, most of today's office buildings and apartment complexes are functionally identical to those of the 1950s. Same copper wiring, same tedious phone calls to maintenance to get things fixed, same weird, unresponsive climate controls.

But that's about to change, as landlords run fiber through their buildings or set up wireless nets or whatever, imbuing their properties with intelligence and giving tenants access to all kinds of proprietary (i.e., profitable) broadband goodies.

Before fleshing out this idea, let me say that Christopher Edmonds' columns are the place to go for insight on real estate. So what follows here should be seen as a background to the issues debated at a higher level there.

Anyhow, let's start with some before and after examples. Traditionally, when you sign up for an apartment, you fill out forms and come back after your credit has been checked and you've been assigned a unit. Then you call the phone, cable and Internet companies to hook yourself up to the outside world. But in a wired complex, this all happens automatically when you apply. And once you pick up the key and move in, you'll find a terminal offering high-speed Internet, plus a set of proprietary services like bill paying, grocery delivery and laundry pickup. Can you say "multiple-income streams," boys and girls?

In New Economy office buildings, there might be a fiber backbone running vertically from basement to roof, giving tenant terminals effectively unlimited bandwidth -- which, once experienced, is impossible to imagine living and working without. This might or might not involve new revenue sources for the buildings' owners, depending on whether the connection is straight to the Internet or via a proprietary portal. But either way, it raises the value of the building and streamlines its operation.

As Barry Lefkowitz, CFO of Mack-Cali Realty ( CLI), a real estate investment trust, put it at a recent industry roundtable: "Say a tenant wants to work through the weekend and needs air conditioning. Today, they have to call the property management person, and he has to get a hold of someone to turn it on and then make sure it gets communicated to the accounting department so it gets billed. But what if the tenant could get to the Web site and say, 'I want AC between these hours'? There's a sensor in the building that sends a message to accounting and debits the tenant's account." The result is a happier tenant and a small incremental saving that, spread over thousands of similar transactions, adds up to serious money.

The logic of smart buildings is so compelling that just about every landlord will have to upgrade in the coming decade. As for how the rest of us can play it, right now there are two ways: the independent companies that upgrade other peoples' buildings and the owners of the buildings themselves.

In the first group, one of the pioneers is Allied Riser Communications ( ARCC - Get Report), which wires up buildings with networks that it owns and operates. Tenants link their terminals to Allied Riser's fiber for high-speed Internet access, "business-oriented television" and sophisticated conferencing capabilities, and the landlord gets a cut of the proceeds. Its backlog is massive -- more than 1,000 buildings -- so the next few years will be big.

Tut Sustems , meanwhile, gives buildings high-speed Internet over existing copper wires. Motels using this system can offer travelers the ability to plug their notebook computers into a DSL modem, a big step up from the standard Holiday Inn phone jack. And Teligent integrates buildings into hybrid wireless/fiber-optic networks. Typical for this bunch of companies, its revenues rose from $1.5 million to $23 million, year-over-year, in the March quarter, while buildout costs produced a loss of $166 million.

A safer alternative is to buy big REITs that are starting their own broadband services companies, on the assumption they'll eventually spin them off and in the meantime will benefit from fast upgrades of their properties. Three to watch are:

Equity Office the biggest office REIT and owner of a piece of many things, including Allied Riser, Broadband Office (a private competitor of Allied Riser) and Project Constellation, an incubator for real estate tech. Since downtown office buildings are the hottest part of the REIT market, you've also got a strong underlying business to fall back on here.

On the apartment side, BRE Properties ( BRE) plans to spin off its Velocity HSI subsidiary, which offers high-speed Internet connections to apartment complexes. And Boardwalk Equities, Canada's biggest landlord, with 25,000 apartments, will soon spin off a company that wires up apartments and is "light years ahead of anybody else," says analyst Art Havener of A.G. Edwards, which has no investment banking relationship with Boardwalk. "They'll take both the U.S. and Canada by a storm one of these days."

This just scratches the surface of what is turning into an industry-wide free-for-all. So besides Chris Edmonds' columns, check out InRealty.com for a free newsletter in which editor Ried Schott covers the process in layman's terms.

John Rubino, a former equity and bond analyst, is a frequent contributor to Individual Investor, Your Money and Consumers Digest. His first book, Main Street, Not Wall Street, was published by William Morrow in 1998. At time of publication, he had no position in any stocks mentioned. While Rubino cannot provide investment advice or recommendations, he invites your feedback at rubinoja@yahoo.com.