Monday, November 01, 2004

What Next for REITs?

What Next for REITs?
by David Landis
Kiplinger November 2004

By any measure, real estate investment trusts have had an extraordinary run. REITs, which invest in office buildings, shopping malls and many other types of properties, produced positive returns in 2000, 2001 and 2002 -- years in which the overall stock market fell. In 2003, property-owning REITs soared 37%. And in the first eight months of this year, when everyone thought the party would finally end, REITs surged 14%, while Standard & Poor's 500-stock index barely budged. Is this a bubble getting ready to burst?

Fear not. REITs will cool down inevitably. The returns of the past five years -- 17% annualized -- are unsustainable. But prices won't collapse. "If you're worried that you're paying ridiculous prices for REITs today, don't be," says Ralph Block, who publishes The Essential REIT newsletter.

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