"I think there's a trade-off between what the assets are worthand what the management is worth," says John R. Nikolich, managingdirector of Mercury Partners LLC, whose firm based here and inGreenwich, CT provides investment banking, financial advisoryservices and equity research to real estate owners. "What is thevalue of management? Ten percent? That's an important thing to lookat."

So is the capitalization rate used to establish a value of thereal estate, Nikolich adds, as even a 25-basis-point uptick cansignificantly reduce its worth.

A REIT investor's due diligence should include a look at insidertrading, Nikolich suggests. For example, when REITs were declared"dead money" compared to the high-flying NASDAQ issues in 1998-99,insiders were buying shares of their companies' stock, often withloans. In the second quarter of 2000, "shrewd money" was buyingREIT shares Nikolich considered depressed. Now, when REITs arebeing touted as a hot ticket to double-digiti returns, Nikolich hasnoticed insiders are sellers.

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