Convening one month since the terrorist attacks on the World Trade Center and Pentagon ripped the national psyche, REIT professionals instead are addressing the new realities for their business since Sept. 11, including a recession that no longer can be ignored. A $200-billion federal stimulus package is considered a given, with the possible effects being inflation – real estate could assume its traditional position as a hedge – and rising interest rates.

The consensus of one panel at the NAREIT convention predicts the next 12 months should be difficult, at least in the stock market if not the business. Recovery is not expected until late next year or early 2003.

"The big change has not been the direction of the economy, but the pace," says Salomon Smith Barney senior real estate analyst Jonathan Litt. "We're starting to see that unraveling right now."

REITs should continue to outperform the rest of the equity market even while "trading sideways for the next six to 12 months," says ABN AMRO Asset Management senior vice president Nancy J. Holland. However, a 7% dividend return looks good in today's environment, she notes.

"The question is, how deep can it get in the mean time?" wonders Morgan Stanley managing director Gregory J. Whyte.

While real estate is in much better shape than it was 10 years ago, some things have managed to remain the same despite changes in the industry.

"What's disappointing to me, while we haven't had a lot of overbuilding, we're ending up in the same place in the cycle, with overcapacity," says Cohen & Steers Capital Management President Martin Cohen. "The excess capacity is coming to light with the collapse in demand."

On the other hand, the next year could bring "a whole new set of opportunities," Cohen says, for cash-rich companies that can scoop up faltering developments or relieve strapped owners of assets. Another plus, he adds, is that unlike previous recessions such as 1991, the industry's balance sheet is much healthier.

However, that could change as a result of what happens in the next few months, if not weeks, cautions Victory SBSF Capital Management managing director Patrice A. Derrington. Interest rates are likely to climb given the current steep yield curve she says. Also, a quick stimulus effort could spark inflation, she adds. "We'll see something of a whiplash effect," Derrington says. And if the stimulus adds to the the market's overcapacity, "the next downturn will be more severe," she believes.

Even when the economy emerges from its current doldrums, the picture for REIT stocks may not be as bright as it is now, says Credit Suisse First Boston Corp. managing director Lawrence D. Raiman. Real estate tends to be a lagging and cyclical investment, he says, which could once again be overshadowed by booms in other equity sectors. "There may be a negative impression for REIT shares," he adds.