It is clear that REITs can no longer be considered a safe counter cyclical investment as they have in the past, finds a newly released report by Ernst & Young, called Riding out the storm: Global Real Estate Investment Trust Report 2008."

For the last eight years REITs have been the go-to alternative for investors, ever since the dot.com implosion, Kjerstin Hatch, principal and portfolio director for Madison Capital Management in Greenwood Village, CO, tells GlobeSt.com. "For a long time now REITs have benefited from a low interest rate environment. Now there is a re-pricing of leverage, which is troublesome for many of these companies, of course."

Bill Staton, an investment advisor and author of the forthcoming book "Double Your Money in America's Finest Companies: The Unbeatable Power of Rising Dividends," also fingers too much leverage as the culprit behind many REITs' troubles right now. "All you have to do is look as far as General Growth Properties to see that," he tells GlobeSt.com.

The biggest challenge, though, Hatch continues, is the economy. "If you can't keep an office or industrial property full or refinance the debt when it comes due then what we are looking at is a replay of the early 1990s, when we went through the last correction." There will definitely be some REITs that just don't make it, she concludes.

REITs, though, are responding to the financial headwinds with a variety of counter-strategies, which include hoarding liquidity, offering common shares to accumulate funds and forming partnerships to tap additional pools of capital. Corporate Office Property Trust, for instance, and First Potomac Realty Trust are examples of the former strategy. Earlier this fall the two REITs both issued offered common stock, raising $145.8 million and $38.2 million, respectively.

An example of REITs striking new relationships for stability and even expansion is provided by Weingarten Realty Investors, has been forming strategic joint partnerships with such companies as Hines Real Estate Investment Trust, to boost return on equity. The duo recently acquired a portfolio of 12 supermarket-anchored shopping centers totaling 1.5-million square feet for $271 million. Through the partnership, a subsidiary of Hines REIT will acquire a 70% interest in the Weingarten portfolio. "We believe this transaction will provide stable and growing returns to the joint venture while also meeting our objective of recycling capital and building our assets under management," says Andrew M. Alexander, president and CEO of Weingarten, in a statement unveiling the joint venture.

Selling off non-core assets – or core if it comes to that – is another option REITs are investigating, but with less success given the market right now. Claire Koeneman, a former principal in the Private Investment Department of Salomon Bros. and now co-president of Financial Relations Board in Chicago, thinks there are a number of REITs right now that do not have the luxury of holding onto their crown jewels. "REITs that cannot finance their current balance sheet will either need to sell prime assets or their very companies," she tells GlobeSt.com. "No longer can companies simply sell just those assets that are "not right" or less than grade A." Furthermore, she continues, there will be no buyers for sub-par assets, so companies will be forced to sell key or core assets to maintain the liquidity of the rest of their portfolio."

Another self-preservation move that many REITs are taking is the suspension, or at least reduction, of dividends to preserve capital, she adds. "This is counter-intuitive for investors, who bought these stocks partly for their dividends, as well as the total return play they provide, but without dividends, these become a less attractive asset class."