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Do the REIT Thing?

When it comes to returns on real estate, think long-term investment.

This story appears in the September 2003 issue of Entrepreneur. Subscribe »

Although the once torrid growth in the value of land and office space has slowed down lately, there's no question that real estate investment trusts (REITs) have been at the head of the asset allocation class since the spring of 2000. REITs gained an average of 3.6 percent last year, a number that won't set investors' hearts aflutter-until you consider that the S&P 500 Index lost 22 percent over the same period. The gap between REITs and stocks, which was even wider in 2000 and 2001, narrowed but did not disappear in the first quarter of this year.

If you're thinking of REITs as one of the last safe havens from the bear market, however, think again. Even with the war in Iraq in the rearview mirror, businesses are cautious about expanding into new and bigger office space. So vacancy rates are edging higher, and rents are slipping lower, which is not the rosiest of scenarios for investors in commercial real estate. The sluggish economy has put a lid on rental increases for apartment owners, too, and mall development companies are dependent on consumer spending picking back up in the near future.

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