A: By definition, REITs are owners of commercial property that generates rent income. REITs are not owners of single family detached houses, but the U.S. REIT industry includes a very important segment of apartment REITs. It’s important to recognize that there is no correlation between owner-occupied house values and REIT returns. A common, yet serious mistake made by investors and investment advisors is to think of a total amount of real estate that should be in any investor’s portfolio and say, if that value is represented by the value of your house, then that is all the real estate you need.

Q: Do you see the dynamics changing in the shopping mall sector given that it is consumer spending that primarily drives their growth in the retail REITs sector?

A: The performance of the retail REIT sector has been extremely strong. Over the last ten years it has delivered a 16% average annual return I don’t know if retail REITs are likely to deliver this same performance going forward, but they still are a strong investment.

It’s important to recognize that consumer spending does not exclusively drive retail REIT returns. Retail REITs lease space to retailers. These leases typically are long-term – ten years is common – and the tenants typically represent a diversified group of retailers providing a variety of product types at various price points. Retail REITs also provide geographical diversification. A given REIT frequently owns dozens – or hundreds – of retail facilities around the United States, and often in other countries. These factors act to stabilize rent income.

Q: Any estimates on what percentage of the retail shopping malls and similar spaces are controlled by the retail REITs?

A: Retail REITs – especially regional mall REITs – own a greater proportion of properties in their market segment than other types of REITs do in their segments of the industry. This is a very large segment of the REIT industry, rep resenting more than a fourth of the total industry as measured by equity market capitalization. Retail REITs also typically control the best retail properties in the best locations. So, the fundamentals for retail REITs are very strong.

Q: In the last five years the real estate market has gone through some significant revaluations. From an economist’s perspective has this impacted REITs?

A: Commercial real estate property values have increased for a number of years, driven by steady economic growth, limited supply and, more recently, M&A activity, which was importantly fueled by very willing debt markets that provided low-cost financing. Obviously, the economy has slowed and the credit markets have become much tighter. It remains to be seen how these factors will develop in 2008 and how they will affect the commercial property market. The fundamentals for REITs, though, have remained strong. There has been no overdevelopment in the market. Occupancy rates and rents remain strong. The publicly traded equity REIT industry also is financially strong. The companies have continued to deliver solid earnings throughout 2007, and they have continued to maintain very conservative balance sheets. The average leverage in the publicly traded REIT industry remains at about 40 percent, which is conservative by the standards of almost any industry.

REITs will benefit from changing trends in institutional investment, as well. Major pension funds and endowments have recognized the benefits of REITs as a supplement for direct real estate investment, and have increased their REIT target allocations accordingly.

The U.S. pension industry’s own statistics show that these institutions have boosted their target real estate allocations each year for the past six years. Yet, their actual investments are still below their targets. In the defined contribution plan arena, REITs also are being accepted as core components of lifecycle funds, which effectively are becoming the default investments in U.S. 401(k) plans.

These retirement plan professionals are long-term investors, and their recognition of the value of REITs in meeting their plans’ liabilities represents an important trend.

Investor interest in REITs and other securitized real estate also has become increasingly global as the industry has grown around the globe, making it possible for large investors in the world’s financial capitals to implement truly global real estate investment strategies through securitized real estate.

New index products like the FTSE EPRA/NAREIT Global Real Estate Index are providing the basis for expanded global securitized real estate investment as the benchmarks for institutional money managers and for a growing field of mutual funds and ETFs, which last year boasted more than $40 billion in assets. The equity market cap profile of this index provides the asset allocation map for these global investors: about 40% of it is in North America, another 40% is in the Asia/Pacific region and 20% is in Europe.