AMB Property (NYSE: AMB), a global developer and owner of industrial real estate, closed at $13.25 Wednesday. Goldman Sachs says: "We remain cautious on REITS." AMB December option implied volatility of 107 is above its 8-week average of 66 according to Track Data, suggesting larger price movement.

Essex Property Trust (NYSE: ESS), a REIT with the majority of real estate consisting of apartment communities, closed at $74.33 Wednesday. ESS December option implied volatility of 81 is above its 26-week average of 51 according to Track Data, suggesting larger price movement.

AvalonBay (NYSE: AVB), an owner or indirect owner of 178 apartment communities containing 50,370 apartment homes, closed at $55.03 Wednesday. AVB December option implied volatility of 83 is above its 26-week average of 54 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

It's no secret that the entire real estate market in the U.S. is suffering. For investors owning REITs, we are in the midst of a year of real pain. For long-term investors, some opportunities have arisen in the REIT space.

With people unable to get mortgages, the rental market has proven to be quite strong. Either from people who sold or forfeited their homes, to people who won't qualify for a mortgage, to higher end buyers who believe prices will continue to fall -- everyone still needs living accommodations. That's why I think the market has it wrong with some of the REIT sectors.

REITs dealing with rental markets should be strong, but, alas, their stock has gotten slammed just as bad as everyone else's. It's a classic case of throwing the baby out with the bathwater.

My top pick in this sector is AvalonBay Communities (NYSE: AVB). AvalonBay develops, acquires, refurbishes, leases, and manages apartment complexes. The stock is down over 40% over the last year and currently sports a nice dividend yield of 3.9%. I think long-term investors will be richly rewarded on this stock.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/14/08.

MOST NOTEWORTHY: REITs, Business Objects, Allstate Corp and P&C Insurance were today's noteworthy downgrades:

• Deutsche Bank downgraded REITs AvalonBay (NYSE: AVB), Boston Properties (NYSE: BXP), Health Care REIT (NYSE: HCN), Kimco (NYSE: KIM) and Public Storage (NYSE: PSA) to Hold from Buy on valuation following the recent share appreciation.
  
• Business Objects (NASDAQ: BOBJ) was downgraded to Neutral from Outperform at Baird following its acquisition by SAP AG (NYSE: SAP).
  
• Wachovia downgraded Allstate Corporation (NYSE: ALL) to Market Perform from Outperform and P&C Insurance (NYSE: PGR) citing deteriorating fundamentals in personal lines.

OTHER DOWNGRADES:

• UBS downgraded BEA Systems (NASDAQ: BEAS) to Neutral from Buy.
  
• JP Morgan downgraded Merrill Lynch (NYSE: MER) to Neutral from Outperform.
  
• Sealy Corporation (NYSE: ZZ) was downgraded to Neutral from Buy at Banc of America.
  
• Friedman Billings downgraded technology stocks, lowering ASE Test Limited (NASDAQ: ASTSF), ASML Holding (NASDAQ: ASML), KLA-Tencor (NASDAQ: KLAC) and Rudolph Technologies (NASDAQ: RTEC) to Market Perform from Outperform.

MOST NOTEWORTHY: Coca-Cola (KO), Fiserv, Inc (FISV) and several real estate companies were today's noteworthy upgrades:

• Coca-Cola (NYSE: KO) was upgraded to Buy from Hold at Citigroup, as the firm believes the company is addressing growth issues through recent acquisitions and notes that there are signs of stabilization in Japan.
• Fiserv (NASDAQ: FISV) was upgraded to Outperform from Neutral at Cowen based on valuation, upside from restructuring, new management's willingness to unlock value, and the potential possibility of a company sale.
• Deutsche Bank upgraded Apartment Investment and Management Co (NYSE: AIV), AvalonBay Communities (NYSE: AVB), Boston Properties (NYSE: BXP), Developers Diversified Realty Corp (NYSE: DDR), Kilroy Realty Corp (NYSE: KRC), Kimco Realty Corp (NYSE: KIM), Macerich Co (NYSE: MAC) and Simon Property Group (NYSE: SPG).

OTHER UPGRADES:

• RBC Capital upgraded Texas Roadhouse (NASDAQ: TXRH) to Outperform from Sector Perform, citing valuation and improved EPS outlook.
• Kenexa Corp (NASDAQ: KNXA) was upgraded to Outperform from Neutral at Credit Suisse, citing valuation and reduced risk from the BrassRing acquisition.
• Goldman Sachs added Foster Wheeler (NASDAQ: FWLT) added to its Conviction Buy List, citing valuation and leverage to energy infrastructure build and power.
• Goldman also added ProLogis (NYSE: PLD) to its Conviction Buy list, citing upside to FFO guidance, favorable domestic and international demand and above-average development margins.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Staples, Inc (SPLS), Sun Microsystems, Inc (SUNW), Forest Laboratories, Inc (FRX), AvalonBay Communities (AVB) and ConocoPhillips (COP) were today's noteworthy upgrades:

• Soleil upgraded shares of Staples, Inc (NASDAQ: SPLS) to Buy from Hold following the in-line Q1 results, as the firm believes management's initiatives will benefit the company for the remainder of the year.

• Matrix upgraded Sun Microsystems (NASDAQ: SUNW) to Hold from Sell based on improved profitability and margins due to cost cuts.

• First Albany upgraded Forest Laboratories (NYSE: FRX) to Strong Buy from Neutral following positive preliminary results for Milnacipran in Fibromyalgia.

• AvalonBay Communities (NYSE: AVB) was raised to Market Perform from Underperform at BMO Capital based on valuation.

• Bernstein upgraded shares of ConocoPhillips (NYSE: COP) to Outperform from Market Perform...

OTHER UPGRADES:

• Piper Jaffray upgraded Medtronic, Inc (NYSE: MDT) to Outperform from Market Perform.

• Advanced Analogic Technologies Incorp (NASDAQ: AATI) was upgraded to Buy from Hold at Needham.

• CIBC raised Cypress Bioscience, Inc's (NASDAQ: CYPB) rating to Sector Outperformer from Sector Performer.

• HSBC upgraded Agnico-Eagle Mines Ltd (NYSE: AEM) and AngloGold Ashanti Ltd (NYSE: AU) to Overweight from Neutral.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).