"Right now, I believe real estate investment trusts (REITs) are one of the worst places you can put your money; but there is one exception," says Tom Dyson.

In Daily Wealth, he looks to Realty Income (NYSE: O), explaining, "This REIT -- which has paid 463 consecutive quarterly dividends -- is one of my all-time favorite income investments." Here's his review.

"I see abandoned real estate all over my town. Half the businesses still operating are running on fumes. Our Kmart is a basket case. It's always empty. The Walgreen's is a teardown. Sears has gone. The carpet store has gone and they've boarded up the car dealership.

Real estate investment trusts have been, as you might expect, pulverized by the downturn in housing but the Wall Street Journal reports (subscription required) that that may be setting the stage for a wave of consolidation in the field.

30% of REITs are trading at prices below $5 per share, and experts say that those are the companies most likely to be the target of acquisitions.
For most investors though, the sub-$5 REIT strategy probably isn't such a hot idea. The Journal piece mentions General Growth Properties (NASDAQ: GGP) but the problem with that is that the company is very likely destined for bankruptcy court unless it can make a deal. The best strategy is to find good companies with good long-term prospects with low valuations that will make them attractive to potential acquirers. Buying junk companies in the hope that they'll be acquired by a bigger player is just too speculative -- especially in an environment where credit is so tight.

"With occupancy rates around 95%, apartment REITs appear to be the one bright spot in the REIT sector," says Asif Suria in The SINLetter; he looks at AvalonBay Communities (NYSE: AVB).

"The company generates nearly half its net operating income from the NY/NJ metro area and New England. California represents an additional 32% of net operating income.

"With a management team that is well respected and leverage that is the lowest of any apartment REIT, AvalonBay has traded at a premium over the last few years and the stock was trading at nearly $150 when I first came across the company in early 2007.

"I continued watching the company over the last two years looking for an opportunity to start a position. With a decline of over 70% from its 2007 high and a yield of 8.1%, this apartment REIT is finally at a level that not only offers a fat yield but also the potential of price appreciation.

There are a number of ways to play the recession / depression on the market that might seem, at first, counter-intuitive but on second glance make sense. Here's one -- Public Storage (NYSE: PSA), a REIT focused on ownership of public storage facilities.

Like the rest of the real estate market, it's been hammered -- down just over 52% from 52-week highs of $110 per share. But public / self storage facilities should actually prosper in this market. Here's why: People still have a lot of stuff, but many of them are going to have less house very soon. Same goes for businesses that are putting off plans to expand offices or rent warehouses and need a place to park things.

Activist investor William Ackman wants Target Corp. (NYSE: TGT) to have an IPO to raise roughly $5.1 billion to assist the retailer as it works to pay down debt and obtain cash for new store openings. This proposed IPO would be for Target's real estate holdings, which would be spun off into a separate entity. It would then lease the land back to the retailer for up to 75 years.

When Ackman originally suggested the REIT spinoff a month ago, Target indicated it had serious concerns about his plan and how it would create any value for shareholders. I'm not sure what Ackman is thinking, but there is one truism here: we can't create more land for anything. There is a finite supply of it. Spinning off Target's vast holdings into an inflation-protected trust that would lease land back, would create, well, something. Let's call it value.

As Target pledged to reduce capital spending by $1 billion in 2009 to help it cope with the economic nightmare that's underway, this spinoff would definitely be in the interest of shareholders. It's hard to think how this would not benefit them. Some folks think diverting attention away from recruiting every last shopper into Target stores to spend money would be foolish. At least Target execs are listening, though.

"Home prices are becoming affordable again, so the decline in prices is likely more than half over," say Dr. Marvin Appel and Gerald Appel of Systems & Forecasts.

Meanwhile, the technical experts believe that long-term investors can now look to get back into the real estate investment market and recommend two ETFs that are based on rental REITs.

"Many analysts do not expect the financial markets to improve significantly until home prices stop falling. The pace of existing home sales remains low, and available inventory relatively high, both indicating that buyers are not yet able to step into the market at current prices.

"However, that could change within a year. Home prices are becoming affordable again, so the decline in prices is likely more than half over.

"The median home price is now more affordable to the median household than at any time since the start of 2004. My analysis suggests that housing prices will have to fall a bit more, but the housing market is not far from being reasonably valued for the first time in five years.

Over the last few months, real estate investment trusts (REITs) have shown that they are able to survive in tough conditions, at least compared with most other stocks. However, there have been signs of weakness for REITs lately and this is likely to continue.

With recession fears still looming, real estate operators are facing yet another difficult situation brought on by rising unemployment, which could result in lower office and retail space demand. And rising inflation will come with higher interest rates, leading to higher borrowing expenses for REITs. Considering these circumstances, the outlook for REITs is not all that promising.

With all these concerns and obstacles tied to the market and the industry, you may think it wise to stay away from real estate, at least until we see an improvement in consumer spending and the banking sector. Kiplinger suggests that we reconsider these thoughts, and actually suggests some names to invest in that could offer us the advantages we are all looking for.

"Housing starts have swooned, foreclosures have jumped and home prices saw their steepest drop in 26 years," notes income expert Carla Pasternak, who nevertheless is suggesting a real estate investment.

In her High Yield Investing she explains, "Our money-making opportunity isn't based on the housing market; rather, it's with a REIT -- Omega Healthcare Investors, Inc. (NYSE: OHI).

"REITs and housing are both real estate, but that's where the likenesses begin and end. Property-holding equity REITs invest in commercial real estate. And commercial properties continue to generate steady cash flow from rental income, thanks to long-term leases.

"Above-average dividends are what allow REITs to pack a punch. These companies must distribute at least 90% of their profits to shareholders, making them especially attractive to income investors.

"Founded in 1992, Omega manages a $1.3 billion portfolio of over 200 hospitals and nursing homes in diverse locations across 28 states. The company leases the properties to established healthcare operators.

"The market is pricing publicly-traded partnerships as if they're headed for bankruptcy," says Neil George who sees high yield and value in select issues. Here's two ideas from The Partnership Letter -- a global infrastructure play and a real estate investment trust.

"There are some darn good partnerships out there that are indeed worth the near-term risk, even amid the probability of lower stock prices.

"Partnerships are characterized by high cash generation and the maximization of depreciation and other tax deductions. They then pay out as much cash as possible to unitholders. And with prices so low, we get to buy into assets that in many cases are worth a lot more in terms of liquidation value.

The United States' uncertain, near-term economic prospects, combined with the housing sector's woes, have led many to, understandably, steer clear of real estate investments.

But that does not mean windows of opportunity do not exist, and one worth a review is Health Care Properties, Inc..

HCP (NYSE: HCP) is a self-administered real estate investment trust that invests exclusively in health care real estate throughout the United States.

Analysts like HCP's diverse portfolio, investments in life sciences facilities, and overall rental rates. Another positive: analysts like HCP's portfolio footprint, and modest pricing power, which has enabled it to increase both revenue and earnings at a healthy rate, no pun intended. The Reuters F2008/F2009 EPS consensus estimates for HCP are $2.30/$2.45.

Further, although HCP is expected to deliver low-signal-digit net income growth in F2008, there is a sense building in Wall Street circles that both of the above EPS estimates may be a tad low, and assuming that is the case, the time to consider purchasing HCP's shares is now, not after earnings guidance is raised, should that occur.

Given the headlines that have been streaming across every media outlet, most people wouldn't guess that real estate investment trusts (REITs) were relatively strong performers for the first quarter of 2008.

But that's exactly what happened. According (subscription required) to the Wall Street Journal, "a Dow Jones index of U.S. equity REITs posted a 1.4% gain in total return for quarter, out pacing the 9.4% decline in the Standard & Poor's 500-stock index."

Self-storage REITs were up 20% for the quarter. Huh? Who would have thought that self-storage would get hot!

The point is that it is impossible to beat the market based on following the news. Everyone knew real estate was going to be lousy -- and it was. But markets are a discounting mechanism, and the stocks had already been sold off to reflect the predicted weakness.

What will REITs do in the second quarter? I couldn't tell you. But for what it's worth, Ben Stein thinks they're a buy, telling investors in a speech that "I'm buying all [the REIT units] I can get my little paws on. These are God's gift to retirees."

Flamboyant licensing brand and fading reality television star -- er ... real estate mogul -- Donald Trump has made a great name for himself in super-high-end real estate. Unfortunately, he hasn't been as financially successful as he'd like you to think. For Trump, glitz and glamor have come at a price. But hey, he gets to go on TV and make fun of Rosie, and no price is too high to pay for that.

But other investors -- including his father Fred Trump, by the way -- have had far more success investing in lower-end properties. The latest issues of Forbes features a profile of 78-year old Milton Cooper, and his REIT, Kimco (NYSE: KIM). In the 40 years since he co-founded Kimco, Cooper has turned it into a strip-mall behemoth with over $9 billion in assets. Focusing on less than glamorous "neighborhood and community shopping centers," Kimco has built built an empire anchored by stores like Bed Bath & Beyond, Old Navy, Michael's, and Home Depot. So Fifth Avenue this is not. But Forbes suggests that Kimco's retailers may be better-poised to weather a recession than more upscale locations.

With a strong shareholder return since going public in 1992, its been a consistent upward march that ended precisely at the beginning of 2007.

If you're feeling contrarian and are in the market for REITs, check out Forbes' REIT Gold List.

A real estate play? In this market? Sure, if you can identify one with the right financial metrics. AvalonBay Communities is one.

AvalonBay Communities, Inc. (NYSE: AVB) is a real estate investment trust specializing in the ownership of multi-family apartment communities. AvalonBay owns about 150 apartment complexes containing more than 43,000 apartments in 10 states and Washington, DC. Most are branded under the Avalon name.

Analysts like the fact that AvalonBay is likely to outperform a majority of its sector peers. Analysts see AVB's rents increasing 3-5% in 2008, after a 5.5% average increase in 2007.

Further, performance in the relatively strong Northern California and Pacific Northwest markets is expected to offset poor operating conditions in Boston and Washington, D.C.

Interesting post from Bespoke Investment Group this morning segmenting out house price declines in different communities around the U.S.

Needless to say, prices are continuing their downward plunge, and some places have been hit harder than others.

Some takeaways from the article:

• Using the S&P/Case-Shiller Median Home Price indices to measure drops from house price peaks until now, Bespoke's 10-city index is down 9.4%;
• San Diego has fallen the most at -16.3%, followed by Miami (-15.3%) and Las Vegas (-14%);
• Chicago has fallen the least from its peak at -4.1%;
• Almost all cities (Charlotte appears to be the exception) are down below 1992 prices

How does an investor play this amazing 15-year reversal?

If investors believe we're beginning to reach a bottom (big assumption), take a look at REIT (Real Estate Investment Trusts) ETFs: iShares Cohen & Steers Realty Majors Index Fund (ICF), iShares Dow Jones U.S. Real Estate Index Fund (IYR), iShares FTSE NAREIT Real Estate 50 Index (FTY)

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

With all eyes this weekend on whether the New England Patriots can go undefeated for the whole season and beat the New York Giants in the Super Bowl, here are two stocks that should move up nicely so that you can go to Disney World on the profits.

Ing Groep (NYSE: ING) is certainly best of breed. The bank is very well run, and has not had to write off too much for subprime. It is currently trading with a dividend yield of 5.2% and has a tiny PEG of 0.77. This is a stock that Tom Brady can take to the bank.

Host Hotels and Resorts (NYSE: HST), formerly Host Marriott, the largest hotel real estate investment trust (REIT) in the US, owns some 120 luxury and upscale hotels in North America. Most of its hotels operate under the Marriott and Ritz-Carlton brands and are managed by sister firm Marriott International. Other brands include Four Seasons and Hyatt. It is currently trading with a 4.9% dividend yield and very close to the 52-week low. As the economy starts exiting the slow growth mode, it should do well.

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 positions in any stock mentioned as of 2/1/08.