The Wall Street Journal reports (subscription required) that "The Dow Jones Equity All REIT Total Return Index, which tracks 114 publicly traded REIT stocks, rose 28.9% in the April-June period, the biggest quarterly gain for the index since it debuted in 1989."

REITs still have a long, long way to go until they've regained the ground they've lost during the real estate rout -- they were down 31.6% in the first quarter and 38.8% in the fourth quarter of last year.

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.

Checking on one of my big calls of the year:Newcastle Investments (NYSE: NCT), which is down significantly so far through mid June, it is nice to see that a dividend will be paid for this past quarter of $0.25 per share. This amounts to a current yield of over 12%.

I started writing about NCT last November when I posted Chasing Value: Newcastle's 21.9% yield too good to be true?.

In late December I made it one of my Chasing Value: Final list -- 8 stocks for 2008.

Some would say it was to good to be true as the stock price drifted downward and the dividend was cut. I maintain that this is just a waiting game until the real estate market migrates back to a more sure footing while you collect a healthy dividend.

Most advisers would remind investors not to try and catch a falling knife and I would agree, but at some point there is real value and I have taken several "stabs" at this one trying to dollar cost average while a I wait.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of NCT.

"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.

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.