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.

The New York Times' Vivian Marino makes the case for an investment in real estate investment trusts, and I'm inclined to agree.

It's a pretty contrarian investment. With daily headlines about the weakness of the real estate market, equity REITs are down an average of 7.73% this year. Mortage REITs are down more than 43% during the same period.

Marino also take a look at the 6 crucial factors to consider when analyzing a REIT: management, asset quality, growth prospects, balance sheet, value, and yield.

As I said, REITs are a contrarian investment here, but without the risk/integrity issues surrounding even more contrarian real estate plays like Novastar Financial (NYSE: NFI). The dividends also provide a margin of safety for REITs with strong balance sheets and solid prospects. You get paid to wait. The headline shock may be driving investors out of these companies and, while commercial real estate hasn't been hurt the way that residential has, it's been getting hammered as well -- perhaps a case of throwing the baby out with the bathwater.

To learn more about REITs, pick up a copy of Investing in REITs and visit InvestInReits.com.

If you've been following the daily headlines about the subprime crisis and the deflation of the housing bubble, you know that you would have to be completely out of your mind to invest in real estate.

And that may be the best reason for giving it a look. REITs are down more than 7% this year and, according to a piece on MarketWatch, a lot of funds are trading at discounts of around 20% to their net asset values. This is an indication of pretty negative investor sentiment, probably a result of headline shock.

Redemptions in U.S. real estate mutual funds are moving at a $260 million a week clip. Giving the tendency of individuals to be horrendously bad at timing the market, this is a strong contrarian indicator: Be greedy when others are fearful.

Use ETFConnect's Find a Fund search page to explore the options in REITs.

MOST NOTEWORTHY: Airtran Holdings Inc (NYSE: AAI), UAL Corporation (NASDAQ: UAUA) and the REIT sector were today's noteworthy downgrades:

• Calyon downgraded shares of Airtran Holdings to Neutral from Add, citing concerns with AAI's yield trends.
• The firm also downgraded shares of UAL Corp to Add from Buy based on higher fuel prices and slightly weaker-than-expected RASM increases.
• Stifel downgraded the REIT Sector citing rising interest rates and mutual fund outflows, among other reasons. Companies that include Cedar Shopping Centers Inc (NYSE: CDR), Kimco Realty Corporation (NYSE: KIM), Kite Realty Group Trust (NYSE: KRG), Ramco-Gershenson Properties Trust (NYSE: RPT), Simon Property Group Inc (NYSE: SPG) and Tanger Factory Outlet Centers Inc (NYSE: SKT) were downgraded to Hold from Buy.

OTHER DOWNGRADES:

• Morgan Joseph downgraded shares of Penn National Gaming Inc (NASDAQ: PENN) to Hold from Buy on valuation.
• CBOT Holdings Inc (NYSE: BOT) was downgraded to Neutral from Outperform at Credit Suisse.
• JP Morgan downgraded shares of Netflix Inc (NASDAQ: NFLX) to Underweight from Neutral, as the firm believes the company's growth will be impacted by Blockbuster Inc's (NYSE: BBI) Total Access offer.

Netflix Inc (NASDAQ: NFLX)

Amazing. Amazon.com Inc (NASDAQ: AMZN), that big online retailer, sees the flix for the net. The shares keep rising for the online DVD rental company-up about 15%, highest since January-- even if their discs do come a little scratched. More than that though is while new subscribers are coming on; it's not exactly going gangbusters. Still, 6.8M is a whole lot of subscribers. Will Amazon, or someone else, overpay?

Rackable Systems Inc (NASDAQ: RACK)

Which came first: The ongoing takeover rumors or the higher stock price? Or was it that Dell Inc (NASDAQ: DELL) is said to be after Rackable, a provider of servers and storage products for high density data center deployments. Rack it up.

Feldman Mall Properties Inc (NYSE: FMP)

Word is that this real estate investment trust will look for a sale, combo or merger. They said the venerable firm of Friedman, Billings, Ramsey & Co. will help them "explore strategic alternatives." Then the stock went up.

STILL FLYING AROUND

Trump Entertainment Resorts Inc (NASDAQ: TRMP)

Dennis Gomes, whose name surfaced in March, is a one time gaming exec and regulator. He's signed a confidentiality agreement to have a look see at the firm's Atlantic City casinos. Separately, Las Vegas' Boyd Gaming Corporation (NYSE: BYD) has also been mentioned as a possible contender.

YRC Worldwide Inc (NASDAQ: YRCW)

The CEO of this Kansas-based transportation service provider has been quoted as saying that a takeover is possible. An LBO is likely. This week the shares have actively been trading up.

Dollar Tree Stores Inc (NASDAQ: DLTR)

Imagine a dollar tree where the stock keeps going up, up, up. Well, here it is, once again, a subject of takeover talk.

BUZZ

United States Steel Corporation (NYSE: X): Russia's Severstal may be prowling around...Plains Exploration & Production Company (NYSE: PXP): Takeover candidate's stock is sharply higher... Micron Technology Inc (NYSE: MU): Blackstone has interest...Ameristar Casinos Inc (NASDAQ: ASCA): A hot stock and takeover rumors abound...Nvidia Corporation (NASDAQ: NVDA): Remains an LBO candidate...The First Marblehead Corporation (NYSE: FMD): The student loan business is booming and earnings growth is strong, but who would buy it?...Marriott International Inc (NYSE: MAR): A target? But where's the movement?...Oakley Inc (NYSE: OO) as a target has been around and around, and now some say it will be bought by Luxottica Group (NYSE: LUX).

You have to be hard pressed to find economic data indicating the economy is not slowing down. Retail sales, almost universally, are weakening, if not in a material decline. Annaly Capital Management Inc (NYSE: NLY) may be a way to play it.

Annaly is a real estate investment trust that invests in mortgage-backed securities backed by Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). It makes money based on the spread of its cost of capital versus the return on its mortgage portfolio. And it is required, due to its REIT nature, to pay out at least 90% of its profits to investors.

If the yield curve steepens due to the Fed dropping rates, and the longer end of the curve does not change much or rates go higher, Annaly earns more money. The risk to Annaly is if short-term rates go higher. Also, portfolio-management risk exists but the company has a good track record of managing that.

Annaly formerly sold at $21 when the yield curve was considerably steeper. For 2006, Annaly earned a meager $0.44 per share, down from $2.67 in 2002. As one would expect, the dividend last year was lower at $0.57, down from $2.67 in 2002. If the Fed lowers rates by 100 bps, Annaly could earn $2.00 per share and revisit the $20 level. Taking into account the dividend and potential for capital appreciation, not a bad total return.

Strategic Hotels & Resorts (NYSE:BEE) focuses on operating upscale and luxury hotels and resorts, mostly in North America and Europe. The portfolio has about 20 properties with more than 10,000 rooms, and the company is structured as a real estate investment trust or REIT. According to the company's website, "Our asset management expertise is what truly distinguishes us."

Well, an analyst for Wachovia (NYSE:WB), Jeffrey Donnelly, has published a very favorable report on Strategic Hotels. In fact, he thinks there could even be a buyout, with possible suitors like the Blackstone and Carlyle.

It certainly looks like the fundamentals of Strategic Hotels are perking up. In the fourth quarter, funds from operations and revenue increased from $9.2 million, or $0.17 per share to $20.3 million, or $0.26 per share. Sales increased from $119.7 million to $242.5 million.

And, no doubt, private equity firms have been targeting leisure properties. But this does not mean a deal will necessarily happen.

Also, Donnelly thinks a deal would be valued at $24-$26 per share. Thus, with the stock price currently at $23.51, there's not much upside left.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.