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Two analysts and top management from eleven sector firms examine the Real Estate/Property Services sector in this special 51-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info401.htm.

TWST: Steve, are you interested in any of the retail REITs or would you avoid them at this time?

Mr. Sakwa: We look at retail in two distinct components. You’ve got neighborhood shopping centers and you’ve got regional malls. Within the neighborhood shopping centers, the companies that we’ve been focusing on have been the companies that have had grocery-anchored or drugstore-anchored tenants as opposed to the big-box power centers because of the defensive characteristics of the grocery business. People have to eat and buy groceries regardless of economic conditions but other purchases may obviously drift in a downturn. So we believe that neighborhood shopping centers tend to hold up over economic cycles better than other forms in the retail sector.

TWST: I don’t know how important they are from an investment standpoint, but isn’t there a trend to downtown retail power centers?

Mr. Sakwa: I’m not sure exactly what you’re talking about. There’s a new concept called lifestyle centers which are basically regional malls — not so much in the city. They could be in affluent suburbs where you take retailers like Talbots, AnnTaylor, Williams-Sonoma, Pottery Barn, and you put them in a strip-center setting so that you, the customer, can drive right up, park outside, walk right into the Gap, and then go back out or go to another store. You don’t have all the issues that you would have if you had to drive a longer distance to a regional mall and park further away. The drawback is you have fewer choices of stores in that kind of setting. The positive is that it’s a more convenient location for the customer. From a tenant’s standpoint, they tend to have lower operating costs. Their rents are lower so they can actually make more profit if they can do roughly the same volume that they would do in a mall in a lifestyle center. Since they’re paying less rent, they’re going to make more money. But you have to really put these in the right spot. You can’t just put them anywhere. They need to be in affluent locations. There are only so many of these lifestyle centers that we think will be built around the country. There has been a trend, somewhat, of revitalizing downtown areas.

TWST: I saw one in Chicago that included a Restoration Hardware, a Crate & Barrel, and a Whole Foods Market, among other stores.

Mr. Sakwa: Yes. But these just aren’t going to work everywhere, so I think there will probably be some places in suburban Chicago and Washington, DC, and parts of Boston and New York and Los Angeles and the suburbs of Houston. But I don’t know that there will be that many in any particular market. It’s clearly been a big trend that we’ve been hearing about over the last couple of months. But we’ll see how many actually get built.

TWST: Steve, are there any other companies that you’d like to highlight?

Mr. Sakwa: We think one company that’s done extremely well in a challenging sector has been Chelsea Property Group (NYSE:CPG) in the factory outlet sector. They own high-end premium outlet centers. They continue to have very good growth and good development opportunities.

This special issue includes:

1) Property Services - In an in-depth (3,600 words) Analyst Interview, Jay Leupp, Managing Director and Senior Real Estate Equity Analyst at Robertson Stephens, examines the outlook for the sector and shares specific stock recommendations.

2) Outlook for REITs - In an in-depth (3,800 words) Analyst Interview, Steve Sakwa, Senior Analyst in the Global Securities Research and Economic Group at Merrill Lynch, examines the outlook for the sector and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of eleven sector firms examine the outlook for their firm and the sector.