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Four analysts and top management from twelve sector firms examine the real estate investment trusts sector in this special 63-page Real Estate Investment Trusts issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info471.htm.

TWST: Sam, have real estate investments been seen as a relatively safe place to allocate capital in a difficult environment?

Mr. Lieber: Yes. I’d say for the past year we’ve seen various types of investors go for different aspects of the real estate universe, many looking for safe havens. It’s widely understood that real estate tends to be a good late cycle performer, due to its long-term lease structure, but this has been a different sort of downturn than what we’ve seen before. It’s been a downturn where lower interest rates have helped companies to restructure their balance sheets. As Greg alluded to earlier, the highest yielding companies at the beginning of the year have outperformed, not the defensive stocks. As a matter of fact, 80% of the top 10 performers for the year are secondary to tertiary companies. They were not widely followed; they were small cap companies with challenges and issues. The yields were attractive. With most performing well early in the year, these stocks are up 40%-60% versus the RMS index up 12.3% year to date.

TWST: Sam, what direction are supply/demand balances moving in?

Mr. Lieber: There’s deterioration across the board. The issue that Greg just touched on, the rapidity of the decline, is simply unprecedented. For example, yesterday CB Richard Ellis released their third quarter statistics on office vacancy rates in the US for most of the major markets. A caveat to note is that there are variations in vacancy rates among different brokers or providers of such data due to methodology, but that’s a marginal issue. The key is that if you look at, let’s say, the San Francisco market, which has been most severely impacted by imploding tech companies, we’ve seen vacancy rates move from the low single digits, 2% or 3%, to 14% in 15 months. That’s the overall market. The suburban market vacancy is even higher. Atlanta is not a market that people normally associate with tech, although there were a lot of technology-related companies there, and the market has declined overall from 9.5% to 16.5% in one year. Orlando, not exactly a tech center, fell from 10% to 17.5%. Even a diversified city like Boston, fell from 3% to 11.5%. So I think if you look at the markets from the perspective of how quickly there has been a deterioration, and then back to how many layoffs we’re still seeing, it is not hard to guess what the impact will be. There are still going to be more layoffs all the way through the beginning of next year, so I think we could see continued downsizing impacting the markets and vacancy rates. There are many observers, including my fellow panelists, who have come up with forecasts that a number of markets will see greater than 20% vacancy rates next year. The significance is that as a rule of thumb, once vacancy rates climb above 10%, tenants have more choices, and the landlord no longer has as much pricing power in the market. So we’re going to see rents come down over the next year. In the case of industrial, the pullback has been a little quicker and better absorbed. There has been an implosion in employment in the white collar industry, so that’s impacted office more.

TWST: Sam, from the buy side of the Street, how do these recommendations sit with you?

Mr. Lieber: I think they are uniformly on target. I think midtown New York and Washington have been and will clearly continue to be the strongest markets the next year or so, so we recommend and own Vornado (NYSE:VNO). We think Reckson (NYSE:RA) is also attractive. There were deal related rumors about discussions that the company was having earlier this year, so something might happen there. Given the relatively attractive discount that Steve mentioned earlier, there may be additional realizable upside for this stock.

1) Real Estate Investment Trusts - In an in-depth (11,500 words) Analyst Roundtable, Samuel A. Lieber, CEO/Portfolio Manager at Alpine Asset Management, Steve Sakwa, Senior Analyst at Merrill Lynch Global Securities, Stuart Seeley, Director at UBS Warburg and Greg Whyte, Head of Real Estate and REIT research team at Morgan Stanley, examine the outlook for the sector including overbuilding of offices markets, excess supply and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at nineteen sector firms asked market insiders about the ability of management teams to create shareholder value.

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