Flush REITs Ride the Boom

Analysts Say Investors' Gains May Be Hard to Sustain

Federal Realty, whose Bethesda Row includes this site at Bethesda and Woodmont avenues, has benefited from a "golden period," a Legg Mason analyst said. (By Marvin Joseph -- The Washington Post)

As an example of entrepreneurial vision and verve, Saul Centers Inc. of Bethesda ranks at the low end of the excitement meter. Last year, the real estate investment trust bought a shopping center in Silver Spring and one in Loudoun County, all anchored by grocery stores, and all predictable income producers.

CarrAmerica Realty Corp. of Washington followed the same safe path. In adding to its collection of office buildings, it sought out properties like the 15-story granite and glass structure in Rosslyn that has had the same steady tenant -- the American Chemistry Council -- for a decade.

Even Arlington's cutting-edge Mills Corp. has lately shied from its history of innovative mall development: Over the past year the company bought an interest in nine regional malls, including Marley Station in Glen Burnie and Lakeforest Mall in Gaithersburg, that were already built, mostly full and pumping out the rental income.

Real estate investment trusts may not be the flashiest players in the Washington economy, but over the past decade they have become a steady presence among the region's largest companies and generated even steadier returns for investors.

In the Washington area, there are roughly 19 locally based REITs with a combined market cap of $27.7 billion, according to the National Association of Real Estate Investment Trusts, a District-based trade group. With the area's real estate boom driving up prices and REITs emerging as a popular way for even smaller investors to share in the gains, about a dozen of those companies have now moved into The Post 200 list of the area's top firms.

As a group, REITs over the past decade have made more of an impact on the economy and become more well known as investment vehicles. In 1990, there were 119 publicly traded real estate investment trusts with an equity market capitalization of $9 billion. Now, there are nearly 200 publicly traded REITs with a market capitalization of $283 billion, according to the industry trade association.

REITs receive favorable tax treatment in exchange for passing most of their income straight to shareholders.

"They allow you to have an investment in real estate that would not otherwise be available to small investors," said Marti Tirinnanzi, a senior real estate analyst at Ferris, Baker Watts Inc. "They are low risk and they're not volatile.

"Real estate doesn't disappear in the middle of the night," she said. "And it's easy to feel a sense of ownership for small investors. You drive down any street in Washington and you see buildings that are owned by public REITs."

Most of the local REITs are relatively small when compared with nationally known outfits such as Boston Properties Inc., which is a major developer in the District. CarrAmerica, for example, is best known locally for a few of its office buildings that include Terrell Place at 575 Seventh St. NW, which opened in 2003, and the Atlantic Building at 950 F St. NW, which is under construction.

The other attraction of REITs is that they've produced favorable returns compared with other investments in recent years.

In the past five years when the Standard & Poor's 500-stock index had a negative return, the REITs that are based in this region had a total return, on average, of 18.4 percent, according to the industry trade group.