As any small businessperson can tell you, cash flow is everything. And according to at least some of the experts out there, the enhanced cash flow offered by real estate investment trusts (REITs) makes the issues even more attractive to smart market players.

Shocking as it may seem, REITs are up between 20 percent and 25 percent on average for 2000. Leo Wells III, president and founder of Wells Real Estate Funds, said this week that the regulations controlling REITs make them an outstanding investment from a cash flow perspective.

“REITs pay no corporate taxes, so there is more money that passes through to the investors,” Wells said.

In addition, REITs are required to distribute 95 percent of their earnings to investors. In most cases, this distribution comes in the form of dividends, which are paid to investors quarterly.

“In the 1950s and 60s, 80 percent of earnings from C corporations were paid out in dividends,” Well said. “Today that number is as low as 25 to 30 percent. Many people have a lot of assets, but no money to spend. Their investments grow in equity, but not in current income. Particularly in a volatile market, cash flow makes REITs very attractive.”

In addition, the slowing economy has little effect on REITs, he said.

“We specialize in office buildings leased to Fortune 500-type tenants. In regards to a slowing economy, these tenants will have to pay their rent for the next 10 years regardless of what the economy is doing,” Wells said. “As long as the rent is coming in, the cash flow is going to investors.”

Speaking of investment suggestions, Lend Lease Real Estate is spreading the word that institutional investors should increase their stake in multifamily housing.

Lend Lease researchers point out that over the past 15 years, apartment investments have outperformed all other major real estate property types while showing less volatility. And they predict that the sector will continue to provide superior risk-adjusted, unleveraged annual returns – in the low double digits overall – over the next five years.

“Many institutional investors are just beginning to actively seek multifamily assets for their real estate portfolios,” states a Lend Lease report released this week. “Increasingly, they have come to realize that without significant multifamily holdings, they are unlikely to receive the optimal risk/reward tradeoff they are seeking. In fact, both historical and forecast data show that the vast majority of institutional investors should view multifamily as an important core component of their real estate holdings.”

The report points out that while the apartment sector makes up 34 percent of commercial real estate’s “Investable Universe,” it represents only 16 percent of current pension fund holdings.

And in other news, LNR Property Corporation (NYSE: LNR) this week turned in impressive earnings for the third quarter. Earning per share were up a strong 61 percent at $33.1 million (95 cents per share), compared to net earnings of $21.4 million (59 cents) for the same quarter in 1999.

Earnings on the year look strong as well. For the nine months ended August 31, net earnings increased to $88 million ($2.52), compared to net earnings of $74.5 million ($2.05) for the same period in 1999.

“Strong performance in all of our three business segments helped LNR to beat the consensus earnings estimate by 16 percent this quarter and top last year’s third quarter by 61 percent,” said Steven Saiontz, CEO of LNR Property. “Our strategy has been to add value to real estate assets while growing recurring income and cash flow, and harvesting value when the time is right.”

The company’s stock is near its strongest point in more than a year, peaking at just under $22 ½ this week. An incredibly low price-to-earnings ratio of around seven, however, may show some room for price growth as the market for real estate companies remains strong.