During the first six months of 2001, equity real estate investment trusts saw their stock prices rise an average of 11.45 percent. But even these impressive returns failed to inspire much new demand for real estate stocks, much to the dismay of organizations like the National Association of REITs (NAREIT).

NAREIT and its member organizations are ratcheting up their public relations and marketing efforts in hopes of getting their good news noticed in the marketplace.

But in a time of philandering Congressmen, tax refund checks and come-hither weather, getting an organization's messages out to the public can be trying at best.

Late last week, the association opined that some conventional wisdom now being spouted about real estate stocks may be quite faulty. Since REIT indices have been setting new highs over last month, many analysts have said that real estate stocks on average now many be overpriced -- or, at the least, fairly priced.

This is not necessarily so, according to Michael Grupe, senior vice president and director of research for NAREIT.

"Real estate stock prices as of the end of June were still about 40 percent on average below their peak levels at the end of 1997," Grupe said. "While NAREIT's Equity REIT Total Return Index has exceeded its previous peak, the Equity REIT Price Return Index illustrates that share prices on average have not yet recovered to their December 1997 levels."

So far this year, only value and income-oriented stocks have scored big on Wall Street. Grupe believes that investors will continue to display renewed interest in diversifying their portfolios in hopes of staving off another 2000.

Which brings us to another marketing effort by NAREIT. The association is pushing the idea of REITs as a strong source of diversification that increase return while decreasing risk.

NAREIT hired Ibbotson Associates, a company that advises clients on asset allocation, to study trends in REIT stocks since 1972. The study found a surprisingly low correlation between the return of REITs and the return of other issues, including equities and bonds. In other words, REITs proved to be a great hedge investment.

"The goal of diversification is to lower the risk of a portfolio for a given level of return," said Michael Henkel, president of Ibbotson. "Because of their declining correlations with other types of investments, REITs offer a significant source of portfolio diversification."

Ibbotson created phantom portfolios for the period of 1972 through 2000. In the first, an investor put 50 percent of his assets into stocks, 40 percent into bonds and 10 percent into T-bills. In the second portfolio, a 10 percent investment was made in REITs and was drawn equally from stocks and bonds. And in the third, a 20 percent investment was made in REITs, while 40 percent was in stock and 30 percent in bonds.

In moving from no REITs to 20 percent REITs, return rose 0.4 percent while risk decreased by 0.4 percent. Over a 28-year period, that's quite a difference in cash. In the no-REIT scenario, a $10,000 investment made in 1972 was worth $219,049 in 2000. But the same investment with a 20 percent REIT allocation was worth $238,359 - nearly $20,000 difference with lower risk.

So will all of the studies, press releases and announcements matter in the marketplace? Perhaps only another crash will tell.

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