Wall Street did its best imitation of a wet Wicked Witch of the West last week, taking real estate stocks down with it.

While real estate issues still are far into positive territory for the year, everything from higher unemployment to lower consumer confidence is taking a bite out of stock prices. As of last week, the National Association of Real Estate Investment Trust's market index was down nearly 1.5 percent.

Yet in these troubled -- and extremely confusing -- economic times, at least a few real estate firms feel pretty confident about the market. Believe it or not, some real estate companies are preparing for public offerings. While this strategy may seem contrarian and even rather strange, it may in fact provide the best money-raising options for real estate firms in an otherwise troubled marketplace.

Now, these are not initial public offering we're talking about, where market conditions and hype are key to obtaining premium prices for new stocks. Still, any offering -- even a secondary or tertiary one -- can be quite expensive. So a firm must be confident that it can unload all of its shares to justify the expense.

Seattle-based Shurgard Storage Centers (NYSE:SHU) will be issuing 2.5 million shares of its class A stock at a price of $29.79 per share. A REIT, Shurgard develops, acquires, owns and manages self storage centers and related operations.

On the opposite coast, Maryland-based Corporate Office Properties Trust (NYSE:OFC) will sell $31 million worth of preferred shares for $25 each. The proceeds will be used to pay off part of a revolving credit line. Another REIT, Corporate Office Properties Trust focuses on the ownership, development, management and acquisition of suburban office properties located in the United States.

So are these companies crazy? On the contrary. Their strategy likely will attract a large number of buyers. A volatile market has investment banking underwriters hoping that technology, telecom and consumer products investment money will flee to the relative safety of real estate.

What's more, many investment banking firms that underwrite and hock new stock offerings have a large number of associates sitting and twiddling their thumbs right now. Most clients currently are in a selling or holding mode, and no company in its right mind is going forward with initial public offering plans.

Is there investor risk here? Sure. All markets are risky. But this situation ensures that such secondary offerings will receive a substantial amount of attention from the underwriters. They'll be out selling real estate stock with all of the zeal normally reserved for a Priceline.com or Amazon.com (ahh -- remember the good old days?).

Personal investment advisors and institutional fund managers also are playing the reallocation game, shifting away from riskier issues and into best-bets. The propensity to buy real estate and real estate equities in tough times could further ensure that public offerings are fully -- or even over -- subscribed.

Real estate firms also may do well to consider following Shurgard's and Corporate Office's lead, since few large investors are willing to sink large sums into new projects in times of economic uncertainty. When investments from institutions and wealthy individuals dry up, why not go to a public market hungry for positive returns?

For more articles by Lesley Hensell, please press here.

Published: September 13, 2001

Use of this article without permission is a violation of federal copyright laws.