Q: Given the state of things, should investors keep their distance from REITs, or step in while prices are down? A: I have never seen REITs cheaper than they are today. The three largest REITs I would recommend are Simon Property Group [SPG], the biggest owner of malls and other retail properties in the country; Boston Properties [BXP], a large owner of Class A offices in New York, Washington, Boston and San Francisco; and AvalonBay Communities , [AVB], one of the largest owners of rental apartments in the most vibrant rental markets on the east and west coasts. All three are well capitalized, in the Standard & Poor's 500, extremely well managed, well positioned from a property standpoint, and with a lot of capital so they aren't going to be caught in a liquidity crunch. Here is an illustration: Simon is trading in the mid-40s with a dividend yield of about 8%. Its high was over 100 per share. When the economy turns, retail will start growing again. There is no reason Simon's share price couldn't get back to its old high in the next few years. In the meantime, the dividend pays you to wait. Similar metrics apply to Boston and AvalonBay.

Q: Given the state of things, should investors keep their distance from REITs, or step in while prices are down? A: I have never seen REITs cheaper than they are today. The three largest REITs I would recommend are Simon Property Group [SPG], the biggest owner of malls and other retail properties in the country; Boston Properties [BXP], a large owner of Class A offices in New York, Washington, Boston and San Francisco; and AvalonBay Communities , [AVB], one of the largest owners of rental apartments in the most vibrant rental markets on the east and west coasts. All three are well capitalized, in the Standard & Poor's 500, extremely well managed, well positioned from a property standpoint, and with a lot of capital so they aren't going to be caught in a liquidity crunch. Here is an illustration: Simon is trading in the mid-40s with a dividend yield of about 8%. Its high was over 100 per share. When the economy turns, retail will start growing again. There is no reason Simon's share price couldn't get back to its old high in the next few years. In the meantime, the dividend pays you to wait. Similar metrics apply to Boston and AvalonBay.

Q: Given the state of things, should investors keep their distance from REITs, or step in while prices are down? A: I have never seen REITs cheaper than they are today. The three largest REITs I would recommend are Simon Property Group [SPG], the biggest owner of malls and other retail properties in the country; Boston Properties [BXP], a large owner of Class A offices in New York, Washington, Boston and San Francisco; and AvalonBay Communities , [AVB], one of the largest owners of rental apartments in the most vibrant rental markets on the east and west coasts. All three are well capitalized, in the Standard & Poor's 500, extremely well managed, well positioned from a property standpoint, and with a lot of capital so they aren't going to be caught in a liquidity crunch. Here is an illustration: Simon is trading in the mid-40s with a dividend yield of about 8%. Its high was over 100 per share. When the economy turns, retail will start growing again. There is no reason Simon's share price couldn't get back to its old high in the next few years. In the meantime, the dividend pays you to wait. Similar metrics apply to Boston and AvalonBay.

Q: What about other REITs? A: There is a second group with much greater financial and operating leverage, although there is no guarantee they are going to make it through hard times. But if they do, there is a chance you could make a multiple on your money in REITs such as Macerich [MAC] and Developers Diversified Realty [DDR].

Q: What about other REITs? A: There is a second group with much greater financial and operating leverage, although there is no guarantee they are going to make it through hard times. But if they do, there is a chance you could make a multiple on your money in REITs such as Macerich [MAC] and Developers Diversified Realty [DDR].

Host Hotels & Resorts [HST] is a leading owner of hotels, a business that is going to be in the doldrums for a while. But the lodging industry is extremely sensitive to changes in the economy and has huge operating leverage.

Finally, we really like Brookfield Properties [BPO], a major owner of office buildings, which is suffering from the fallout of the financial industry, particularly since it is heavily exposed to downtown New York. But the company is soundly financed and managed and reasonably diversified, so we see limited downside from here.

Q: Give us some examples. A: One interesting issuer is SL Green Realty [SLG], a New York REIT that primarily owns office properties in New York City. One of its converts carries a 3% coupon but is trading well below par with a 19% yield to put. Prologis [PLD], a Denver-based REIT that develops and operates the largest portfolio of industrial and distribution properties in the world, has a convert with a 2% coupon and a 21% yield to put. Weingarten Realty Investors [WRI], which invests in shopping centers, has a convert with a 3.95% coupon and an 19% yield to put. All three have about three years remaining until the put is exercisable. Then there is an unsecured bond we really like, issued by Healthcare Property Investors [HCP], which carries a 6% coupon. It is a straight bond, but it has six years to go and trades at a 14.3% yield to maturity. So if you don't like the equities, you can get enormous yields on the debt.