Similar to the consensus among most REIT analysts, Cohen agrees that the sharp downfall in REITs came at the hands of the swift contraction of the credit markets. Cohen states,

"When credit began to constrict, demand for real estate and public REITs disappeared. For a while REIT prices stabilized, but by fall, it appeared that the economy was falling off a cliff and the financial system was collapsing; the second down-wave was steep and swift. Without credit, and with great uncertainty about the future of occupancies and rents, real estate and REITs became impossible to value."

With the difficulties in valuing REITs, Cohen believes there are possibilities out there to pick up REITs at what he deems extremely low prices and the bottom is near, maybe even in 2009:

"They are trading at steep discounts to asset values, even using our reduced estimates of value, historically high dividend yields and low price-to-cash-flow multiples. The single most important factor affecting a recovery will be the course of the economy. Fortunately, in this cycle there hasn’t been a great deal of overbuilding, which would have worsened the outlook considerably, as it did in the early 1990s. We expect the record fiscal and monetary stimulation being put in place worldwide to at least stem the economy’s decline. We should start seeing evidence of this by the end of 2009, when economic statistics begin to suggest a bottom."

Cohen goes on to give his take on the new IRS rule allowing REITs to pay its dividend in stock. He argues that it is the single worst idea in the industry in a long time and believes any investor with a choice between stock or cash as a dividend would take cash.

At the end of the interview, he asked to give some of his top picks for REITs, which we have outlined for you below.

Marty Cohen’s Picks

TEXT SIZE PRINT EMAIL DIGG SINGLE PAGE REPRINTS GET RSS Subscribe Now With these readers: Or copy the rss link: Recent Company Ticker Price Simon Property Group SPG $44.44 Boston Rroperties BXP 44.26 AvalonBay Communities AVB 54.68 Macerich MAC 15.85 Developers Diversified Realty DDR 4.81 Host Hotels & Resorts HST 5.76

General Growth, owner/manager of shopping malls across 44 states,  has seen its growth stall due to its large debt position.  Joel Bloomer of Morningstar states,

“General Growth is one of the most leveraged REITs out there,” said Bloomer. “When you combine that with what’s happening in the credit markets, it’s a perfect storm for disaster.”

Apparently, the company is looking to refinance its large loan portfolio, but is having trouble finding the financing to do so in such a tight credit market. Many analysts agree that they are in the position that they are due to paying top dollar for properties on credit and misreading retail’s future.

On the other hand, Simon Property Group is looking to expand on General Growth’s demise. Sources say they will be looking to pick up close to 200 properties at a discount.

Simon Property Group avoided the pain of the recession by not being as aggressive these past few years as General Growth and by not leveraging their balance sheet. Bottom line, in this recession, capital is king and Simon Property Group looks to be a in a position for growth with their strong cash position and little debt.