1. What will create the biggest buzz in REIT news during 2005?
"We’re going to start seeing an acceleration in merger and acquisition activity driven by an investor differentiation of company valuations. Investors are going to scrutinize valuations more closely. We are also likely to see some surprises in terms of senior managers deciding to exit the business via retirement or sale of their companies. We’ll see eye-opening types of companies selling based on the fact that their stocks have had such a great run. Chelsea Property Group was an example of that in 2004."

2. What advice would you give to an investor buying into REITs for the first time?
"I would advise investors to focus on more than dividend yield. Investing in REITs is a long-term endeavor; it requires that you pay attention to asset quality, balance sheet quality, long-term strategy and earnings growth potential. Companies that grow their dividends the fastest will produce the highest total returns, as opposed to companies with higher dividend yields. Earnings growth and dividend growth are what drive total returns."

3. What professional in the REIT industry do you admire the most and why?
"Nelson Rising of Catellus Development Corporation (NYSE: CDX). He faced one of the greatest turnaround challenges in the history of the REIT sector in 1994 when he took the helm at Catellus. He changed the company both structurally and strategically and turned it into a REIT with superb earnings quality, coupled with faster than average earnings and dividend growth. Nelson also placed a premium on building a quality management team with a high degree of ethics and has been open and available to anyone interested in the company."

4. Over the next 12 months, which real estate sector(s) will perform the best, and why? Additionally, what sector(s) will face the biggest challenge, and why?
"Malls will have strong first quarter numbers and then the bulk of the year will be dominated by better than average returns in the lodging and office sectors. In lodging you’ll see an increase in travel during spring and summer months and fourth quarter comps (RevPAR growth, occupancy and room rate growth) will be better. Ultimately, all of that will have a slingshot effect on total returns in lodging REITs. The office sector will remain strong. You’ll see improvement in first quarter results. Companies are beginning to hire again and making commitments for office space. Most of the pain has been taken in the office sector as companies have used this time to refinance debt, sell off non-core assets at premium values and the proceeds have been used to de-lever or improve existing assets.

Based purely on valuations, some of the higher-end apartment REITs and possibly premium value industrial REITs will underperform in 2005. This is largely because a full and robust recovery is underway in both sectors and that has already been priced into those stocks. While the returns might not be negative, it is hard to make a case for outperformance in 2005."