The year is now half over, and it is worth remembering that this was not supposed to be real estate’s year. Most analysts forecasted total returns in the low single digits. Performance so far in 2003 has been truly remarkable. Exceeding analyst expectations, REITs have posted total returns of 15 percent year-to-date, with increased returns every month.

It is well worth noting that this rally in REIT stocks has taken place despite a weak economy, softness in most real estate markets and questions concerning the impact of the new tax cut.

What might explain this? Since 1981 and Chairman Volcker’s Fed, the United States has been in a sustained bull market for interest rates. I happen to believe that this 22-year run is still intact, and that interest rates will stay lower for longer than most expect.

Mirroring much of what has been happening with interest rates, cap rates have also been in a bull market. As part of this economic picture, real estate has remained a stable, sound investment, has outperformed the Dow and S&P 500 for the fourth year running, and has been competitive with all major benchmarks over the last three decades. This performance has not been lost on investors. So far this year, nearly $1.5 billion has flowed into real-estate specific mutual funds alone.

In the midst of all the stock market tumult, REITs have increasingly become the exemplar for income-producing stocks. And the new tax cut bill has done nothing to change that story. REIT dividends remain four times greater than the S&P 500 average on a pre-tax basis and three times greater on an after-tax basis.

The REIT and real estate industry and NAREIT are working harder and harder to get all this good news out to investors. The rising popularity of real estate stocks was evident at NAREIT’s most recent Institutional Investor Forum. More than 600 investors were at the three-day event, and more than half of them were first-time attendees. In the coming months, NAREIT will increasingly engage financial writers and editors, non-dedicated investors, pension plan sponsors and providers, among others, to tell the story of publicly traded real estate.

Our story is a long-term story, one that should stand the tests of time and experience. While the saga of interest rates over the last few decades has been important, the income provided by and the store of value residing in real estate stands on its own. Through investor education, in combination with our industry’s track record of success and an increased profile in the public mind, REITs have the staying power for which real estate is so rightfully well known.

Steven Roth
NAREIT Chair