For most of the 1990s, real estate investment trusts ruled. In the realm of land and buildings, REITs entranced Wall Street, cranked up immense capital-raising mechanisms, bought wildly and aggregated portfolios with stunning swiftness.

All that excitement began to wane last year and now in 1999, the REITs have all but gone back to bed. New issues are almost non-existent and merger and acquisition activity a scant memory.

Wall Street's fascination with REITs began back in 1993 when it brought 50 new companies public with a value of $9.3 billion. IPO volume continued to climb until 1998, when it began reversing track. In 1998, there were only 17 new issues with an IPO volume of $2.1 billion, reports the National Association of Real Estate Investment Trusts (NAREIT) in Washington, D.C. In the latter 1990s, secondary issues outgunned IPOs, eventually hitting a record value of $26 billion. Last year, secondary volume slumped to $19 billion.

Through mid-June and July of this year, NAREIT numbers illustrate a very anemic market: just two IPOs with a value of $292 million and 26 secondary offerings valued at $1.5 billion.

About the only capital-raising scheme to hold up this year has been unsecured debt. Last year, there were a record 145 unsecured debt deals with a value of $14.7 billion. Through mid-June and July of 1999, there were already 47 unsecured debt transactions with a volume of $5.7 billion.

Combine the difficulty raising capital with flattened share prices and the result is an inability for most REITs to expand - their habit through most of the decade was to use stock as acquisition currency. Even with a mid-year run-up in share prices, REIT stock prices are not at levels where they can be used to buy accretively because the cost of equity is much higher today than when the market was strong in the beginning of 1998. Except for isolated deals such as the March merger of Duke Realty Investments and Weeks Corp., and the July merger of Equity Residential Properties Trust and Lexford Residential Trust, there have been few major REIT acquisitions.

As most REIT executives report, 1999 is a good year to focus inward. Instead of running amuck trying to buy everything in sight, it is a good time to get one's house in order by improving operating efficiencies.

Hotels FelCor Lodging Trust Inc. has not made an acquisition this year - an unusual situation for what had been a very fast-growing hospitality REIT. Created in 1997 with just seven properties, FelCor now ranks as the second-largest REIT in its sector with 188 properties and a capitalization of $3.5 billion.

Part of the reason for the company's inactivity, reports Thomas Corcor-an, president and CEO, is that the capital markets have recently been unfavorable to REITs in general, and lodging REITs in particular. But, there were other issues as well. Last year, the company acquired 108 hotels all at once and as Corcoran notes, "We really needed to go through the properties and do upgrades, which we did to 65% of the portfolio."

Other than being forced to look inward, to grow through internal improvements and operations, is the quiescent REIT market necessarily a bad thing? Corcoran doesn't think so. "It has forced discipline into the market. Overall, it will be good for businesses long term, for people who really do run their businesses efficiently and conservatively," he says. "The good news about the cycle we are in today is that not too many people are misbehaving."

FelCor boasts being the largest Embassy Suite, Holiday Inn, Crowne Plaza and Doubletree Inn owner. While these are generally full-service hotels, Corcoran says the overbuilding in the limited service category has even affected his properties. "Even if you are an upscale hotel, that doesn't make you immune from competition."

Part of the reason hotels are so out of favor on Wall Street is the thought that all hotel economic levels are being overbuilt, which isn't really the case. Still, as Corcoran notes, industry observers and investors are "spooked."

There is no question that the capital market is more difficult for REITs in general, concludes John Murray, president of Newton, Mass.-based Hospitality Properties Trust, and hospitality is a more volatile sector that makes capital raising for hotel REITs even more problematic. After all, in an office building, one knows tenants will be there for as long as the lease. But in the hotel business, it could be a different tenant every night.

Still, Hospitality Prop-erties has stayed busy. With 210 hotels in 35 states, Murray estimates his company's capitalization runs between $1 billion and $2 billion. Most of his properties include such brand names as Courtyard, Residence Inns, Candlewood Hotels, Summerfield Suites and Homestead Village hotels.

At the end of 1998, Hospitality Properties pulled off a $200 million transaction with Marriott International and closed on about seven of the 17 properties in the deal; the company has been closing on the others during the year. Additionally, in June, the company bought a portfolio of Homestead Village ho-tels. Murray says the company has spent about $330 million for hotels this year.

Most other hotel REITs were created by companies in the hotel business, Murray observes. Hospitality Properties doesn't have a hotel company with which it is affiliated.

"Since our structure is different, we have had an easier time in the capital markets than the other hotel REITs," he says. The company has raised about $350 million of capital this year - a rarity for any REIT. Murray also claims Hospitality Properties has no borrowings on its $300 million credit line.

"Most hotel REITs are as leveraged as they can get, so the only way they can grow is to raise equity capital, which is unlikely," Murray reports. "A number of REITs won't be able to grow, which will put pressure on the share price. And a lot of the hotel REITs are going to say, 'Maybe we should get back into the hotel business and not be in the REIT business,' so there will be some consolidation among existing pools."

Healthcare HRPT Properties Trust, also of Newton, Mass., remains a prisoner of its past. It began as a healthcare REIT, transitioned to office, but because of its large portfolio of nursing homes, rehabilitation centers and medical office buildings it is still considered a healthcare REIT.

"We announced back in December that we will continue to evaluate the possibility of separating the healthcare portfolio from the commercial office portfolio," says David Hegarty, president of HRPT. "Only about 27% of our company is nursing homes and retirement centers, the rest are medical, commercial and government offices."

The company can brag a capitalization of $3 billion and 242 properties in its portfolio; it also is holding a $500 million line of credit with zero loans against it.

For awhile it appeared as if the healthcare REIT sector was actually healthy, but that is not the case. As Hegarty says, "One factor is that no company is sure where it is going to get the capital to grow because most have to use equity to expand and nobody sees that in the market today."

The biggest problem for the sector is actually endemic to the healthcare real estate industry. "There are five nursing home companies that are publicly traded which are on the verge of bankruptcy," Hegarty explains. Several of those operators are spread out through the healthcare REIT universe as tenants, and with that cloud hanging over their heads, investors are just nervous. Although the leases would be approved in bankruptcy court, there is uncertainty as to when the operators will fall into bankruptcy.

Healthcare has proven to be ailing even in a generally unhealthy REIT climate. "The basic 10% or even 15% returns on a REIT bore a lot of people," Hegarty says. "I don't know what could put a spark in REITs right now other than investors getting nervous about their Internet stock."

Industrial First Industrial Realty Trust Inc.'s plan this year was to focus internally. "Our purpose in 1999 was to solidify the company's operations capabilities so we could deliver sustainable double-digit growth without the need for external capital," reports Michael Brennan, CEO.

Chicago-based First Industrial has grown into a $3 billion industrial REIT, the second largest in the sector. It now totals 1,050 properties with a 95% occupancy.

Although it continues to acquire and sell older properties, the company's main growth vehicle is new development. This year, First Industrial expects to triple development volume over 1998.

"We are doing this for a couple of reasons," Brennan comments. "First, we instituted a new marketing program of integrated industrial solutions including building customers a variety of product types. We are building more because customer demand is there. Secondly, we are building because it is more lucrative than acquisitions."

All of First Industrial's capital is coming from internally generated funds. It will take on no new debt this year. "We will not dilute our existing shareholder base by issuing equity at these prices," Brennan continues. "So, we are going to use the equity that the markets have already given us to generate double-digit FFO growth."

First Industrial can get all the capital it needs, but it's so expensive that it doesn't want it, Brennan reports. "Our cheapest source of capital is the regeneration of our portfolios from sales and investing in higher-yielding acquisitions," he says. "As long as we can grow earnings double-digit then we surely are not going to take the high-priced capital."

First Industrial also has a joint venture $200 million acquisition fund.

Another company in a buy-and-sell mode is AMB Property Corp. Unlike First Industrial, however, the San Francisco-based REIT sold off a whole portfolio of properties.

Up until March, AMB's assets were 75% industrial and 25% retail. In a strategic change to position AMB as a pure industrial REIT, the retail portfolio was sold this past March to a joint venture between a pension plan and a retail REIT. The size of the deal was $950 million.

"The move made us a pure industrial REIT," notes Hamid Moghadam, AMB's president and CEO, "but that was just part of the reason we did it. We had some concerns in retail and we saw great opportunities in certain kinds of industrial properties that required capital."

While AMB shook off an almost billion-dollar group of assets, it has invested $300 million in new property and expects to double that amount before the year is out.

"We are buying very unique strategic assets, in other words properties that fit or complete our platform in a given market. We are very selective about what we buy," says Moghadam.

"What I hope is that there are a lot of companies running around trying to sell equity in the market," he jokes. "There are not going to be a lot of acquirers. In fact, there will be more sellers than buyers."

Part of the reason for that, according to Moghadam, is the REITs are cut off from the public equity markets.

Even with industrial REITs avoiding the acquisition game in 1999, AMB won't be without competition; other buyers are in the market, including pension plans.

Multifamily In July, Equity Residential Properties Trust pulled off one of the biggest REIT deals of 1999, a merger with Lexford Residential Trust valued at $740 million. When completed, Equity Residential will boast a market capitalization of $13 billion and 1,087 properties in 36 states. Even before the merger, it was the largest apartment company in the country.

To make the merger work, Equity Residential will issue $4.5 million of new stock.

"There is a big difference between the ability to raise capital and the willingness to raise capital," observes Douglas Crocker, president and CEO of Equity Residential. "We can raise capital today at $43 or $44 a share if we so choose, but I'm not going to go out and issue stock at $43 a share to buy an asset if it is not a wise move." Apparently, Lexford was a wise move.

Before that deal, Equity Residential was coasting, selling some properties, buying others. "The acquisition pace of the industry is basically down 70% from where it had been in the past, and most acquisitions are matched by dispositions," Crocker says. "So, if you sell an asset, you take the money and go buy another asset. Most REITs are just not players in the acquisition game right now."

The overall problem with REITs is a lack of investor interest. "Non-REIT dedicated in-vestors pulled out when the momentum started to slow," Crocker adds. "People became concerned about overbuilding. Also, the stock market is delivering 20% returns and real estate is not geared to deliver 20% returns."

Crocker believes the slowdown in the REIT sector is not such a bad thing since it will weed out the weaker players. "Long term it is very good for the maturation of the REIT industry," he adds.

Office Crocker Realty Trust is somewhat different than the other REITs in this story since it is a private, not public, company. Its predecessor was a public REIT, but it was sold in 1996 and then the new Crocker Realty was organized as a private REIT, basically reinvesting in the same markets as the old REIT.

Today, Boca Raton, Fla.-based Crocker Realty boasts about $500 million in assets and 6.2 million sq. ft. ofoffice and flex space.

"We are constrained by all the same corporate rules in terms of what we have to distribute as public REITs," says Thomas Crocker, CEO. "However, we are not constrained by the capital markets. We are leveraged much higher than most public REITs and we have been more active."

Even though it is a private company, Crocker Realty has suffered the same kind of quiet year as most publicly traded REITs. "We have had a difficult time finding properties that will yield what we want to earn," Crocker says, "so we have not bought anything in 1999. In fact, it has been slow for the past 12 months, dead for the last six months."

Crocker is still interested in buying, but only those assets that hit its yield parameters. "I don't see the yields changing all that much for this year," he says. "The markets are pretty stable and there is a good supply and demand balance. Rents are still going up, but slower than they have in the past. These kinds of market conditions aren't going to create significant enough opportunities for us to be much more aggressive players in the second half of 1999."

To which he adds, "There is plenty of capital available for the right transaction, it's just that there are few transactions that fit peoples' yield parameters."

Although Mack-Cali Realty Corp. has put the breaks on its rapid expansion, Mitchell Hersch, CEO, says the moves were strategic. In the past two years, the company that was formed by the combination of Cali Realty Corp. and the Mack Co. also had acquired Robert Martin Co. LLC, the Patriot American Office Group and Pacifica Holding Co.

"In determining the appropriateness of a merger or acquisition, the company has to make sure the integration in done in a relatively seamless manner and that ongoing operational issues are thought through," Hersch says. "When you look at a merger, make sure it's strategic."

Today, Mack-Cali boasts a market capitalization of $3.8 billion, with 255 office and office/flex buildings primarily in the Northeast, but also in California and elsewhere in the West. The company serves more than 2,400 tenants.

Retail Through the first six months of 1999, only a handful of companies completed stock offerings. For most REITs, shares were trading too low, or the company just wasn't big enough for such a diluted capital-raising mechanism. One of the few included General Growth Properties Inc., a regional mall REIT based in Chicago.

"We issued 10 million shares of stock and I don't think you can say a lot of firms have done that," says John Bucksbaum, CEO. "The access to capital still exists for us on both the debt and equity sides."

The company averaged 16% growth over the last six years on a per share basis. "One of the ways we can continue to make that possible is by taking advantage of opportunities when they present themselves," says Bucksbaum. "We had a number of opportunities this year and we did not want them to pass us by. There is a lot of growth to come from the things we're doing."

One of the things General Growth is doing and for which it raised capital was to continue to acquire shopping malls. It closed on a Kalamazoo, Mich., mall earlier this year and will close soon on a Honolulu mall that alone will cost more than $800 million. General Growth also went after New England Development Co., but lost out to a competitor.

This isn't to say everything is sanguine in the REIT sector. Bucksbaum still maintains it continues to be a tough market for REITs. "There is not a lot of new money coming into REIT funds, so that makes equity raising difficult," he adds.

Bucksbaum also maintains REIT stocks just seem to get traded among the same hands. "Sure, a lot of stock gets traded each day, but at the end of that day, I'm not sure the stock just doesn't go around in circles."

Thomas D'Arcy, president and CEO of Bradley Real Estate Inc., is of a similar mind as Bucksbaum - that the equity market remains difficult.

"Raising new equity doesn't make any sense," says D'Arcy. "There are not a lot of capital prices at a point where it makes sense to be in new investment. Clearly, when you take a look at the state of the public real estate capital markets, it shows you it is time to focus on the existing portfolio."

It's not that D'Arcy is shy about expansion. Over the past two and a half years, the company acquired 75 properties. Today, the Chicago-based shopping center REIT boasts a total market cap of $1.1 billion consisting of 97 properties and 15.5 million sq. ft. - all of it in neighborhood and community shopping centers.

This year, Bradley Real Estate has focused on the corporate portfolio, having invested very little money externally. Maybe the strategy is working. Bradley's stock prices have been up a little since the beginning of the year, and in the first quarter earnings were solid with a reported increase of 11% in FFO per share.

Bradley does have a few investments "keyed up," but as D'Arcy reiterates, the company's goal is to form a solid capital structure and not try to do anything outsized. "It will be a steady investment environment, selling some assets and reinvesting the sale proceeds," he continues. "Basically, it will be a neutral environment. Probably not doing any investments where we need to access capital."

Commercial Net Lease Realty Inc. is another retail REIT, but unlike General Growth or Bradley the company remains singularly focused on a niche product - freestanding, net-leased properties. Based in Orlando, Fla., the company boasts a capitalization of about $750 million with 300 stores, such as Eckerd, Officemax, Wal-Mart and Barnes & Noble, in 35 states.

So far this year, the company worked about $65 billion of acquisition and new development. Through the first quarter it also sold $40 million of properties. The game plan for Commercial Net Lease this year is $100 million of acquisitions and sale of $50 million to $60 million. In effect, the company would be growing by less than 10%, actually about 5% in actual assets.

"We expect our development business over the next 12 months to do about $100 million," says Gary Ralston, president, "about $50 million of that to be sold to other parties at substantial profit and the other $50 million to be acquired by various commercial lending groups."

In the past, Commercial Net Lease operated under the assumption that if it wasn't growing its assets, then it wasn't doing its job, according to Ralston. "But my opinion is that my job is to grow the earnings of the company in both quality and quantity, so we have consistently, over the past couple of years, improved the tenant profiles and creditworthiness of our income stream."

Commercial Net Lease has been accessing capital in a different way. "If I can build a Bed Bath & Beyond and sell it to an individual investor at a substantial margin over our cost of development," Ralston continues, "then I'm accessing capital that is lower in cost than issuing equity or debt."