The conservative bricks and mortar of real estate investment trusts have had a tough time keeping up with a high-flying Wall Street. But the tide of investment dollars may be starting to turn back in favor of REITs.

REITs look like a good buy on paper. The fundamentals are sound with companies offering strong earnings and solid management. Nevertheless, share prices have floundered across the board. Some REITs are trading at prices 10% to 20% below net asset value.

Tough competition Part of that slump is due to a highly competitive investment market. "Investors have been ignoring earnings and instead have been pursuing high-growth opportunities, which are clearly not REITs," says Stuart Boesky, president of Aegis Realty Inc. and senior managing director of Related Capital Co. in New York.

Internet and technology stocks have been attracting the bulk of the investment dollars flowing into public markets.

"With high total returns seemingly available in other instruments, those types of investments are competing with REITs," agrees Jonathan Weller, president and COO of Pennsylvania Real Estate Investment Trust (PREIT) in Philadelphia. "Investors are looking for income stocks, and they're not coming to REITs."

Although retail-oriented stocks have fared better than other REIT sectors, investors are still wary of variables such as overbuilding and online shopping. "A lot of people are speculating about what the Internet impact will be, and that has created a level of uncertainty that will linger for some time," says Mark Zeisloft, vice president and retail REIT analyst with RREEF Real Estate Securities in Chicago. That uncertainty is keeping downward pressure on REIT share prices.

Retailer dislocation in recent years is another concern. Although most retailers are enjoying strong growth and expansion, a number of retailers, such as Montgomery Ward and Builders Square, continue to announce major store closings. Those closures are having a negative impact on stock prices, Zeisloft says.

Change in the wind? However, a recent spike in REIT stocks in mid-April may be a sign that the market is beginning to shift. "The REIT stocks bumped up almost simultaneously with the very quick correction in the tech sector," Boesky says. "I believe what's happening is, slowly, investors are starting to focus on value and earnings again."

One big-name investor has zeroed in on those values and could play a significant role in boosting REIT stock prices. Warren Buffet, chief executive of the investment conglomerate Berkshire Hathaway Inc., recently bought a 5% stake in two REITs: Greensboro, N.C.-based Tanger Factory Outlet Centers Inc. and Baltimore-based Town & Country Trust, a multifamily REIT.

"I can understand why Buffet chose to invest, and it's not a surprise at all," Boesky says. "Warren Buffet invests in companies that he thinks are good values, and he also looks very closely at management." Companies in the REIT sector fit that bill.

Tanger, for example, is a strong company in which the Tanger family has maintained 28% ownership since going public. Buffet's purchase helped bump Tanger's stock from $19.38 per share on April 1 to $26 per share on April 28. According to Reuters news service, REIT share prices as a group increased 7.3% on its index following Buffet's purchases.

But not all REITs have been able to revel in rising stock prices, and some analysts are predicting only a modest gain in stock prices - 2.5% to 5% for the remainder of 1999.

Nevertheless, most analysts agree that any stagnation of REIT share prices is an anomaly.

"REITs continue, operationally, to have sound fundamentals and good operating results," says Steve Sterrett, a senior vice president and treasurer for Indianapolis-based Simon Property Group. "When your business fundamentals are good, equity valuation over the long haul will track accordingly."