This year, for the first time, there are more publicly listed REITs in the rest of the world combined than in the United States, according to a November Ernst & Young report, “Global REIT Market 2007.” An outpouring of capital in Asia, Europe and South Africa, among others, combined with the 25 percent decline in the total number of U.S. REITs from mergers and privatization cost the United States its top spot. Worldwide, market capitalization of publicly traded REITs increased 25 percent to $764 billion.

Retail Traffic: Is this a blip or the beginning of a dramatic shift?

Michael Frankel: This is further evidence that the public real estate markets are truly global and that the trend will continue, particularly in the Asian markets where the number of REITs that have formed and are emerging is phenomenal…. If you look a year ago, there were more REITs in North America than anywhere else, now that has reversed itself.

RT: What led to this and what will it take to turn it around?

Frankel: You've got a number of factors: the overall slowdown in the economy exacerbated by the subprime crisis, which put a crimp in consumer spending. And then there are REITs, which had been trading at historical highs for quite some time. For the two-year period ended February 2007, when the Blackstone Group closed on its $39 billion acquisition of Equity Office Properties, REITs overall were experiencing meteoric growth. If you believe REITs were trading at lofty levels then, this could be seen as a natural pullback.

RT: What are the issues that are germane to the regional and shopping center REITs?

Frankel: Many of the mall REITs have been in the process of going global. Simon Property Group, Taubman Centers and General Growth Properties, those REITs now have global footprints. So, you've got them building in China and Asia where people have the ability to spend … which has increased their ability to grow. And the shopping center REITs, Developers Diversified Realty, Kimco Realty Corp., have invested in foreign markets closer to home: Mexico, Central and South America and Canada.

RT: How much has the declining U.S. dollar contributed to this?

Frankel: I don't know if we've gotten the full impact. As a result of the declining U.S. dollar those that hold petro-dollars are going to find U.S. investments more attractive, particularly the malls; especially those considered trophy properties. The flip side is, strip centers probably offer more in terms of yield.

RT: Are there any retail REITs that are likely targets of private equity firms?

Frankel: I imagine that there will be some activity, but, it is hard to say who it's going to be. There is a ton of private money out there looking for buying opportunities.

RT: Despite their decline in the United States why are REITs still attractive?

Frankel: If you believe they are trading at a discount to net asset value, then there is some ability for their value to increase.

RT: Which global markets are seen as shining stars in 2008 and why?

Frankel: China, India, Vietnam and South Africa. Why? Because they all have growing economies with emerging middle classes and people moving from rural areas to more urban markets, which is spawning the need for retail. It's retail following rooftops.

Global director of REIT services and real estate tax at Ernst & Young.