Investors are pouring cash into mutual funds with real estate holdings, but since most banks don't offer these portfolios, they've missed out on a burgeoning market.

The funds, which invest in real estate investment trusts, or REITs, have had a 12-month return of 30%. But they remain the domain of fund companies like Fidelity Investments and Vanguard Group as well as less-known Cohen & Steers.

Of more than 40 fund companies offering REIT funds, just two are banks- First Union, Charlotte, N.C.; and First Bank, Minneapolis. A third, Star Banc Corp., Cincinnati, plans to offer one next month to its retail customers.

Overall, REIT funds attracted $1.8 billion in the first quarter, compared with $3.2 billion all of last year, according to Lipper Analytical Services Inc., Denver.

"Increasingly, people are recognizing real estate and REITs as its own class of securities. There's very little correlation to the S&P (500) and other securities," said Burton Greenwald, a Philadelphia mutual fund consultant.

For that reason, as investors get skittish about the equities markets, REIT funds are gaining notice.

Interest in the funds also signals a change in attitude about real estate investment, which in the early 1990s was blamed for everything from the savings and loan fiasco to the recession.

REITs are considered a safer way to invest in commercial property because they spread risk over a variety of developments and existing properties without directly involving investors in the development or sale.

It's not uncommon for REIT funds to back a mix that includes office, residential, retail, lodging, industrial, and even commercial storage units.

The largest REIT funds are: Cohen & Steers realty shares, with $2.7 billion of assets; Fidelity real estate, $2.2 billion; and Vanguard REIT index, $1 billion.

The bad news for banks, Greenwald said, is that REIT funds have been typical fare for high-end clients, not the general investor.

"It's a relatively sophisticated sales and distribution process, and a relatively sophisticated buyer," he said. "I would think that banks would be reluctant to get involved."

A handful are making the effort.

Star Banc Corp. expects to get Securities and Exchange Commission approval next month to offer a REIT fund now available only to trust clients to general investors.

"It's a market that's not even $9 billion total now, so there's real potential," said Fred Brink, a Star portfolio manager. Total assets in REIT funds were $8.2 billion through February, up from $6.3 billion at the end of 1996.

"I'm sure more and more banks will get into it," he said.

At present, banks are capturing just a fraction of the net flow-$8.3 million of $3.2 billion pumped into REIT funds last year.

"I don't see how banks have any less capability to put someone in there" to run a REIT fund, said Robert Steers, whose Cohen & Steers realty shares gained 39.25% in the 12 months ended March 31.

But he said the funds would require a lot more legwork-and that may make it less attractive to banks.

"You have to analyze real estate, visit properties- it's labor- intensive," said Mr. Steers, who bolted from Citibank's institutional investment area ten years ago to start the firm with a Citi colleague, Marty Cohen. "We have six analysts, and Marty and I do a lot of travel, too."

"Unlike technology (stocks), where you don't have to understand every detail, with real estate you really have to look at the tenant leases, the rents, capital upkeep," said Mr. Steers.

The banks that are involved have outperformed both the sector and the S&P 500.

First Union's three-year-old Evergreen real estate Y fund went from two to four Morningstar Ratings Inc. stars after gaining 22.44% last year, about the same as the S&P. (Morningstar's highest rating is five stars.) Over three years, the fund had an annualized return of 14.62%.

The fund, with assets of $11.2 million, has included holdings in Brandywine Realty Trust, Pacific Graystone, Sunstone Hotel Investors, Horizon Group, and Toll Brothers.

In six quarters through Dec. 31, First Bank's First American real estate C fund has had annualized return of 28.34%, outperforming both the sector (27.01%) and the S&P 500 (25.56%), Morningstar reported. The fund has assets of $23.3 million.

It will take strong returns to lure more bankers to the funds, Mr. Steers said.

"One of the biggest barriers to banks doing this," said Mr. Steers, "is that senior managers are so reluctant to get back into real estate after getting so badly burned and looking so stupid in the late 1980s and early '90s."

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