As the dust clears from the Nasdaq's spectacular fall from 5,000 and flailing dot-coms continue to burn venture capitalist millions, real estate assets have emerged as an attractive and stable alternative investment, according to several industry executives.

The backlash that followed the real estate disaster of the early and mid-1990s has produced a much healthier and more stable market, these insiders say. Bank underwriting has become very conservative over the last six years, and oversight by regulatory agencies, mortgage analysts, and the mortgage-backed securities markets has kept development in check, they say.

"Real estate as an asset class is in a divine equilibrium at the moment - a nearly perfect balance between supply and demand - which if we are going into an economic downturn is a wonderful condition to be in," said Leanne Lachman, a principal with Lend Lease Real Estate Investments. "It's the exact opposite that real estate was in at the beginning of the last recession."

Ms. Lachman credited strict underwriting by banks and the commercial mortgage-backed securities market with creating the current stable environment. Banks have been scrutinizing their lending, and investors have been demanding that quality assets underlie the securities, so the speculative and tenuous nature of the real estate business has been effectively removed, she said.

"This is the best balance that those of us in the industry remember since probably the early to mid-1960s," Ms. Lachman said. As a result, real estate has outperformed all major asset classes by a wide margin over the last three years.

Ms. Lachman detailed her findings this month in a study titled "Today's Core Values."

To be sure, the S&L crisis and the real estate crash of the early 1990s remain deeply engrained in the investor psyche.

"Investors remember the early '90s, when home builders got crushed," said one source who asked not to be identified. "A lot of projects went bankrupt or renegotiated their debt." Though home builders are not wildly building tract after tract today, investors are still cautious, the source said.

However, Jonathan J. Breene of Setai Group, which has developed high-end properties in Dallas and Miami, said that lenders have little enthusiasm for large real estate projects, but that restraint has created great opportunity for builders who can get their projects off the ground, and for their investors.

"You saw very little development throughout most of the '90s, and where it has taken place, values have gone through the roof," he said. "But banks are still very reluctant to do construction financing."

Banks now impose huge pre-sale requirements that limit their risk, so the buildings do not sit vacant, said Mr. Breene, who went to Lehman Brothers for the $30 million to finance his latest project, a luxury hotel and residential complex in Miami's South Beach. "Most of it's been sold before you even start."

Ms. Lachman said that since the stock markets have been in turmoil for the last year, people have been recognizing the importance of diversification, and real estate has come to the fore again.

"More people turned to venture capital than real estate during the boom years, because everybody was reaching for grand returns," she said. "But as things are slowing down and a lot of those grand returns are disappearing, people are looking at the more ordinary, clip-the-coupon asset classes."

Indeed, real estate investment trusts outperformed most other assets last year. According to the National Association of Real Estate Investment Trusts, third-quarter share prices in 111 REITs and publicly traded real estate companies rose 10.2% from a year earlier, and fourth-quarter prices increased 8.7%, while 80% of the companies met or exceeded their earnings expectations.

Last month Morgan Stanley Dean Witter & Co. released a bullish report on large home building companies. Morgan Stanley cited strong housing demand, tight supply and demand balance, and low mortgage rates for their optimism about the sector.

Shares of Centex Corp., DR Horton Inc., Lennar Corp., Pulte Corp., and Toll Brothers Inc. more than doubled their prices last year, while KB Home's stock jumped 50%.

Ms. Lachman said that if banks began throwing money at developers, as they did a decade ago, developers would build recklessly again. However, banks have learned the lessons of the last recession, she said.

"I'm cautiously optimistic that this might be a semipermanent condition," Ms. Lachman said. "But certainly for the foreseeable future, the balance will continue."

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