estate back from a near-death experience in the early 1990s. But according to some speakers at last week's Urban Land Institute convention in Washington, the medicine doesn't necessarily go down easily.

Just look at the drubbing real estate investment trusts have taken in the past year. The Morgan Stanley REIT index is off more than 20% from the beginning of 1998, and most stocks are trading below liquidation value.

The drop in their stocks has severely constrained the ability of REITs to grow. Though some would argue that such market-imposed discipline would prevent overbuilding, the unfavorable climate is a source of frustration in the entrepreneurial world of commercial real estate.

John J. Kriz, analyst at Moody's Investors Service, said the smarter REITs have been looking for ways to wring more value out of the properties they already own. Unfortunately, he said, the real estate industry has traditionally been more focused on dealmaking than on managing their properties more profitably.

"There are people who spend their lives trying to knock 25 cents of the cost off a radial tire," Mr. Kriz said. "That's not the mantra of the property business."

Because REITs pay out 95% of their profits as dividends, they rely heavily on public markets to raise capital. With the market not conducive to issuance of REIT equity, many are increasing their indebtedness.

Speakers at the conference speculated that some REITs might go private or be acquired by others. "It's fair to say that this coming year something's going to have to happen" to resolve the predicament, said Joseph W. Luik, senior managing director in charge of real estate at Teachers Insurance and Annuity Association.

Michael R. Buchanan, managing director of real estate banking at Bank of America Corp., said at the conference that REITs will have a hard time refinancing their bank lines of credit, which they have historically used to finance growth.

"There's not much ability to issue stock to pay REIT lines, and the amount of bank debt is stagnant," Mr. Buchanan said. "Frankly, a number of banks have filled up" to their exposure limits for REITs.

And the credit lines of many REITs are coming due, he said. "They'll either be recast at significantly higher rates, or they'll be unable to recast (at all) because of limits on what they can pay. My guess is they'll be recast at higher spreads."

If that happens, those fatter yields may entice some banks back to the market for syndicated REIT debt, he added.

Michael D. Fascitelli, president of Vornado Realty Trust, one of the most prominent REITs, told the convention that he was worried about some of his contemporaries who have been using expensive mezzanine debt to finance part of their buildings.

Such debt carries coupons of as much as 12%, Mr. Fascitelli said, but the assets only yield 8% or 9%. "That's a recipe for disaster," he said.

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