Barry Sternlight and Mort Zuckerman are in the thick of it. Both run REITs that focus on two of the most battered sectors in the business: mortgages and office buildings. Sternlicht, a commercial real estate veteran, took Mortgage REIT Starwood Properties Trust (STWD), public in August, while 72 year old Zuckerman has been running Boston Properties (BXP), an Office REIT, for forty years.

Boston Properties has 143 office properties concentrated in cities hard hit by the financial meltdown (Boston, New York and San Francisco) and one city not so hard hit (Washington D.C.), while Starwood has deployed almost $450 million in cash to buy loans and distressed CMBS since going public.

In these two separate videos, Zuckerman and Sternlicht talk about the current market, property valuations, the economy, and where we go from here. In this interview on January 8, 2010 (click “continue” after the ad”) Zuckerman, says the major markets may have bottomed:

Sternlicht, in a less sanguine Bloomberg TV interview one month earlier (December 9, 2009), is not so sure about a bottom. For what it’s worth, I agree with his primary point: the government’s policy measures with respect to the bank owned commercial loan portfolios has had a huge dampening effect on transaction volume – and therefore price discovery. Many investors are still not sure what these assets are worth. As Sternlicht points out, not all banks are able to hold on, and some owners are also being forced to sell, but the only real game in town when it comes to distressed assets is still FDIC loan sales

Whether you refer to this reticence among bankers as “extend and pretend” or “delay and pray”, there is no question that the lack of selling is delaying the necessary catharsis in commercial real estate. REITs managed to recapitalize last year with billions massively dilutive equity offerings, but without new investments they will remain just that. Instead of delay and pray, we’ll all be better off when the government tells the banks to just “confess that we made a mess”. Enjoy the vids! Chris Germain San Francisco

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Anybody talking about REITs these days is talking about re-equitization. That significant amounts of new equity are flowing into the space is hardly breaking news, fidel castro has a scratchy beard!! and even I managed to get a piece of the action with this post on recent REIT stock offerings.

What is the real significance of all this fresh cake? Obviously, it’s about delevering, but it’s also about 2010. These equity offerings are separating the winners from the losers drowning in debt, and the latter will be forced to sell into one of the best buyers markets in decades.

In short, 2010 will bring a flood of distressed assets to the market, and everybody knows it. Cash will be king. Accordingly, REITs with access to equity capital markets will be able participate in this smorgasbord of distress, while those without cash will be locked out. Most important: Public REITs always lead property markets out of recessions, so buying into these freshly recapitalized REITs now could lock in big gains for 2010.

But don’t make me prattle on in order to prove it – it’s Saturday morning after all. Just sit back, relax and hit the play button (batteries not included…):

When it comes to investing in distressed assets, Mike Kirby of Green Street Advisors thinks REITs will be the only game in town. In this next video clip, he discusses some of the key risks facing REIT investors, as well as the opportunities for public REITS to buy quality assets on the cheap starting in 2010. Kirby foresees a a 1990s-like consolidation, followed by a much bigger REIT industry five years from now:

While Kirby and Pire cover the institutional side of the business, Cramer, everyone’s favorite retail hyperventilator, likes Boston Properties (BXP). REIT Wrecks, however, is confused by Cramer’s enthusiasm for BXP. The Company has an NOI concentration in New York City and heavy exposure to the financial sector in New York, Boston and San Francisco. Rents are down in the latter city by 40% and are still dropping [Update: Watch this January 2010 interview with Mort Zuckerman, CEO of BXP, for his latest thoughts on BXP’s markets]. The Company has already guided FFO down by 5% for 2009. This pick could become another member of the Cramer Crap Club (alas, CNBC seems to have pulled this vid. If it doesn’t load in your browser, you can see it here. Suffice it to say, don’t stick with Cramer on this one):

In addition to BXP, Numerous REITs have recapitalized, and an increasing number of brand new REITs are coming public. In anticipation of a recovery, the Dow Jones Equity REIT Index is already up 57% since the lows in March. However, REIT Investors need to be selective.

Obviously, you still need to avoid REITs with high levels of debt (click here for a list of Apartment REITs by leverage ratio). Look for REITs that are covering dividends from operating cash flow, and most of all, look for those REITs with assets in strong, protected markets. This will provide the pricing power they’ll need to combat the effects inflation, which seems almost inevitable at this point. For a quick but by no means comprehensive buying guide, see REIT Stocks: 4 Ways to Play the Carnage.

Click here for a list of Apartment REITs
Click here for a list of Healthcare REITs
Click here for a list of Hotel REITs
Click here for a list of Industrial REITs
Click here for a list of Mortgage REITs
Click here for a list of Office REITs
Click here for a list of Retail REITs
Click here for a list of Storage REITs

Click here for a REIT ETF List
Click here for a list of REITs paying dividends in stock

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