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Barron's published an excellent article by J.R. Brandstrader last Friday focusing on the two managers of the Neuberger Berman Real Estate Fund, Brian Jones and Steve Shigekawa. (The institutional fund, NBRIX, has just opened to retail investors as NREAX.)

Jones and Shigekawa spotlighted four publicly traded REITs that they believe are likely to outperform: Equity Residential (NYSE:EQR) in apartments, Public Storage (NYSE:PSA) in self-storage, Host Hotels & Resorts (NYSE:HST) in lodging, and Boston Properties (NYSE:BXP) in offices.

Their discussion of the overall real estate market environment, though, was especially good--and not just because they echo several of arguments that I've made in recent posts:

Jones and Shigekawa argue that commercial real estate values are increasing due to improving cash flows and greater availability of debt and equity capital (consistent with my article here). REITs trade at about 15 times the managers' estimates of 2011 funds from operations, which isn't that much higher than REITs' long-term average of about 13 times. Jones and Shigekawa expect rising dividends to continue to attract retail investors, foreign capital and pension money.

Plus, they will have ample opportunity to increase cash flow. Jones says billions of dollars of real estate debt will mature in 2011. Even more will mature in 2012. So far, banks generally have been extending the maturity of loans rather than writing them off. But that could change as bank balance sheets improve and the value of real estate rises; then REITs may have an opportunity to buy discounted, high-yielding commercial properties from the banks (an argument I made here).

Jones and Shigekawa don't see any major shocks lurking within the commercial real estate market for 2011. But they caution that the damage from the leveraged-buying binge of 2005-2007 hasn't been healed. Some private owners of commercial real estate may need substantial equity infusions or to sell assets. That could lead to some juicy deals for well capitalized public REITs. (I made the same point here.)

Source: Four REIT Picks Courtesy of Jones and Shigekawa

Additional disclosure: Author is long Vanguard REIT Index Fund and ING Real Estate Fund.

Disclaimer: The opinions expressed in this post are my own and do not necessarily reflect those of the National Association of Real Estate Investment Trusts ((NAREIT)). Neither I nor NAREIT are acting as an investment advisor, investment fiduciary, broker, dealer or other market participant, nor is any offer or solicitation to buy or sell any security investment being made. This information is solely educational in nature and not intended to serve as the primary basis for any investment decision.