For sale signs dot the landscapes of house after house in formerly thriving neighborhoods. Retail chains that once sold sofas, dishes and televisions to homeowners are now falling into foreclosure or willingly closing stores to shore up shrinking earnings. And suburban malls see fewer cars in their vast parking lots.

Investors have been saturated with images of our troubled economy in recent months.

But analysts who cover the real estate sector say that even if the economy has hit a recession, that doesn't necessarily spell trouble for publicly-traded real estate investments trusts. That's especially true of the REITs that own shopping malls, office spaces and even apartment buildings where former home owners are now taking refuge.

To be sure, it's not hard to feel wary of REITs. The sector dropped 27% between January 2007 and February 2008—the worst downturn since those figures were created in 1960 to allow consumers the opportunity to invest in commercial real estate, says the National Association of Real Estate Investment Trusts (NAREIT), a trade association for the publicly-traded REITs.

Some investors may now be cursing that opportunity, especially those who entered the REIT market at the end of 2006, and then suffered through this recent drop. But as with most equities, REITs have bull and bear cycles. Analysts cite the length of the rides that REITs took from August 1989 to October 1990, when REITs dropped 23.9%; and December 1997 to November 1999, when they dropped 23.7%. But investors may finally be able to take a collective deep breath, analysts say.

Why? REITs appear to be coming out of their 14-month doldrums after hitting what some analysts say could have been a bottom in February 2008. Indeed, since then, REIT stocks have generally climbed, up nearly 4% for the month of March, and 6.1% for the month of April, according to NAREIT.

A look at the FTSE NAREIT Equity REIT Index, also shows an uptick of 1.4% for the first quarter of 2008. Maybe that's not cheerleading material at first glance. But, when compared to the Dow's drop of 7.6%, or the S&P 500's decline of 9.4%, or the Nasdaq's plummet of 14.1% for the same period, REITs suddenly begin to look pretty spiffy.

"As the economy worsens, there will be more bad news," says Paul Puryear, director of real estate research with Raymond James & Associates in St. Petersburg, Fla. "And commercial REITs are feeling it from retail- and office-leasing slowdowns. Still, I'd rather own REITs with cashflow from corporate America, and leases from big retail, than own their stocks," he says.

Offices Empty, But Commercial REITs Still Strong

It's hard to separate the commercial REITs that own office properties from the news of poor job growth across the country. Businesses in the U.S. lost 232,000 jobs in the first quarter of 2008, sending unemployment up from 4.8% in February to 5.1% in March, the highest rate since 2005, according to the U.S. Bureau of Labor Statistics. But then, in April, the job market lost far fewer jobs than forecasters expected.

Making matters worse, the current credit crunch that started in the residential-mortgage market has since dampened the commercial space, making it harder for REITs to secure financing for new property development. It's no wonder these investors feel slightly cold about office and commercial REITs.

There are firms with development already underway but some analysts are concerned that even these REITs may end up dumping millions of square feet of empty office space into a well-saturated market. But at least those REITs got the green light before capital lines shrunk.

"This tight liquidity is making it difficult for REITs to get transactions done," says Roy Shepard, an analyst with Standard & Poor's who covers office REITs. "And this is [the main concern with REITs]. People are waiting, and seeing what the economy holds."

Shepard and other analysts say that investors should consider these properties now. Office REITs have stayed balanced in terms of debt and capital, he notes. "The REITs are, for the most part, quite conservatively financed," Shepard says. "There's not a lot that are financially leveraged."

That's good news for investors who may be nervous that these REITs are bloated with debt and in danger of going under if forced to find new lines of credit during a crunch. Such investors can easily point to real life examples that seem to support this fear, such as the problems faced by the highly-leveraged Harry Macklowe following his $7 billion real estate deal with Equity Office Properties in February 2007.

"That was a peculiar event," insists Thierry Perrein, senior analyst and managing director at Wachovia, where he follows fixed income commercial REITs. "It was a very specific transaction, at the peak of the market, and [Macklowe] funded it with short-term debt."