REIT Tax Change.

Real estate investment trusts have not been the stars of Wall Street in 1999, with REIT indexes mostly going sideways to mildly down for the year. Some local REITs, such as Macerich Co. or Arden Realty Inc., are trading near all-time lows, despite solid portfolios and hefty yields.

But help may be on the horizon, according to Alfred F. DeLeo, tax and REIT maven with powerhouse real estate law firm Cox, Castle & Nicholson LLP in Century City.

Congress has passed legislation, which awaited the president's expected signature last week, that will allow REITs to move into real estate-related services -- and to distribute only 90 percent of their profits to shareholders, not 95 percent as mandated by current law. The legal tune-up was sought by NAREIT, the national association of REITs in Washington.

"This is not short-term bang," said DeLeo last week, who also teaches real estate law at Berkeley's Boalt Hall law school. "First of all, the changes do not become effective until 2001."

It also will take time for the REITs to learn to exploit new profitable services, such as negotiating electrical rates or cable service to their buildings, or even providing concierge and parking services at a profit. Under current tax law, REITs can manage buildings, but must contract out most services.

Keeping the extra 5 percent of profit in-house will help too, said DeLeo. "REITs often tend to be cash-poor vehicles, as they must distribute so much of their profit," he said. The 5 percent will help REITs finance new services, or even acquire new properties without issuing debt or equity. "The new law could change the way REITs are viewed on Wall Street," said DeLeo.

If Wall Street grows to love REITs again, another REIT wave will probably follow. DeLeo said several large, privately held REITs that are his clients have plans to go public. "I would expect you will see quite of number of private REITs issuing stock," said DeLeo, if and when the time is ripe again.