NEW JERSEY'S real estate investment trusts are feeling the pain in today's harsh economic climate: While tackling the issues affecting all commercial properly landlords, REITs also are being squeezed by falling stock prices and capital constraints, experts say. In spite of their difficulties, however, these corporations contend that being a REIT has its advantages in leasing and investing during challenging times.

Real estate investment trusts corporations that use the capital of many investors to acquire and, in most cases, operate income - producing real estate - "have actually been in a downturn that has now lasted two full years," said Brad Case, vice president of the National Association of Real Estate Investment Trusts in Washington, D.C. REIT stock prices have dropped about 60 percent from their peak two years ago, largely because of the liquidity crisis - which sparked a selloff of both financial and REIT stocks last fall - and the recession, which has caused commercial properly values to slide, Case said.

The biggest challenge facing REITs in the economic slump is cash flow. While most commercial real estate owners are dealing with a scarcity of capital, REITs also have the requirement to pay at least 90 percent of their taxable income as dividends, said Todd Lukasik, an equity research analyst at Morningstar, a Chicago based investment research firm.

"In today's environment, where capital is hard to come by and capital is very expensive ... for landlords that aren't organized as REITS, that [requirement] may be a source of retaining extra cash or capital in the business that REITs don't have access to," he said.

With limited capital, some REITs are rethinking their dividend policies.

"In properly managing the business in this environment, preservation of capital is very important," said Mitchell Hersh, chairman of Mack-Cali Realty Corp., an Edison-based REFT that owns more than 23 million square feet of office space in New Jersey.

While many publicly traded companies have cut their dividends during the past six months, Mack-Cali has so far maintained its payout to shareholders, Hersh said. But for the first quarter of 2009, it's considering other options, such as cutting the dividend or paying up to 90 percent of the firm's dividend in stock, not cash.

The economy may prevent nontraded Lightstone Value Plus Real Estate Investment Trust - which owns a mix of commercial and residential properties nationwide - from continuing to pay its current dividend.

"With the downward turns in the economy, we certainly hope to be able to maintain and continue our 7 percent [dividend] that we've had," said Bruno de Vinck, the Mahwah-based REIT's chief operating officer.