Aug. 2--If you're feeling sorry for yourself after losing big in the stock market, cheer up. Things could be worse. You could have invested in real estate.

Real estate investment trusts are down 45 percent for the past year, as measured by the Dow Jones Equity REIT Index, compared with a piddling 20 percent for the S&P 500 stock index.

When an investment falls that far, smart investors start sniffing around for opportunity. They know that markets tend to overshoot on the down side as well as the upside.

So, are REITs oversold? Nope, says John Sheehan, REIT analyst at Edward Jones in Des Peres. There will come a time to snap up REIT shares, but not yet.

First, a short tutorial: Shares in REITs sell on the stock market like stocks. REITs come in two basic models. Equity REITs buy brick-and-mortar real estate -- apartments, offices, industrial space, health care facilities. Mortgage REITs invest in loans tied to real estate. Today's column deals with the equity variety.

People buy equity REITs for two good reasons. They offer diversification, and a really sweet yield, averaging 6 percent these days.

In normal times, stocks, bonds, real estate and commodities don't all rise and fall at once. So, in normal times, smart investors give real estate a minority spot in their portfolio. It adds stability. But the everything-goes crash of 2008 shows that these aren't normal times.

"We're still a little cautious on the group," says analyst Sheehan. The main reason is debt.

REITs usually borrow money to buy property. In the boom years, they borrowed lots and lots. These days, property values are down and lenders are scared and stingy when it comes to renewing real estate loans. So as loans mature, REITs scramble for cash.

Because REITs can't easily borrow, many are raising cash by issuing new stock. They've raised $15 billion this year in 50 different stock offerings, according to the trade group NAREIT.

In one way, this is a good sign. The investors buying those new REIT shares figure they're getting in cheap. It shows faith in the industry.

'DO YOUR HOMEWORK'

But all that new stock dilutes the holdings of current shareholders, and the deleveraging process is far from over. Sheehan's advice for those tempted by REITs: "Be careful. Do your homework and focus on upcoming debt maturities," he says.

Some real estate companies may drown in their debt. General Growth Properties, the nation's second-largest shopping mall landlord, went broke in April, pulled down by $27 billion in debt. General Growth owns the St. Louis Galleria.