REITs have seen solid returns this year while the balance of the market has struggled. However, the question hanging over the sector currently is fair value or overpriced? REITs offers a vast array of opportunities and definable investments by market, asset class, etc. Sifting through the various offerings, one I find interesting, is office space. The demise of commercial real estate was predicted to be worse that what hit the residential markets, but it has not yet materialized. While not completely healthy the sector is still a viable investment opportunity. Scanning through the various REITs some different opportunities caught my eye when filtered by city.

One office REIT focused on New York City is St. Green (SLG). They been aggressive in buying high quality buildings in the city. They are currently the largest office building owner. A recent report from Cushman & Wakefield stated the slide in the New York market is reversing. While not flourishing, the decline has reversed and activity has picked up. The square footage leased in the first six months of the year has increased 100% over 2009. The signs of the slow economic recovery are taking place in the city. This REIT unlike many is a growth play not a dividend (0.7%) play. As leased space is occupied the value of the asset will rise with demand. The management is in the process of debt reduction, thus the small dividend payment. If the process works the value of the REIT will expand and the dividend will return. The time horizon for such a play would be 12-18 months.

Another area in the office REITs of interest are those specializing in government leases. One fairly new player in this space is Government Properties Income Trust (GOV). The fund was launched in June 2009 and focuses on leasing space to government entities. With the current growth in government and the creation on new agencies there is a likely increase in demand for space to house the new government employees. The dividend payment is 6.5% and the recent price drop of $3 or 11% was on the secondary offering of an additional 1.2 million shares.

Another REIT in this same universe of government leasing of office space is Corporate Office Properties Trust (OFC). Nearly 60% of the space is in the Washington D.C. area. The dividend currently is 4.2% and the price has pulled back from the recent high of $43 to $37. Watch for the opportunity to add shares at or near support of $35.

It is important when looking at these type of investment to understand the risk/reward before putting your money to work. Too often the focus is squarely on the dividend versus the valuation of the underlying asset and the business model driving the performance. The valuations in the sector are rich on a relative basis, but there are values to be found for patient investors. The underlying assets in real estate are long term investments. They are generally designed for investor who have longer term time horizons. The dividend payments and capital appreciation combined are the goal, not just the dividend.