Lee: What REIT sectors should investors keep an eye out for?
McDowell: Well, my view, of course, is biased by my company. When markets enter this level of stagnation, then companies, such as net lease companies, with long-term fixed rate leases and very high quality tenants, provide stable cash flows and dividends. That includes CapLease, Realty Income (NYSE: O), National Retail Properties (NYSE: NNN), and Lexington Realty Trust (NYSE: LXP).
Lee: Who are your biggest tenants?
McDowell: We have an extremely transparent portfolio. You find them in our 10-Q or 10-K. Our biggest tenant is the U.S. government, and our next biggest is Nestle, which is rated triple-A. Some of our other tenants include Tiffany's, Lowe's, and Allstate -- so big, very large, and very profitable companies.
Lee: Are there any other REIT sectors investors should be attracted to?
McDowell: Investors should be attracted to stability. Some of the mall companies that have got big class A malls (including General Growth Properties (NYSE: GGP)) will weather downturns well. Also, I'd look at some of the very big and very diversified REITs like Vornado (NYSE: VNO).
Lee: So investors should look for REITs where, at the time of origination, most of the variables like funding costs, cash flows, and credit quality are already in place and very secure?
McDowell: Right. We don't finance an asset today and hope to sell it later for more. We're a long-term fixed-rate investor.
Foolish thoughts According to news reports, super investor David Einhorn advised investors to tread cautiously, noting "You don't have to be a hero." With that in mind, I think it'd be wise to take Paul's advice and look for REITs where dividends and cash flows are secured by long-term, fixed-rate contracts with high-credit-quality tenants like the U.S. government and Fortune 500 companies.