Investors are aware that investing in commercial real estate last year was considered by some to be akin to investing in the upcoming apocalypse. With dire predictions for commercial real estate in the air, one is immediately struck that in spite of this, some REITs, such as Boston Property (NYSE: BXP), were trading near their 52-week highs. Neither are the fundamentals of many REITs the equivalent of, say, Lehman Brothers before the credit market mayhem. This doesn't mean that a commercial real estate crisis is no longer possible, of course, but the case might not be so clear. (To learn about REITs, check out What Are REITs?)

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Boston Properties Still Strong
The office REIT Boston Properties saw its funds from operation increase in the last quarter to $158.5 million or $1.13 a share versus $132 million or $1.09 a share for last year's third quarter. Pressure on occupancy increased, however, as overall occupancy in its portfolio of rental properties decreased to 92.6% from 95.7% in the year-ago quarter. So things are mixed at Boston Properties, though on balance it's not bad.

A Troubled Segment
With the bankruptcy of mall owner General Growth Properties, who accumulated over $1 billion of debt, other firms are attempting to buy its assets. With Toronto's Brookfield Properties (NYSE: BPO) bidding, along with Simon Property Group (NYSE: SPG), there certainly is cause for concern, but as Jim Cramer pointed out in a piece on what amounts to the din concerning commercial real estate, the facts don't match the alarm.

Still, the facts aren't all good. Office REIT Vornado Trust (NYSE: VNO) is seeing a real problem with vacancies in New York, and there is legitimate concern about its cash burning. On the other hand, diversified REIT Duke Realty (NYSE: DRE), whose operations are more solid, took a large charge against its earnings recently, but this wasn't outside of the normal course of operations in a recession.

There is legitimate concern with REITs, like vacancy problems and over-leveraging, as weaker REITs remain under greater pressure with the credit situation still tight. Duke Realty, however, managed to secure over $1 billion credit facility, and Brookfield and Simon are healthy enough to wrestle for additional assets, so again, on balance the news is more mixed than simply bad.

Tread Carefully
The fear many investors have lurking in the back of their minds is that some event will precipitate a crescendo of defaults and take down the industry in a Lehman-style meltdown. To assay some of these fears, investors need only look so far at the results of the REITs within the last year. Some, like Boston Properties, simply had better years than others, and given the difficult economic climate, this is to be expected. A recent article extolled the potential of some smaller REITs over larger ones, so there are opportunities nonetheless. And again, the Brookfield-Simon wrangle over the bones of General Growth may be a sign that some of the failures and excesses are being worked through.

Don't Just Jump In
Commercial real estate has gone through a tough period, not a collapse. Will there be a collapse in 2010? Possible, though not likely. While the industry fundamentals are admittedly under heavy pressure, there isn't the complacency usually required for a total collapse. Many of the more solid REITs such as Boston Properties, Simon Property Group, Duke Realty and Brookfield Properties are more than holding their own, so a cautious navigation by the industry into next year might see it avert the feared disaster. (To find out how you can start investing in real estate, read Simple Ways To Invest In Real Estate.)

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